The Impact of SaaS on the App Store Model

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