Are App Store Revenue Splits Really Unfair? Maybe Not

Developers always complain about the revenue share they must make with distribution partners such as Apple and Google. But another way to look at the cost is to consider what it might cost developers, especially the small developers that dominate app supply, to create their own marketing and sales channels.

Keep in mind that is the real issue here: what does it cost a small developer to create its own sustainable marketing and sales programs--which also cost money--if developers chose not to use either Apple or Google for marketing and sales fulfillment. 

Perhaps you believe 30 percent of sales or 15 percent of sales is oppressive. But that must be evaluated against the cost of creating other channels. 

Market intelligence firm Sensor Tower estimates that global end-user spending from the Apple App Store and Google Play totalled US$111 billion in 2020, with the App Store accounting for 65 percent of the total and Google Play 35 percent, says Greg Sigel, Docomo Digital VP. 

In other words, Apple and Google accounted for virtually all sales of mobile apps globally. Apple and Google are the growth engines for the entire mobile app industry, and its primary sales channel.

So whether 30 percent or 15 percent is considered a fair compensation for a firm’s total marketing, distribution and sales strategies is not the issue. The issue is whether, and at what cost, one’s own direct distribution, marketing and sales infrastructure could be created and operated. 

By established rules of thumb, new firms should spend between 12 percent and 20 percent of gross revenue on marketing alone. Established firms might budget for marketing spend at six percent to 12 percent of gross revenue.

source: Cyclone Interactive  

But that is just marketing. Sales costs must include some combination of additional cost, especially sales wages and benefits and sales commissions. minimum of 15 percent to 30 percent and perhaps a maximum of up to 50 percent in some industries. 

So marketing plus sales could represent between 30 percent to 50 percent of gross revenue for younger firms. 

That is the context within which app store revenue shares need to be evaluated. “Build your own” is one way to evaluate sales and marketing cost, no matter which channel is preferred.

But to the extent that Apple and Google operate as efficient and effective marketing and sales channels, a revenue share between 30 percent and 15 percent is not out of line with other ways of building and maintaining marketing effort and sales results. 

The argument can be made that the app store revenue shares at 30 percent are less expensive for developers, especially small developers, than attempting to create their own marketing and sales channels.