Conflict within any value chain is inevitable, since one participant’s cost is another participant’s revenue. Game developers, for example, complain about the 30-percent fee Apple charges for game distribution through the app store or in-app purchases.
That might seem an unreasonable fee, but perhaps it is not. Consider typical “distribution” costs for various industries, which might include delivery networks, logistics, warehousing, packaging, store operations, app store fees, marketing, server costs, content licensing, payment processing, fees and fuel or booking systems.
“Distribution” is a key function in getting a created product to the ultimate buyer and end user. And it can be hard to separate some functions, such as sales and marketing, from logistics as parts of the total distribution cost.
But consider the case of an app store product. Once the app is written, additional value chain costs include methods for sales, marketing and fulfillment, for example. Those costs might range from mid-single-digits to 40 percent of total end user price (much depends on where one decides to allocate costs).
App stores such as Apple’s arguably offer many tangible benefits that would otherwise still need to be created by any would-be retailer.
App stores such as Google Play and Apple App Store boast billions of active users, so developers have access to a vast potential customer base they wouldn't be able to reach on their own. So 30-percent fees might seem high, but the alternatives of creating a potential audience at similar cost are not possible.
App stores offer curated storefronts and search features, helping users find relevant apps within a specific category or based on personal preferences. This increases the chances of an app being discovered by its target audience. So there is clear marketing value.
Branding also is aided, as a trusted app store boosts user trust and confidence compared to downloading from unknown sources.
App stores handle the technical aspects of app downloading, installation, and updates, eliminating the need for developers to manage their own servers and distribution channels.
Integrated payment gateways enable in-app purchases and subscriptions, streamlining the monetization process for a game developer or app provider.
Global Reach: App stores facilitate international distribution, allowing developers to reach markets beyond their borders with minimal additional effort or cost. No single developer is typically able to do so on its own.
Many app stores offer opportunities for app promotion using featured lists, editorial recommendations or in-app advertising, increasing visibility and organic downloads.
App stores provide data and analytics about app usage, user demographics, and engagement, which developers can leverage to optimize their apps and marketing strategies.
The point is that a great deal of the cost of getting a product into the hands of a buyer is broadly dominated by “distribution” costs, and app stores such as Apple’s or Google’s Playstore provide many of the benefits.
Partner unhappiness about value chain costs is not surprising, since “my cost is your revenue.” Participants always will seek to maximize their own value and power within the value chain, as that tends to boost the prices they can command for their contributions.
Still, it is a plausible argument that app stores provide lots of value for apps distributed through the stores. Is 30 percent the right amount? It is hard to say.
What are the alternatives, and what would those alternatives cost?
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