Why Developers Struggle to Lure Users Away from Apple’s App Store Despite Discounts

Developers Struggle to Lure App Store Users Away Despite 30% Discount A new report from Morgan Stanley highlights that developers will have a difficult time getting users to buy apps directly, even if they offer up to a 30% discount by circumventing Apple's App Store fees. The US version of the App Store generates $11 billion annually for Apple, contributing significantly to its revenue and earnings.

Survey Insights:

• Only 20% of iPhone users are 'extremely likely' to buy apps outside the App Store.
• Many users require a 35% discount to consider purchasing directly from developers.
• Key reasons for preferring the App Store include:
  • Reluctance to share financial details with multiple sites
  • Preference for managing fewer accounts
  • Lack of perceived benefit
  • Faster transactions due to pre-saved payment information
  • Trust in the security and privacy of the App Store
  • Ability to use Apple Gift Cards or earn cash back on the Apple Card

Developer Challenges:

• Developers may not consistently offer a full 30% discount due to additional costs like credit card processing and tax reporting.
• Incentives from developers might help, but overcoming user reluctance is an uphill battle.

Apple's Options:

• Offer easy-to-get App Store credits
• Integrate these credits into the Apple One bundle
• Transition the App Store to a subscription-based model

Financial Impact:

• Morgan Stanley estimates that even if developers manage to attract some users, it won't exceed 20%, translating to a potential loss of about $2 billion for Apple.
• This represents a 1.5% impact on Earnings Per Share (EPS), which is minimal.
• Raising the price of other Apple services by 5% could offset this potential loss entirely.

Overall, Morgan Stanley maintains its $235 price target for Apple, indicating that the risk to App Store revenue is manageable.