Paying less, more often. It’s the new model for selling all sorts of media. Chances are, you’re paying monthly for some service that delivers new, diverse, quality content, whether it be games, movies, news, or niche lessons. Apple recently upped their subscription game by offering new plus-versions of their already popular services. Apple Arcade offers a walled-off gaming section of the App Store. But they haven’t touched the workhorses—that is, all the other apps we use every day to keep us productive.
We, at MacPaw, released our version of a subscription app store more than two years ago. It’s called Setapp, and it has turned the way consumers buy software completely on its head. Subscriptions are replacing older, one-off business models because they more accurately reflect the nature of the quality products they keep afloat. Curation services like Setapp solve the complex consumer-behavioral problem of option overflow. Apple’s only just caught on to this trend, attempting to wrangle its own massive content libraries. But their focus for now is entertainment, whereas Setapp skyrockets productivity.
Think about how technology continuously changes the way we purchase goods and services. Thirty years ago, you’d be happy to drive to the cinema at a certain time to see a new movie. Twenty years ago, you’d rather rent one from the local Blockbuster at your convenience. Ten years ago, you’d probably get something via a few clicks on iTunes without even leaving your house. Today, you’d deem paying extra nothing short of outrageous — you have a Netflix subscription after all.
This technological trend isn’t specific to films (or music). Under scrutiny, any modern consumer sector would reveal such an ongoing transformation. As long as competing companies keep coming up with novel ways to offer us more convenience at a better price and speed, we’re happy to adjust our consumption patterns.
Current Business Models For Apps
When it comes to software businesses that mainly produce apps, the default monetization scheme up until about 10 years ago was to charge a one-time fee for every major release (bug fixes and minor adjustments would normally be free). But in the last decade, more and more app developers started swaying towards working with the subscription model, charging either monthly or annually. Adobe and Microsoft being the most prominent examples. Both ways have their benefits and drawbacks — luckily, the market doesn’t only exist in this duality.
According to Gartner, “By 2020, all new entrants and 80% of historical vendors will offer subscription-based business models.” The adoption of SaaS (software as a service) seems imminent, inevitable, and rational. Most of us embrace using and paying for a service for just as long as it’s needed. At the same time, having recurring revenue allows developers to focus on incrementally improving the product at hand rather than bundling new features in major updates every couple of years.
In this way, the subscription model works best for apps that we interact with on a daily basis. For example, taking notes with Evernote or tracking all the to-dos with Todoist. Unfortunately, apps that are just occasionally indispensable, but not particularly required day to day, are having a much more difficult time transitioning.
Take AnyTrans, an app sold via individual licenses. It enables detailed control over the content of your smartphone and allows for precise synchronization. AnyTrans offers a variety of use cases and significantly widens the default iPhone functionality. But it wasn’t designed for frequent use, which means it would have a hard time trying to persuade its audience to pay every month.
I can already hear some of you saying, “What about freemium? Isn’t that a perfect middle ground?” Honestly, I don’t see how freemium can be discussed in the context of looking for new business models at all. While providing users with a trial period is just good business, letting them use the app for free without time limits considerably increases the costs for the hope of widening the top of the marketing funnel, which could possibly lead to increase in premium users. And even in this case premium means choosing between either a one-off purchase or subscription anyway.
Essentially freemium is nothing more than a marketing move of trying to get extra exposure in the otherwise crowded market. But what other ways are available to independent app makers to effectively gain awareness without giving their creations away for free?
New opportunities for app developers
For years I’ve been pondering the possibility of creating good value for both consumers and developers. To make it easy to discover new apps and for makers to get paid consistently regardless of whether their apps are meant for daily or occasional use. Ideally, such a system would also take advantage of the never-ending technological race towards improved speed, price, and convenience. Today, I believe I have an answer — Setapp.
When we started MacPaw by launching CleanMyMac, our first product, in 2008, we naturally relied on user licenses to generate enough revenue to allow us to continue. It was the prevalent model at the time followed by everyone, from Apple to Adobe. Over the following eight years, we’ve also managed to develop a suite of other successful products based on the same commercial idea: Gemini, CleanMyPC, etc.
In the midst of managing all these high-performing apps, I realized just how ineffective our model was. When developers are dependent on license sales, they are pressured into releasing major updates and new features as bundles that would be worth the price tag once every few years or so. This means that any feature that has already been improved would remain unavailable to customers until the next major upgrade, as releasing it would be equal to cannibalizing sales. The one-off license structure incentivizes developers to wait until they have enough features to pack into a major upgrade to make it “worth it” for customers to buy.
Running our own apps but thinking about new ideas, I was looking for guidance from industry leaders like Apple in terms of presenting breakthrough ways for trialing, buying, and improving the app selection experience. Sadly, since the App Store was launched in 2010, not much has changed.
Meanwhile, we were seeing more and more companies with products and services jumping on the subscription bandwagon. In the product category, Adobe — the de facto leader of creative software — has launched Creative Cloud, which incorporated all their apps into a single subscription. On the services side, new market entrants like Blue Apron were redefining customer behavioral relationships with buying groceries and preparing food.
Soon enough, nearly every new startup was operating on a SaaS model. Just then, by buying and using lots of subscription services ourselves we noticed the fundamental problem with this approach — subscription fatigue. As no one likes getting their credit card charged dozens of times a month for essentially look-alike services, the SaaS capacity has quickly reached full saturation.
The answer was, as it always is, right in front of our eyes. Instead of offering lots of single subscriptions, why not try to incorporate the near-infinite choice into one platform, just like Netflix or Spotify do?
Then, in 2016, we started working on a brand new app subscription platform that, instead of letting you subscribe to each app separately, would act as a collection itself — with one subscription you get access to every app. We offered our own apps first in addition to 40 others by some of the highest-regarded independent app makers. Finally, in early 2017, we launched Setapp with 61 apps on board, spanning productivity, finance, writing, photography, and more — all for a price of $9.99 a month.
Over the following two years, our collection has grown to over 140 apps, still available at the same price. By choosing a platform model, we are able to encourage app developers to focus on making the best apps possible to get paid more depending on just how useful their apps are to users.
Setapp pays all app developers based on the popularity of their apps amongst subscribers, proportionally splitting 70 percent of all the revenue, albeit with minor adjustments to ensure that everyone is fairly remunerated. The other 30 percent (an industry standard share set by the App Store) pays for Setapp’s operational costs and ongoing development.
Best of all, Setapp is not an exclusive platform. Any of the participating developers can continue to sell their apps through their own channels, whichever business model they pursue. That includes MacPaw too, as all our apps on Setapp — CleanMyMax X, Gemini, and Wallpaper Wizard — are still available for purchase as standalone products. Setapp essentially created a new revenue channel, and this hybrid model has been working very well for us so far. 32,000 active members well.
Multifaceted is the new business model
Whether you pursue the subscription trend or stay with offering your users version-based licenses, you’d greatly benefit from leveraging the platform sales channel, which will ultimately bring a combination of exposure and revenue. In its two years, Setapp has helped tens of thousands of people enjoy their all-time favorites as well as discover new apps and simultaneously has paid hundreds of thousands of dollars to independent app makers, helping them achieve their goals and reach the widest possible audience. And the audience has been undeniably productive, creating constantly rather than solely consuming content fed to them by a service like Apple Arcade. A good balance is about give and take.
When the cards fall, ethical motivations of a product become super obvious. And supporting a culture of creation and iteration is far more rewarding than slamming folks with more entertainment in a world that’s already jam-packed with ways to waste away the day. When we can clearly see the starry-eyed ambitions of our customers and know they’re faster approaching them with Setapp, it feels like a win-win to me.