What impact will the major App Store revision have on Apple’s ecosystem?

At the WWDC 2017, which lasted more than two hours, in addition to the highly anticipated iOS 11, Apple also launched a number of hardware products. Many people even jokingly called it "Apple's most powerful software conference." Regarding iOS 11, there may be a detail that is worth our in-depth discussion, that is, the App Store has undergone a major revision.

What exactly has changed in the App Store?

Compared with the previous version, the App Store has cancelled the original "List" tab and divided the main menu column into three tabs: "Daily Recommendation", " Game " and "App" for display. The “Daily Recommendations” homepage has even begun to adopt a card-style design.

However, what may have had the greatest impact on the industry this time is that the App Store directly cancelled the ranking option on the main interface, and the best-selling list disappeared completely. The paid and free lists that were retained only showed the top three on the first-level page. Before this, the best-selling list was an important traffic entrance for the App Store, and users had formed the habit of selecting apps based on the list. But after the revision, the best-selling list, an important traffic entrance, was completely blocked.

We know that in order to compete for best-selling rankings and increase user downloads and product exposure, the phenomenon of manipulating rankings has been rampant in recent years. The authority of Apple's list is disappearing, and this radical change will have a subversive impact on the manipulation of the list.

After the entrance to the list was weakened, the only way for users to get app recommendations from the App Store, besides relying on editor recommendations, is search. Based on this, the App Store has also strengthened its search function. Although the number of hot search terms has been reduced from 10 to 7, the new search function will become more powerful. It is no longer just a simple popular keyword , but will also provide users with extended search results including editing stories, tips and tricks, and featured lists.

How important is the App Store to Apple?

In the second quarter of fiscal year 2016, iPhone sales declined for the first time, and the performance of iPad and Mac was also somewhat unsatisfactory. But among all businesses, only the service business achieved a high growth of nearly 20%, becoming a growing star business. The importance of App Store in the overall business even ranked first.

At the opening speech of last year's WWDC2016 conference, Cook said that Apple's App Store now has more than 2 million apps, with cumulative downloads exceeding 130 billion times, and has directly paid more than $50 billion to developers. On the eve of the opening of WWDC2017, Phil Schiller, Apple's senior vice president of global marketing , once again revealed that the fees paid to developers have exceeded 70 billion US dollars. This means that Apple paid a total of $20 billion to developers in the past year.

Today, App Store developers are spread across 155 countries and regions around the world. In the past year, App Store software downloads have increased by more than 70%, with weekly visits reaching 500 million times. Among them, game and entertainment applications grew the fastest, while the growth rate of life applications and health and fitness applications also exceeded 70%, and photo and video applications grew by nearly 90%.

Ben Schachter, an analyst at market research firm Macquarie, believes that Apple's service revenue is expected to grow 17% each year from fiscal 2017 to fiscal 2021. By fiscal 2021, 75% of Apple's total profits will come from its services business. The App Store will continue to grow at an annual rate of 30%. In comparison, hardware revenue grew at only 2.4% per year.

In addition, Ben Schachter said in a report to investors : "The App Store is one of the best business models ever, and Apple investors do not need to rely on Apple's innovation to drive the model forward."

Apple's biggest problem right now is that the growth rate of hardware users is slowing down, and revenue from this aspect is likely to stop growing in the future. However, given the user base of Apple's iPhone, service businesses led by the App Store may become the driving force for Apple's future revenue growth, and they will also be the biggest contributors to gross profit margin improvements.

Apple has tightened control over its ecosystem

Although the App Store has a huge user base and fresh content from time to time, it previously gave users a more static feeling. Apple's new version obviously gives users a sense of dynamic real-time updates. A revolution regarding "content" is quietly taking place in the App Store. The impetus for this change comes mainly from two aspects:

1) As more and more developers develop projects on the iOS platform, the number of new apps on the App Store is increasing day by day. This means that it is more difficult for users to find apps, and developers complain that it is difficult for their projects to reach new users.

2) Phenomena such as manipulation of rankings and self-recharge have caused devastating damage to the fair and transparent ecosystem of the App Store. In fact, a major upgrade of the App Store has long been imminent.

From the above revision content, we can actually see that the App Store is undergoing a thorough transformation. Apple has not only strengthened its control over the App Store , but also planned its future development. Of course, it also has a huge impact on the entire industry.

1. The cost of cheating will be higher

The App Store has weakened the rankings this time, but the rankings still exist. This is still a huge traffic entrance for developers, so the problem of ranking manipulation may not be completely eliminated in a short period of time. But now there are only the paid list and the free list, and these two lists only show the top 3. The rest can only be displayed by clicking "All".

This means that only the top three can take advantage of traffic. In order to compete for these limited positions, it will cost more to manipulate the rankings. Even if the ranking is successfully manipulated, the behavior of users will change fundamentally as they discover the app. Apple hopes to expose players to better games through editorial recommendations rather than rankings.

2. Good news for game developers

It is worth mentioning that China has become the country with the highest App Store revenue. As in most other markets, the vast majority of App Store revenue in China comes from games, with Tencent and NetEase leading the Chinese gaming market. As mentioned earlier, the growth in App Store revenue is largely due to the explosion of the mobile gaming market, and Apple is also aware of the importance of mobile games to the App Store. In this revision, Apple separated "games" from the App, obviously recognizing the huge market for mobile games, which is undoubtedly good news for game developers.

3. Excellent products are more likely to break through

After changing from " Featured Recommendations " to "Daily Recommendations", developers are able to add more rich media elements to introduce their applications to users. This reveals a signal that the changed App Store will place more emphasis on the content quality of products, and those junk apps in the App Store may have no chance at all. As for wanting to get Apple's editor's recommendation, let's first look at the recommendation criteria given: "A themed list of the most downloadable games and apps selected by App Store editors." In other words, without standards, developers have to be more careful.

4. Search will become the next revenue source

After weakening the rankings, the weight of the search function in terms of exposure will naturally increase. The biggest change in this search is that all hot search terms and their ranking order will be officially designated. This bidding mechanism, which is similar to that of a search engine , may absorb the promotion needs of some manufacturers and bring their competition within the scope of official control as much as possible.

Apple's official data shows that more than 65% of App downloads come from App searches. According to AppsFlyer's report, developers' promotion methods on the App Store are more efficient than other promotion channels. This means that there are huge opportunities for Apple's bidding search advertising business ( ASM ), and this revision will undoubtedly give Apple's ASM a helping hand.

Overall, the App Store is undergoing an unprecedented transformation. The changed rules will become more transparent, and Apple's control over the ecosystem will become stronger. This will certainly affect the vested interests of many people, but for developers who focus on quality, isn’t this an opportunity?

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