Apple and Google's duopoly on mobile operating systems give those two companies incredible power in the market, and one of the most obvious places to see that power is the 30 percent tax they take on transactions that happen in their app stores. For subscriptions, the tax is 30 percent in year one and 15 percent on the renewal.

Typically transaction fees on payments are 5 percent or lower, with the credit card networks being the obvious comparison at roughly 3 percent.

But Apple and Google are able to charge 5-10 times what a typical payment system charges because of their dominant market position and because the economics of acquiring a customer and renewing that customer in their ecosystem is so strong.

While it is hard to stomach the 30 percent number, many companies have done the work to look at their acquisition and retention numbers in and out of these environments, and often it is the case that paying the 30 percent tax is rational behavior.

So I was interested to see that Netflix is currently testing a bypass strategy. Certainly the biggest brands, like Netflix and Spotify, have the market power to at least consider this approach.

If the biggest brands can condition users to bypass the app stores, maybe we are seeing the beginning of a crack in the armor. It may also be possible for these big brands to bundle subscription offerings and take a piece of the action themselves.

Imagine if Netflix let you subscribe to a bunch of other services via your Netflix account which you pay for directly on the web, outside of the app stores. Or imagine if Amazon offered something similar.

The economics of that relationship for a smaller company could be more attractive than the economics of the current Apple and Google channels. And most companies would likely participate in multiple channels, including the app stores, as well as sell direct.

It seems inevitable that subscription bundling is going to happen. It already does via the Apple and Google app stores, but that's a crude version of what I'm thinking is on the horizon.

Consumers have demonstrated a willingness to pay for the apps and the content they value most. The subscription business model is a terrific one that aligns the interests of a company and its customers. But managing dozens of subscriptions via multiple payment systems is annoying. And there should be attractive economics for both bundlers and bundled apps.

So while I'm not predicting the end of the 30 percent tax anytime soon, I do think we will see Apple and Google's largest competitors build significant bypass user bases and potentially start competing with Apple and Google in the subscription bundling business. There is a lot of money up for grabs, and I think at least some of it is available for companies other than Apple and Google.

Published on: Aug 22, 2018