1 00:00:04,360 --> 00:00:10,840 Speaker 1: Thank you, thank you. You've got to picture it. This 2 00:00:10,920 --> 00:00:14,000 Speaker 1: massive stage. Apple CEO Tim Cook up there in front 3 00:00:14,040 --> 00:00:17,400 Speaker 1: of five thousand people, an audience full of software developers. 4 00:00:18,920 --> 00:00:22,759 Speaker 1: You are a part of everything that we do and 5 00:00:22,840 --> 00:00:26,960 Speaker 1: everything that we will do going forward. It's called the 6 00:00:27,000 --> 00:00:32,040 Speaker 1: Worldwide Developers Conference or w w d C. Software Engineers 7 00:00:32,080 --> 00:00:34,440 Speaker 1: from all over the world come to the San Francisco 8 00:00:34,520 --> 00:00:37,240 Speaker 1: Bay area to find out what Apple has in store 9 00:00:37,320 --> 00:00:40,320 Speaker 1: for them over the coming year. At last year's conference, 10 00:00:40,400 --> 00:00:43,519 Speaker 1: Christmas came early. The iPhone makeup promised to double the 11 00:00:43,600 --> 00:00:45,640 Speaker 1: cash you could learn if you made an app, put 12 00:00:45,640 --> 00:00:48,360 Speaker 1: it on the App Store and convince customers to subscribe 13 00:00:48,360 --> 00:00:52,720 Speaker 1: for a whole year. That's like a huge, huge, dramatic move. 14 00:00:53,479 --> 00:00:58,280 Speaker 1: It increases the revenue by by twenty something percent. Uvalkamenka 15 00:00:58,400 --> 00:01:00,840 Speaker 1: was listening in the audience. He had traveled from Israel 16 00:01:00,920 --> 00:01:03,400 Speaker 1: to be that it is a game changer of showing 17 00:01:03,520 --> 00:01:07,319 Speaker 1: what the strategic shift is UM that Apple is going through, 18 00:01:07,440 --> 00:01:09,839 Speaker 1: because it's not like it's not something that they would 19 00:01:09,880 --> 00:01:14,880 Speaker 1: do UM without you know, a very good cause. You've 20 00:01:14,880 --> 00:01:18,399 Speaker 1: always right, Apple probably wouldn't do this unless it needed to. 21 00:01:18,880 --> 00:01:22,319 Speaker 1: After all, it's the world's most highly valued company, the 22 00:01:22,440 --> 00:01:25,679 Speaker 1: creator of the Mac, the iPod. It literally changed the 23 00:01:25,720 --> 00:01:29,400 Speaker 1: world with the iPhone. But last year Apple's revenues dropped 24 00:01:29,480 --> 00:01:33,000 Speaker 1: for the first time in fifteen years. Investors started to 25 00:01:33,000 --> 00:01:35,440 Speaker 1: worry that everyone who wanted a small phone and already 26 00:01:35,440 --> 00:01:38,160 Speaker 1: had one. Now Apple had to prove it was more 27 00:01:38,200 --> 00:01:40,760 Speaker 1: than just the iPhone company. All of a sudden, the 28 00:01:40,800 --> 00:01:43,440 Speaker 1: app store was at the heart of the new growth strategy. 29 00:01:43,720 --> 00:01:46,400 Speaker 1: I even had a sense that all the people around 30 00:01:46,440 --> 00:01:49,640 Speaker 1: me that were most of them were engineers coming from 31 00:01:49,640 --> 00:01:55,880 Speaker 1: from um all the different developer companies. I had a 32 00:01:55,960 --> 00:02:01,160 Speaker 1: sense of not even grasping the extent of of the change. 33 00:02:02,480 --> 00:02:05,080 Speaker 1: The change might seem small from the outside, but in 34 00:02:05,160 --> 00:02:07,320 Speaker 1: fact it was the first move from Apple in a 35 00:02:07,320 --> 00:02:10,880 Speaker 1: bigger effort to sweeten its relationship with some thirty million 36 00:02:10,960 --> 00:02:15,160 Speaker 1: software developers. You see, Apple needs them. They make most 37 00:02:15,200 --> 00:02:17,600 Speaker 1: of the apps that people use on their phones. Well, 38 00:02:17,720 --> 00:02:21,440 Speaker 1: the developers also need Apple to sell the apps and games, right, 39 00:02:21,480 --> 00:02:25,160 Speaker 1: But for too long, Apple hasn't really prioritized its relationship 40 00:02:25,200 --> 00:02:28,000 Speaker 1: with them. In the heady days when iPhone sales were 41 00:02:28,000 --> 00:02:31,440 Speaker 1: going gangbusters, Apple assumed that of course people would make 42 00:02:31,480 --> 00:02:35,000 Speaker 1: apps for the iPhone. Now, with a saturated global market 43 00:02:35,040 --> 00:02:50,840 Speaker 1: for smartphones. That dynamic is shifting. Hi, I'm Brad Stone 44 00:02:51,000 --> 00:02:53,839 Speaker 1: and I'm Alex Webb. And this week on Decrypted, we'll 45 00:02:53,880 --> 00:02:55,880 Speaker 1: look at what Apple is doing to pull off its 46 00:02:55,960 --> 00:02:59,280 Speaker 1: next act as everyone waits for a new blockbuster device. 47 00:02:59,600 --> 00:03:01,839 Speaker 1: Tim Book is trying to show that Apple can keep 48 00:03:01,840 --> 00:03:05,000 Speaker 1: making money even if people are buying fewer iPhones. But 49 00:03:05,080 --> 00:03:07,720 Speaker 1: if you own an iPhone right now, chances are you've 50 00:03:07,760 --> 00:03:10,760 Speaker 1: downloaded many apps from the App Store already. We're going 51 00:03:10,800 --> 00:03:13,200 Speaker 1: to take you inside the world of how apps get 52 00:03:13,240 --> 00:03:16,200 Speaker 1: made and how people who create them make money, sometimes 53 00:03:16,280 --> 00:03:20,160 Speaker 1: even fortunes. It's the changing relationship between Apple and developers. 54 00:03:20,160 --> 00:03:22,400 Speaker 1: You'll hear a lot more about today and why it's 55 00:03:22,440 --> 00:03:24,919 Speaker 1: so crucial for Apple to strike a new balance. It's 56 00:03:24,960 --> 00:03:27,440 Speaker 1: a complicated world, and you'll come out of this episode 57 00:03:27,520 --> 00:03:29,959 Speaker 1: knowing more about Apple's business than perhaps you ever thought 58 00:03:29,960 --> 00:03:39,160 Speaker 1: you would. But stick with us now. It's worth stating 59 00:03:39,200 --> 00:03:41,680 Speaker 1: that last year was something of an Anna cerebelist for Apple. 60 00:03:41,920 --> 00:03:43,880 Speaker 1: They had that drop of revenue to deal with, and 61 00:03:43,920 --> 00:03:46,560 Speaker 1: that turned out to be a serious blow to shareholder moral. 62 00:03:47,080 --> 00:03:50,840 Speaker 1: Apple also got ensnared in some complicated and potentially expensive 63 00:03:50,840 --> 00:03:54,360 Speaker 1: tax issues, a standoff with the US government over encryption, 64 00:03:54,680 --> 00:03:57,200 Speaker 1: and other projects like the self driving car were all 65 00:03:57,200 --> 00:04:00,840 Speaker 1: but shelved. So a lot of people feel like services. 66 00:04:00,880 --> 00:04:04,320 Speaker 1: That's Apple. Software platforms like iTunes and iCloud are a 67 00:04:04,360 --> 00:04:06,800 Speaker 1: bright spot right now, and the app Store is a 68 00:04:06,880 --> 00:04:10,160 Speaker 1: huge part of that. Yeah. Apple expert Gene Munster told 69 00:04:10,160 --> 00:04:13,680 Speaker 1: me the app Store grew more than last year, generating 70 00:04:13,720 --> 00:04:16,800 Speaker 1: eight point six billion dollars in revenue. For context, that's 71 00:04:16,800 --> 00:04:20,800 Speaker 1: more than three times twitters two thousand sixteen sales, though 72 00:04:20,800 --> 00:04:23,960 Speaker 1: it's still only about four percent of Apple's total. Even 73 00:04:24,000 --> 00:04:26,760 Speaker 1: though it's already doing well, Apple has said it wants 74 00:04:26,800 --> 00:04:29,080 Speaker 1: to see the app store start bringing in a lot 75 00:04:29,120 --> 00:04:31,839 Speaker 1: more money than it does today. Tim Cook, the CEO, 76 00:04:32,000 --> 00:04:34,520 Speaker 1: said it explicitly on a cool with analysts in January. 77 00:04:34,800 --> 00:04:38,240 Speaker 1: Services are becoming a larger part of our business, and 78 00:04:38,400 --> 00:04:41,080 Speaker 1: we expect the revenues to be the size of a 79 00:04:41,200 --> 00:04:45,560 Speaker 1: fortune company. This year, Apple realized that if it wants 80 00:04:45,560 --> 00:04:48,279 Speaker 1: to grow its App store sales, it needs to incentivize 81 00:04:48,279 --> 00:04:52,039 Speaker 1: its software developers, inspired them to make more better products 82 00:04:52,040 --> 00:04:54,760 Speaker 1: so that customers spend more money buying them, and that's 83 00:04:54,760 --> 00:04:57,680 Speaker 1: where those changes. Apple and nounced the Developers Conference. Come 84 00:04:57,720 --> 00:05:07,960 Speaker 1: in back to you've all Kaminka the entrepreneur who traveled 85 00:05:07,960 --> 00:05:11,479 Speaker 1: from Israel to here. Tim Cook speaking on stage. He 86 00:05:11,600 --> 00:05:14,320 Speaker 1: started joy Tunes in two thousand and eleven. It's an 87 00:05:14,320 --> 00:05:16,159 Speaker 1: app that teaches you how to play the piano in 88 00:05:16,200 --> 00:05:18,800 Speaker 1: a fun way, like playing video games. But it wasn't 89 00:05:18,839 --> 00:05:22,120 Speaker 1: until last year that things really started to go stratospheric. 90 00:05:22,520 --> 00:05:25,039 Speaker 1: You've all on this team made some changes to their product, 91 00:05:25,200 --> 00:05:28,000 Speaker 1: and they coincided with these revenue changes happening at the 92 00:05:28,040 --> 00:05:31,360 Speaker 1: app store. The change in revenue sharing meant that once 93 00:05:31,400 --> 00:05:34,159 Speaker 1: a customer had clocked twelve months of subscription to an app, 94 00:05:34,360 --> 00:05:36,880 Speaker 1: the card of revenue that Apple would take from developers 95 00:05:36,920 --> 00:05:41,359 Speaker 1: felt a fifteen percent from initially. You've our wondered if 96 00:05:41,400 --> 00:05:45,560 Speaker 1: Apple was simply making superficial changes. Being a cynical person 97 00:05:45,640 --> 00:05:48,560 Speaker 1: like I am, it's you also get worried. Okay, what 98 00:05:48,800 --> 00:05:52,880 Speaker 1: you know? What's uh? Is there anything any hidden interests? 99 00:05:53,120 --> 00:05:54,720 Speaker 1: What does it mean that all of the apps are 100 00:05:54,720 --> 00:05:57,880 Speaker 1: going to do subscription? Now? Is it going to stop? Here? 101 00:05:58,520 --> 00:06:02,600 Speaker 1: Are you going to continue? So far? He's relieved to 102 00:06:02,680 --> 00:06:07,400 Speaker 1: have been proven wrong, like they've been rolling out one 103 00:06:07,480 --> 00:06:12,679 Speaker 1: after the other more capabilities, more data, more analytics, more 104 00:06:13,880 --> 00:06:17,919 Speaker 1: abilities to change pricing in a more convenient way, like 105 00:06:18,000 --> 00:06:19,520 Speaker 1: a lot of a lot of stuff. It just makes 106 00:06:19,520 --> 00:06:23,200 Speaker 1: it so much, so much better. More transparency for developers. 107 00:06:23,400 --> 00:06:25,960 Speaker 1: Believe me, if you make apps for the iPhone, these 108 00:06:26,000 --> 00:06:29,599 Speaker 1: are welcome changes. Until now, Apple had the power to 109 00:06:29,680 --> 00:06:33,760 Speaker 1: dictate many important aspects of how apps were made. We 110 00:06:33,839 --> 00:06:37,479 Speaker 1: have this highly controlled device. This is Cushal Dave. He's 111 00:06:37,480 --> 00:06:40,560 Speaker 1: in charge of technology at the startups scroll dot Com. 112 00:06:40,600 --> 00:06:43,520 Speaker 1: Every application and the content of what it says and 113 00:06:43,880 --> 00:06:46,280 Speaker 1: how you build it and how you release it and 114 00:06:46,279 --> 00:06:49,479 Speaker 1: how you test new features is sort of all you 115 00:06:49,520 --> 00:06:53,120 Speaker 1: know up to Apple's wims. What Crusha is describing here 116 00:06:53,160 --> 00:06:55,359 Speaker 1: are the ways in which Apple can force developers to 117 00:06:55,360 --> 00:06:58,159 Speaker 1: work in a particular way. It was an especially heavy 118 00:06:58,200 --> 00:07:01,440 Speaker 1: burden for people releasing new apps. Small apps trying to 119 00:07:01,440 --> 00:07:04,440 Speaker 1: get off the ground face review hurdles in this pretty 120 00:07:04,480 --> 00:07:08,440 Speaker 1: opaque process and can get totally stuck at any given time. Now, 121 00:07:08,600 --> 00:07:10,720 Speaker 1: obviously a lot of developers have managed to do well 122 00:07:10,760 --> 00:07:13,760 Speaker 1: on the App Store despite all the rules. Adrian Deyong 123 00:07:13,920 --> 00:07:17,360 Speaker 1: is a successful independent game developer, so Apple speaks to him. 124 00:07:17,560 --> 00:07:20,520 Speaker 1: But that's an exception to most people. Apple is a 125 00:07:20,560 --> 00:07:23,480 Speaker 1: black box. Basically, once you submit an app to the 126 00:07:23,520 --> 00:07:27,400 Speaker 1: App Store, Apple controls everything. A group of people in 127 00:07:27,440 --> 00:07:30,920 Speaker 1: the so called editorial team decide which apps get promoted 128 00:07:30,920 --> 00:07:32,920 Speaker 1: on the front page of the store. It can make 129 00:07:32,960 --> 00:07:36,360 Speaker 1: the difference between losing money and making a fortune. Just 130 00:07:36,400 --> 00:07:39,840 Speaker 1: look at Adrian's experience. His new game Hidden Folks, launched 131 00:07:39,840 --> 00:07:43,680 Speaker 1: on the App Store last month Imagine Where's Waldo, but 132 00:07:43,760 --> 00:07:47,120 Speaker 1: black and white and interactive and animated. He and his 133 00:07:47,160 --> 00:07:49,480 Speaker 1: business partner have been working in it for almost two 134 00:07:49,480 --> 00:07:52,240 Speaker 1: and a half years, but after you got featured on 135 00:07:52,280 --> 00:07:55,239 Speaker 1: the app Store, after four days of having Hidden Folks 136 00:07:55,240 --> 00:07:58,360 Speaker 1: on the store, we broke even on it. But members 137 00:07:58,360 --> 00:08:01,480 Speaker 1: of the editorial team don't really talk to developers, so 138 00:08:01,560 --> 00:08:04,360 Speaker 1: nobody knows for sure how they decide what to feature 139 00:08:04,560 --> 00:08:09,000 Speaker 1: and when. Adrian considers himself fortunate because Apple does communicate 140 00:08:09,040 --> 00:08:11,559 Speaker 1: with him, which is very rare, but he's not allowed 141 00:08:11,560 --> 00:08:14,400 Speaker 1: to talk directly to the editorial team. He communicates with 142 00:08:14,440 --> 00:08:17,440 Speaker 1: someone else. The actual editorial team is very much a 143 00:08:17,480 --> 00:08:21,520 Speaker 1: black box. I talked to Apple developer relations people who 144 00:08:21,800 --> 00:08:25,160 Speaker 1: have been assigned to me from the moment my first 145 00:08:25,200 --> 00:08:28,680 Speaker 1: game got on the App Store and was doing really well. 146 00:08:29,480 --> 00:08:31,640 Speaker 1: That was the first time they called me, and you know, 147 00:08:31,760 --> 00:08:34,400 Speaker 1: said from now on, you can just email email me 148 00:08:34,440 --> 00:08:37,880 Speaker 1: if you have questions. Adrian agrees Apple is becoming more 149 00:08:37,960 --> 00:08:40,960 Speaker 1: open with developers, even if they're just small steps for now. 150 00:08:41,520 --> 00:08:44,079 Speaker 1: One example, a few weeks ago, he came to San 151 00:08:44,120 --> 00:08:47,560 Speaker 1: Francisco for the Game Developers Conference. It's a big industry 152 00:08:47,559 --> 00:08:51,800 Speaker 1: event with thirty attendees, and for the first time, Apple 153 00:08:51,880 --> 00:08:55,480 Speaker 1: held a drinks mixer for about forty select iOS engineers. 154 00:08:56,080 --> 00:08:58,520 Speaker 1: That may sound like a tiny detail, but it's actually 155 00:08:58,559 --> 00:09:02,480 Speaker 1: a major change. Outside w w d C, Apple has 156 00:09:02,520 --> 00:09:05,319 Speaker 1: made few significant efforts to meet the people who make 157 00:09:05,400 --> 00:09:08,319 Speaker 1: iPhone apps, let alone talk to them and buy them beers. 158 00:09:09,360 --> 00:09:13,680 Speaker 1: It's crazy, really, I feel extremely privileged. Um these kinds 159 00:09:13,679 --> 00:09:17,040 Speaker 1: of mixers can change my life quite dramatically, Like it 160 00:09:17,120 --> 00:09:19,840 Speaker 1: can make the difference between selling a thousand copies and 161 00:09:19,920 --> 00:09:23,400 Speaker 1: selling a hundred thousand copies, and that's a very dramatic change. 162 00:09:24,040 --> 00:09:26,960 Speaker 1: It's partly about ensuring there's an ongoing dialogue with the 163 00:09:26,960 --> 00:09:30,840 Speaker 1: developer community. It's also about Apple's effort to get more 164 00:09:30,960 --> 00:09:34,760 Speaker 1: returning revenue from customers. People see games as a service 165 00:09:34,840 --> 00:09:38,320 Speaker 1: these days, so you start. The release is only the beginning, 166 00:09:39,040 --> 00:09:41,480 Speaker 1: and that's when you start ending more content. That's when 167 00:09:41,520 --> 00:09:44,920 Speaker 1: you start ending more features, because that's also the point 168 00:09:45,000 --> 00:09:47,640 Speaker 1: where a lot of your fans will get to know 169 00:09:47,720 --> 00:09:52,080 Speaker 1: your game. That's also why Apple decided to change how 170 00:09:52,120 --> 00:09:55,199 Speaker 1: much revenue it gives to developers. In the past, only 171 00:09:55,200 --> 00:09:58,439 Speaker 1: a handful of app categories dealing with content like Netflix, 172 00:09:58,440 --> 00:10:05,240 Speaker 1: Spotify or drop Box could charge a subscription fee. When 173 00:10:05,240 --> 00:10:08,480 Speaker 1: the business community looks at smartphone makers, they often talk 174 00:10:08,520 --> 00:10:12,200 Speaker 1: about the stickiness of devices. In other words, what feature 175 00:10:12,240 --> 00:10:14,520 Speaker 1: does a phone have which makes it harder to switch 176 00:10:14,559 --> 00:10:18,200 Speaker 1: to a competitor to take a phone running Google's Android system? 177 00:10:18,240 --> 00:10:22,520 Speaker 1: For example, With global smartphone sales slowing, the manufacturers are 178 00:10:22,559 --> 00:10:25,840 Speaker 1: fighting for market share, and Apple overtook Samsung in the 179 00:10:25,880 --> 00:10:29,240 Speaker 1: final quarter of helps. Of course, by the recall of 180 00:10:29,240 --> 00:10:32,960 Speaker 1: Samsung's flagship smartphone. Apple has also been masterful at the 181 00:10:33,080 --> 00:10:37,880 Speaker 1: stickiness game. Your music, photos and film library build stickiness, 182 00:10:38,320 --> 00:10:41,440 Speaker 1: the movement tracking, and the health app same thing. Even 183 00:10:41,480 --> 00:10:43,680 Speaker 1: the Apple Watch itself could be seen as a ploy 184 00:10:43,800 --> 00:10:46,360 Speaker 1: to make it harder to dig your iPhone. So for years, 185 00:10:46,360 --> 00:10:49,160 Speaker 1: the app store was seen as a big differentiator for Apple. 186 00:10:49,400 --> 00:10:52,439 Speaker 1: The great apps available for the iOS operating system meant 187 00:10:52,480 --> 00:10:55,320 Speaker 1: that customers would up for an iPhone rather than an Android, 188 00:10:55,559 --> 00:10:58,560 Speaker 1: but there were question marks over just how sticky the 189 00:10:58,600 --> 00:11:01,000 Speaker 1: apps were, as in, how many of these apps do 190 00:11:01,080 --> 00:11:03,840 Speaker 1: you return to every day or even every week. The 191 00:11:03,880 --> 00:11:06,640 Speaker 1: way the app Store was set up encouraged most developers 192 00:11:06,640 --> 00:11:09,560 Speaker 1: to build products which customers would pay for once enjoy 193 00:11:09,640 --> 00:11:14,480 Speaker 1: for a brief spell, than maybe never use again. Newn 194 00:11:14,600 --> 00:11:17,920 Speaker 1: Glen Salveas Pedro is a venture capitalist at Delta Partners 195 00:11:17,920 --> 00:11:21,560 Speaker 1: Group and Strive Capital who invests in startups. Do you 196 00:11:21,640 --> 00:11:24,400 Speaker 1: still need to have actually engagement? You still need to 197 00:11:24,440 --> 00:11:28,520 Speaker 1: make sure as a developer that you're getting people enough 198 00:11:28,600 --> 00:11:31,080 Speaker 1: utility that they will come back to the app on 199 00:11:31,120 --> 00:11:33,520 Speaker 1: a daily basis or weekly basis, whatever makes sense for 200 00:11:33,559 --> 00:11:37,520 Speaker 1: the app right. Opening subscriptions up to everyone and reducing 201 00:11:37,559 --> 00:11:41,760 Speaker 1: Apple's cut gave more developers an incentive to build sticky apps, 202 00:11:41,760 --> 00:11:45,160 Speaker 1: but this move didn't come out of nowhere. In December, 203 00:11:45,160 --> 00:11:48,760 Speaker 1: Tim Cook, the Apple CEO, put a new executive in 204 00:11:48,840 --> 00:11:51,360 Speaker 1: charge of the App Store. His name is Phil Schiller, 205 00:11:51,600 --> 00:11:54,640 Speaker 1: the head of Worldwide Marketing. He was already in charge 206 00:11:54,640 --> 00:11:58,360 Speaker 1: of developer relations. He's one of the masterminds behind Apple's 207 00:11:58,360 --> 00:12:02,280 Speaker 1: glitzie product launches. Behind the scenes, Apple engineers have been 208 00:12:02,280 --> 00:12:05,320 Speaker 1: fighting since at least twenty thirteen too improve the data 209 00:12:05,360 --> 00:12:08,480 Speaker 1: they give developers. Again, that might sound small, but it 210 00:12:08,520 --> 00:12:11,600 Speaker 1: gives developers a chance to understand how people are using 211 00:12:11,600 --> 00:12:14,199 Speaker 1: their app, and it's hard to make improvements without these 212 00:12:14,280 --> 00:12:17,520 Speaker 1: kinds of metrics. Phil Schiller moved a hundred engineers from 213 00:12:17,559 --> 00:12:21,079 Speaker 1: Apple's faltering i ads advertising business to work on new 214 00:12:21,160 --> 00:12:23,760 Speaker 1: tools for the App Store. Within a few months, app 215 00:12:23,800 --> 00:12:26,680 Speaker 1: developers were seeing wait times for approving new apps or 216 00:12:26,760 --> 00:12:29,640 Speaker 1: updates were getting shorter. Right, if you can believe it, 217 00:12:29,640 --> 00:12:31,920 Speaker 1: it was normal for Apple to take a week or 218 00:12:31,960 --> 00:12:35,079 Speaker 1: ten days to review submissions that drafted less than two 219 00:12:35,160 --> 00:12:41,240 Speaker 1: days a few months after Phil Schiller took over. The 220 00:12:41,240 --> 00:12:43,679 Speaker 1: biggest thing that we've seen from Apple which has had 221 00:12:43,679 --> 00:12:47,080 Speaker 1: a real positive influence on that is how they've sped 222 00:12:47,120 --> 00:12:50,520 Speaker 1: out with the review times. That's James Vaughan, CEO of 223 00:12:50,600 --> 00:12:54,320 Speaker 1: Endemic Creations. He talked to me from Bristol in the UK. 224 00:12:54,320 --> 00:12:57,600 Speaker 1: His mobile game is called Plague Inc. Players develop a 225 00:12:57,640 --> 00:13:01,120 Speaker 1: disease with the intention of destroying the world entire population, 226 00:13:01,559 --> 00:13:03,320 Speaker 1: and it has been in the app stores top ten 227 00:13:03,400 --> 00:13:07,760 Speaker 1: since launching five years ago. That's been really significant in 228 00:13:08,200 --> 00:13:10,760 Speaker 1: just get we can get our content out there quicker. 229 00:13:10,840 --> 00:13:12,520 Speaker 1: We don't have to wait if there's something we need 230 00:13:12,559 --> 00:13:15,320 Speaker 1: to fix or we want to get out an additional update. 231 00:13:15,360 --> 00:13:17,840 Speaker 1: We don't have to worry about waiting a week two 232 00:13:17,880 --> 00:13:20,920 Speaker 1: weeks anymore. And I mean that's that's been hugely positive 233 00:13:20,920 --> 00:13:23,760 Speaker 1: as well. That success has given him a front row 234 00:13:23,840 --> 00:13:26,560 Speaker 1: seat for how developers are using another of the tools 235 00:13:26,640 --> 00:13:30,679 Speaker 1: introduced under Phil Schiller, paid search. Developers can now pay 236 00:13:30,760 --> 00:13:32,760 Speaker 1: for their app to appear in the search results for 237 00:13:32,840 --> 00:13:36,320 Speaker 1: certain keywords. Now that's not necessarily good news if you're 238 00:13:36,360 --> 00:13:39,120 Speaker 1: already successful. I mean, what we we tend to see 239 00:13:39,200 --> 00:13:41,880 Speaker 1: quite a bit is the game fALS starting out our 240 00:13:41,920 --> 00:13:44,560 Speaker 1: look around the games that already being search for quite 241 00:13:44,559 --> 00:13:47,360 Speaker 1: a lot, and we'll see thereous games putting in plaguing 242 00:13:47,400 --> 00:13:49,199 Speaker 1: as their search ads to try and get some of 243 00:13:49,320 --> 00:13:53,800 Speaker 1: that search traffic. Not quite sure how I feel about 244 00:13:53,800 --> 00:13:56,760 Speaker 1: that soup or how successful it is, but it's it's 245 00:13:56,760 --> 00:14:02,160 Speaker 1: certainly been something most interesting to see there. Here's the 246 00:14:02,160 --> 00:14:05,040 Speaker 1: trade off for Apple. It wants more developers to make 247 00:14:05,080 --> 00:14:09,000 Speaker 1: more apps, get more downloads, and eventually make more money, 248 00:14:09,040 --> 00:14:11,520 Speaker 1: but it also means more competition for the apps that 249 00:14:11,559 --> 00:14:22,280 Speaker 1: are already successful in the App Store, so faster a view, times, 250 00:14:22,320 --> 00:14:26,560 Speaker 1: improved outreach to developers, different revenue models. But in some 251 00:14:26,600 --> 00:14:29,360 Speaker 1: ways those were all just tips of the iceberg. There's 252 00:14:29,400 --> 00:14:35,880 Speaker 1: also an eight pound gorilla in the room. It's called Google. Yes, indeed, 253 00:14:36,360 --> 00:14:40,160 Speaker 1: Google owns the Android operating system used by most smartphones 254 00:14:40,240 --> 00:14:42,800 Speaker 1: not made by Apple, and Google has its own version 255 00:14:42,800 --> 00:14:45,280 Speaker 1: of the App Store called the play Store, So if 256 00:14:45,280 --> 00:14:47,920 Speaker 1: you have a phone made by Samsung or LG that's 257 00:14:47,960 --> 00:14:50,280 Speaker 1: probably where you would download new apps. The thing is 258 00:14:50,320 --> 00:14:54,120 Speaker 1: Google has great analytics. Google's main business comes from ads 259 00:14:54,120 --> 00:14:56,560 Speaker 1: that appear next to its search results, and that's a 260 00:14:56,640 --> 00:14:59,920 Speaker 1: very data intensive process. So it already has a ton 261 00:15:00,000 --> 00:15:02,960 Speaker 1: of expertise in this area because they've been doing Google 262 00:15:03,000 --> 00:15:06,040 Speaker 1: analytics for for a lot of years. They're very very 263 00:15:06,080 --> 00:15:11,680 Speaker 1: agile around measurements on advertising, etcetera. The investor we had 264 00:15:11,680 --> 00:15:14,640 Speaker 1: from before. For several months now, Apple has been rolling 265 00:15:14,640 --> 00:15:18,000 Speaker 1: out tools which help developers understand how people are using 266 00:15:18,040 --> 00:15:20,920 Speaker 1: and spending money in their apps and let them react accordingly. 267 00:15:21,240 --> 00:15:26,040 Speaker 1: You've all again they added and analytics specifically for subscription 268 00:15:26,920 --> 00:15:31,280 Speaker 1: um His ability to see conversions from from child to 269 00:15:31,400 --> 00:15:36,920 Speaker 1: see subscription events when people are canceling, when people are subscribing. 270 00:15:37,760 --> 00:15:40,040 Speaker 1: Um So a lot of reporting, a lot of analytics 271 00:15:40,360 --> 00:15:43,400 Speaker 1: for that, which is which is amazing, Like, you didn't 272 00:15:43,480 --> 00:15:46,640 Speaker 1: have visibility for this before, so this is a tool 273 00:15:46,720 --> 00:15:48,960 Speaker 1: for you to learn on what people like and dislike 274 00:15:49,000 --> 00:15:53,000 Speaker 1: in in the product. Again, these are all positive developments, 275 00:15:53,120 --> 00:15:55,360 Speaker 1: but Apple has been playing catch up and we haven't 276 00:15:55,360 --> 00:15:57,800 Speaker 1: even mentioned the pressure Tim cook has been under firm 277 00:15:57,840 --> 00:16:01,360 Speaker 1: as investors. We already said glow will smartphone sales slowed 278 00:16:01,440 --> 00:16:04,280 Speaker 1: last year, but Apple gets almost two thirds of its 279 00:16:04,320 --> 00:16:07,160 Speaker 1: revenue from selling iPhones, so it has to prove that 280 00:16:07,200 --> 00:16:11,200 Speaker 1: it's not a one trick pony. Here's the key. Revenue 281 00:16:11,200 --> 00:16:13,800 Speaker 1: from the app Store has a higher profit margin than 282 00:16:13,840 --> 00:16:17,680 Speaker 1: from an iPhone, iPad or Mac. That's because it's software, 283 00:16:17,760 --> 00:16:21,000 Speaker 1: so there's no manufacturing cost. The irony is that while 284 00:16:21,040 --> 00:16:24,000 Speaker 1: Apple is by some distance the most highly valued company 285 00:16:24,000 --> 00:16:27,080 Speaker 1: in the world, with a market cap exceeding seven hundred billion, 286 00:16:27,480 --> 00:16:31,560 Speaker 1: it's by other measures valued less optimistically than Google or Amazon. 287 00:16:31,960 --> 00:16:35,480 Speaker 1: And here's why. Google and Amazon have customers who return 288 00:16:35,600 --> 00:16:38,520 Speaker 1: on a daily or weekly basis to use their services. 289 00:16:38,560 --> 00:16:42,400 Speaker 1: So Google's market valuation is thirty times it's earnings and 290 00:16:42,520 --> 00:16:45,440 Speaker 1: Amazon is a staggering a hundred and seventy three times 291 00:16:45,440 --> 00:16:48,000 Speaker 1: it's earnings. That means for every dollar per share in 292 00:16:48,120 --> 00:16:51,920 Speaker 1: profit that Amazon records, investors give its stock one hundred 293 00:16:51,960 --> 00:16:55,240 Speaker 1: and seventy three dollars in value. Apple meanwhile, there's value 294 00:16:55,280 --> 00:16:58,680 Speaker 1: to just sixteen times earnings, which is why Tim Cook 295 00:16:58,720 --> 00:17:01,920 Speaker 1: talks up the prospects of Apple services business here is 296 00:17:01,960 --> 00:17:06,199 Speaker 1: on the January one earnings call with analysts. Our services 297 00:17:06,280 --> 00:17:10,000 Speaker 1: offerings are now driving over one hundred and fifty million 298 00:17:10,119 --> 00:17:14,800 Speaker 1: paid customer subscriptions. This includes our own services and third 299 00:17:14,800 --> 00:17:18,720 Speaker 1: party content that we offer on our stores. We feel 300 00:17:18,800 --> 00:17:22,040 Speaker 1: great about this momentum, and our goal is to double 301 00:17:22,200 --> 00:17:25,119 Speaker 1: the size of our services business in the next four years. 302 00:17:26,240 --> 00:17:28,960 Speaker 1: Apple is basically admitted that they don't quite know yet 303 00:17:29,040 --> 00:17:31,160 Speaker 1: how they're going to reach that goal, but they've made 304 00:17:31,160 --> 00:17:36,040 Speaker 1: the first steps. The app store is seeing robust growth. Counterintuitively, 305 00:17:36,400 --> 00:17:39,080 Speaker 1: James Vaughan's game Plague, Inc. Has seen its position in 306 00:17:39,119 --> 00:17:42,280 Speaker 1: the grossing charts how much total revenue it makes decline 307 00:17:42,320 --> 00:17:45,600 Speaker 1: in recent years. Now that potentially sounds like it's a 308 00:17:45,640 --> 00:17:47,919 Speaker 1: big problem, but actually it's not it's not in the 309 00:17:47,960 --> 00:17:52,800 Speaker 1: flight is our revenues state broadly constant that the only 310 00:17:52,840 --> 00:17:55,840 Speaker 1: reason why we're going down the grossing chart is because 311 00:17:55,960 --> 00:17:59,160 Speaker 1: the absolute is just making more and more money every 312 00:17:59,359 --> 00:18:01,800 Speaker 1: All the private A pie is just getting bigger and bigger. 313 00:18:03,440 --> 00:18:05,760 Speaker 1: So all this data that Apple is starting to supply 314 00:18:05,800 --> 00:18:08,639 Speaker 1: to developers is helping them build products which can be 315 00:18:08,720 --> 00:18:12,320 Speaker 1: carefully tuned towards customer demand. I think the notion that 316 00:18:12,359 --> 00:18:14,679 Speaker 1: you can just create an app and it will do 317 00:18:14,840 --> 00:18:19,560 Speaker 1: very well is sort of slowly disappearing UM, which is good. 318 00:18:19,960 --> 00:18:23,520 Speaker 1: So the very very early stage UM apps that we 319 00:18:23,600 --> 00:18:26,520 Speaker 1: see UH sort of the what I call the two 320 00:18:26,520 --> 00:18:31,240 Speaker 1: men and a dog type type teams. UM. The ones 321 00:18:31,280 --> 00:18:35,399 Speaker 1: that do exist are much more thought through. A final 322 00:18:35,440 --> 00:18:38,080 Speaker 1: word from Uvalcamina, the developer we heard from at the 323 00:18:38,160 --> 00:18:42,960 Speaker 1: very start, to means this change means that Apple is 324 00:18:43,040 --> 00:18:48,880 Speaker 1: serious about building bigger businesses that depend on the App 325 00:18:48,920 --> 00:18:53,439 Speaker 1: store ecosystem, and I think it's going to be I 326 00:18:53,480 --> 00:18:55,880 Speaker 1: think it's it's a very big win. It's a very 327 00:18:55,880 --> 00:19:01,359 Speaker 1: big bet on their part. So Alex, in conclusion, is 328 00:19:01,400 --> 00:19:03,840 Speaker 1: the app store really the next big leg on the 329 00:19:03,880 --> 00:19:07,200 Speaker 1: Apple revenue store? Has no doubt. Many investors hope the 330 00:19:07,240 --> 00:19:10,320 Speaker 1: way that Tim Cook talks about it, their revenue from services, 331 00:19:10,400 --> 00:19:13,879 Speaker 1: which also includes things like iTunes and the I Cloud, 332 00:19:14,200 --> 00:19:18,680 Speaker 1: will be above fifty billion dollars by now. Apple does 333 00:19:18,720 --> 00:19:21,520 Speaker 1: about a hundred and fifty billion dollars in iPhone sales, 334 00:19:21,960 --> 00:19:24,880 Speaker 1: so it's certainly got a very good chance of being 335 00:19:24,960 --> 00:19:28,640 Speaker 1: a size of revenue contributor. But for the foreseeable future, 336 00:19:28,840 --> 00:19:31,720 Speaker 1: Apple is going to remain the iPhone company. Yeah, I 337 00:19:31,720 --> 00:19:34,280 Speaker 1: think these changes are promising. I mean, what we what 338 00:19:34,320 --> 00:19:37,640 Speaker 1: we've seen with a lot of successful apps is subscription 339 00:19:37,720 --> 00:19:43,879 Speaker 1: models work Pandora, Spotify, Netflix, That app store commission was steep, 340 00:19:44,280 --> 00:19:46,639 Speaker 1: and you could tell that companies like Netflix would go 341 00:19:46,680 --> 00:19:48,920 Speaker 1: out of their way to avoid signing people up via 342 00:19:48,960 --> 00:19:51,320 Speaker 1: the app store. So with these changes, and with Phil 343 00:19:51,359 --> 00:19:53,879 Speaker 1: Schiller now in charge of the app Store, it feels 344 00:19:53,920 --> 00:19:56,840 Speaker 1: like Apple starting to make some changes that are receptive 345 00:19:56,960 --> 00:19:59,040 Speaker 1: to the demands of these companies and how they want 346 00:19:59,040 --> 00:20:14,040 Speaker 1: to interact with customers. And that's it for this week's 347 00:20:14,040 --> 00:20:17,439 Speaker 1: episode of Decrypted. Thanks for listening. Do tell us what 348 00:20:17,520 --> 00:20:19,239 Speaker 1: you thought of the show. You can write to us 349 00:20:19,280 --> 00:20:22,679 Speaker 1: at Decrypted at Bloomberg dot net or find me on Twitter, 350 00:20:22,880 --> 00:20:26,320 Speaker 1: I'm at a t B web and I'm at brad Stone. 351 00:20:26,640 --> 00:20:29,440 Speaker 1: Don't forget to subscribe to us on iTunes or wherever 352 00:20:29,520 --> 00:20:32,240 Speaker 1: you get your podcast and leave us a rating and review. 353 00:20:32,480 --> 00:20:36,080 Speaker 1: It really helps new listeners find our show. This episode 354 00:20:36,119 --> 00:20:39,320 Speaker 1: was produced by Peter Gadkari Archie Ito, Liz Smith, and 355 00:20:39,359 --> 00:20:42,400 Speaker 1: Magnus Hendrickson. Big shout out to Robin and Yellow, who 356 00:20:42,480 --> 00:20:45,359 Speaker 1: edited the article I wrote alongside this podcast. You can 357 00:20:45,400 --> 00:20:48,200 Speaker 1: read it at Bloomberg dot com Forward slash Tech. Alec 358 00:20:48,280 --> 00:20:50,560 Speaker 1: McCabe is head of podcasts. We'll see you next week.