The Impact of SaaS on the App Store Model

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Explore how Software as a Service (SaaS) has revolutionized the App Store model. What's next for app distribution?

Vendr | 30% didn’t kill the App Store model. SaaS did.
Written by
Austin Petersmith
Published on
April 19, 2023
Read Time

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In the ever-changing landscape of software development, the App Store model has faced significant challenges. It's not the 30% cut that's causing concern; it's the rise of Software as a Service (SaaS) that's reshaping the industry.

Modern developers, focused on building cross-platform subscription-based web apps, find that the offerings of the App Store no longer align with their needs. As a result, the 30% fee imposed by app stores feels more like an additional tax.

Exploring Different Business Models

Consider a scenario:

Imagine waking up with a brilliant idea for a new product, building it, setting up a table in front of your house, and selling it for $10 in cash. You've just made $10 - a straightforward transaction.

So you decide to expand your business by creating a Shopify store to sell your product online. Shopify charges 2% of your sale price, along with another 2.9% + 30� payment processing fee. This leaves you with $9.21 per sale (after considering the $29/month store fee), with Shopify and Stripe taking around 8% of the total. Still, not a bad deal.

As you grow, you list your product on eBay, where they charge 10%, plus PayPal fees. Other similar marketplaces have similar fee structures, with Etsy charging 5% and more for listing your product. You end up making $8.41, while eBay and PayPal take around 16% in total.

Amazon, with its massive customer base and free shipping, is another avenue. However, it's not without its costs. Amazon charges a 15% referral fee, a $2 fulfillment charge, and a $0.99 fee per item sold. This results in you making only $5.69, with Amazon taking a significant 43% cut.

If your product were in a physical store, you'd encounter various expenses, such as slotting fees, stocking fees, and promotional costs. In some cases, it could cost millions to place a single product in all major supermarket chains.

But what about selling digital products like books? You decide to write a book and sell it on the Kindle and Apple Books stores.

Apple Books charges a 30% fee, meaning you'd get $7 from selling a $10 book. Amazon's Kindle store also charges 30% but with specific conditions. To qualify for this rate in some markets, your book must cost between $2.99 and $9.99, be 20% cheaper than any print copies, and be exclusive to the Kindle. You'd make approximately $6.69 from a $9.99 book after considering download fees.

Creating music might not be more profitable. Services like Spotify pay as little as 0.32� per play, and Apple Music offers around 0.56�. To earn the equivalent of selling one $10 product, your song would need to be played thousands of times.

So you contemplate developing an app instead. You create a digital version of your product and list it on the App Store and Google Play, both of which charge a 30% fee. Selling your app for $10 would result in you receiving $7.

Games are no exception, with platforms like Steam, Sony, Microsoft, and Nintendo all imposing a 30% fee. Selling your game in a physical store often results in just 10-15% of the revenue remaining after all fees.

But what if you switched to a subscription model, offering new digital products monthly? The first year, Apple and Google would take their 30%, and from the second year onward, it would drop to 15%.

For a $10/year subscription, you'd receive $7 in the first year and $8.50 in subsequent years.

Alternatively, you could utilize the web, where anyone can publish a website and sell software with only a 2.9% + 30� charge through services like Stripe. Selling a $10 product would result in you getting $9.41. Subscriptions might cost an additional 1% through Stripe or approximately $299/month with a subscription tool like Chargebee.

This approach offers better margins compared to selling physical goods on platforms like Shopify and significantly surpasses the App Store's pricing structure

Austin Petersmith
VP of Growth and Community
Austin is the Vice President of Growth & Community at Vendr. He works on new initiatives aimed at bringing our community together and creating efficiency and transparency in SaaS.

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