Breaking down app store policies with Singular & Stash

Stash Head of Product Archie Stonehill caught up with John Koetsier on Singular’s Growth Masterminds podcast to talk through all the recent movement in gaming and direct-to-consumer - from the EU’s Digital Markets Act, to Apple’s response, tips for staying app store compliant, DTC best practices from other industries, and more. 

Tune in below or keep reading for highlights from the episode. 

The three vectors of pro-competitive regulation

2:29: “The way I think about these pro-competitive pushes is that there’s three vectors. One is native in-app payments for apps distributed through the app store. This is the last bastion that will fall and the platforms will do everything they can to protect them. So it will take a long time before you see an app in the app store being able to sell through an alternative payments provider at terms that aren’t close to the normal commission. 

The second one is alternative distribution channels. This is perhaps where I am most excited about with the Digital Markets Act. I think it’s important to acknowledge that the DMA has done something radical to open Apple up, as this is the first time Apple has allowed sideloaded apps.

The final channel is out-of-app sales - like web shops or even cross-platform. This is where you’ve seen the most movement globally because of the US Supreme Court’s decision on anti-steering and where a lot of game devs have made progress in recent years.” 

Gaming is lightyears ahead, but decades behind 

5:10 “The game industry is lightyears ahead of many other industries in some respects, but this is somewhere we are stuck two decades ago. It goes back to the beginning of games, where game developers have always been intermediated by platforms - first with the consoles, then the mobile game developers, and even on PC with the storefronts. It’s very unusual today to have a value chain where the producers have no connection to the users in the way that we do. 

I think developers woke up to this fact most acutely when IDFA was deprecated and they realized they actually knew very little about their customers. Almost every part of what we’re seeing now with deplatformization is about developers waking up to the fact that they need to have direct relationships with their players in disintermediated fashions and find new ways to do that. 

I think the web is a very easy, frictionless way of doing that. But we’ve also seen the rise of cross-platform. It unlocks tremendous opportunities to not just get a higher share of revenue of what you’re making, but also to learn more about your players and serve them new experiences.”

“The main reason it’s viable in games is because of free-to-play monetization. If this was an industry where you had to shift 70% of your users to a specific channel in order to do anything positive, it would be very tough. But for many games, you just have to shift 1% of your users, and you’ve got 70% of your spend.”

It’s not a 30% tax, it’s about 40-45%

7:13 “Apple and Google achieved something when they made us think of it as a 30% tax. The fact is that it’s almost always more than you think. It’s 30% of gross revenue not net revenue. So what developers almost always think about revenue is that 70% amount. The ratio isn’t 10:3 it’s 7:4. So the money going to Apple and Google is about 40-45% of what you’re making as a developer. So you have 45% more revenue to split between you and the player in order to get them to use that channel, you can really do some exciting things.”

The per-install fee can save money for same games

10:01 “For many many games, the per-install fee is a deal killer. However, if your user spend is greater than $5 a year, you’re going to start saving money by using the install fee. If I’m distributing on two app stores (the Apple app store and a third party), on my millionth and first install on the Apple app store, I pay this fee - but I also pay a reduced commission of 20%. So if I make about $5 a year from my users, this starts making economic sense because of the reduced commission. That’s even if I don’t distribute on the alternative app stores, and it’s a bit less than that if I do.

A lot of midcore, casino, and strategy games are making a lot more than $5 per user per year. If you have a year long payback and an LTV of $5, it’s not atypical. It’s pretty low, some of these games can be making $20-25 per user per year. The truth is, you can optimize for this now.

I think it’s always fascinating to consider what downstream impacts this will have on design decisions and innovation. What they’re optimizing for is the highest possible LTV on the fewest possible installs. It has all sorts of interesting applications for user acquisition - maybe you no longer want to do those creatives that are going to lower your CPI. Maybe you want to have high CPIs. For a category of games it’s quite exciting because of the reduced commission from 30% to 20%.”

Enter, Stash: your anti-platform

12:38 “Games as an industry have always had an intermediated relationship between players and developers. That is the core problem that motivates Stash. Stash sees a future in which developers can be their own platforms for the first time. The challenge though is that developers are great at making games and great at serving players, but maybe not direct-to-consumer experiences. There’s been a lot of stumbles in direct-to-consumer on PC, with a lot of the big publishers trying to launch stores and failing for various reasons. So we want to be the anti-platform - but not just providing the functional requirements to operate direct-to-consumer, like the identity stuff, payments - but actually providing a lot of that expertise.” 

Drawing on DTC expertise

13:45 “Other industries have seen this process of disintermediation work really well, like if you look at fashion with digital ecommerce. Initially, in the first wave of digital ecommerce, you have continued intermediation for the fashion houses, with Netaporter and Farfetch rising up, because they were used to selling through larger storefronts. Then the fashion companies realized they were giving money away for nothing, and they all launched direct-to-consumer, and they’ve had huge success with it.” 

Similarly, other industries have fended off marketplace intermediaries, like hotels and airlines, which have been successful with direct-to-consumer. Even though I would probably save money using a marketplace to buy a flight, I may buy direct because of my status and airline incentives. 

Then industries like real money have hugely succeeded in client service because those product differentiations are not about the product necessarily. They’ve done a great job at building all of these support functions to incentivize people to engage with them directly. This expertise doesn’t really exist in games right now, so we want to look elsewhere to get the expertise necessary to build a really compelling direct-to-consumer value proposition.”

It’s about experience, not convenience 

15:27: “You will never build a more convenient distribution channel than Apple, or a more convenient payment product than Apple. So you won’t win on convenience. But that’s fine because of whale monetization, like we said, the small number of users. 

What you need to offer is a better experience. So we are trying to provide the functional requirements to sell directly and have an identity system of your own, but more importantly, the expertise and the guidance and best-in-class practices for operating a really compelling, enhanced ecommerce experience. And generally a direct-to-consumer experience outside of ecommerce that is going to be a better, more premium way to engage your players and spenders than you can find on the apps.” 

Does brand IP matter for direct-to-consumer?

17:36 “The company’s brand very rarely matters, maybe with the exception of Supercell. Even for games players love, they probably don’t love the game developer. This is kind of what the thesis behind Stash is. If you play a lot of midcore strategy games, do you really have any knowledge or awareness of the developer? Probably not. That’s because of the lack of direct-to-consumer. It’s never been important for game developers to have a well branded website for their development company because you acquire on the game, the game is what players see and interact with. And that’s where Stash comes in - it helps you build for the game, elsewhere. So I would say rarely does brand matter.”

19:40 “If you have a game that has the right economic profile, this makes sense for you. And the right economic profile isn’t huge - it’s essentially being able to isolate a small group of users, where getting an additional 20-30% of those users’ spend would make a meaningful difference for you. But because you're going off your existing players, your broader presence and brand doesn’t matter as much as it does in a lot of other initiatives. Having said that, the quantity of your spend matters because that’s how much you’re saving on. That’s what’s exciting about it - it’s an equation that scales. 

Regulations spreading worldwide

21:22 “Just on a country level, it’s important to note that the number of regions that have implemented some version of this is extraordinary. That includes South Korea, Japan, the UK’s got a new bill that goes the furthest, Australia’s done a version of this, and it keeps growing. At some point, it will become difficult for the platforms to have wildly different policies in different jurisdictions. 

But there are important differences, which often stem from the motivation behind the policy makers’ movement. The DMA in Europe is unique because it’s not really consumer oriented, it’s pro-competitive. It’s really assessing: is this harming other competitors, other businesses? Whereas America’s framework always goes back to consumer harm. What America’s done is eliminate anti-steering policies, which are policies that prevent developers from steering users to another way to buy that’s outside of the app IAP system. The EU’s obviously gone a lot further than that but includes it. 

The declining importance of app store featuring

23:42 “If you look at what Steam does and you look at what the mobile app stores did 5-10 years ago, they used to play a very big role in game discovery, and used to be important to game developers because being featured could be a make or break situation. If you look at what the mobile guys do now, I don’t know anyone who’s had a meaningful impact from being featured recently. The featured space has been monetized and turned into ad space and it’s always been the same games and leads to a negligible bump. So outside of distribution, the stores don’t do much - and I think that's the result of lack of competition. Because if you look at Steam, it’s still hugely important for discovery.” 

Staying compliant 

25:05 “There’s degrees of risk and there will be some strategies that will be higher risk and less certain and some stuff we know is kosher. What we know is fine - you’re allowed to sell things outside of your store through other channels. Particularly if you’re a multiplatform service, or 3D cross-platform game, you have a lot more discretion, which is why a lot of the successes here like Raid or the Scopely games have been cross-platform, even Playtika’s casino games distribute on browser. 

As of the Supreme Court ruling, you’re also allowed to use your in-app presence to communicate these channels to others. Before you were completely banned from telling your players in the game about alternative channels, that’s what the court in America ruled is illegal. The response from Apple was to come in with a link-out entitlement as they get 20% of the revenue you link out to. I don’t think the link-out stuff sounds viable until that policy changes. But the court also ruled that guideline 3.3, which was the one that talked about communicating about out-of-store channels, was not okay - so that’s opened up a lot. 

Driving traffic without link-out

26:38 “The truth is, with savvy techniques, you can scale out-of-channel presences without this link-out functionality, and Playtika is doing 25% of their revenue from direct-to-consumer channels, Huuuge is doing 10%, Plarium is doing 30% through Plarium Play, Rovio’s scaling their channels, Supercell, Funplus - a lot of these developers operate viable web stores. You can get creative with how you drive traffic. 

That’s something we help on, whether it’s having other reasons to visit your web environment that aren’t stores that you can communicate - if you have a loyalty program, membership program. And then driving the repeat purchases, so that’s an exchange of value, making it a compelling experience, having a certain sales strategy that optimizes for returns, like a weekly offer every Monday players come back to visit that’s really high value and just drives traffic.

A lot of this is about strategizing correctly and a lot of our value add is that we will give you a higher share of spend going through your direct-to-consumer channel that you’d be able to do on your own. 

A lot of that is tailored and you have to optimize towards your game category. So for example, if you were a real time competitive multiplayer game coming to us, we would probably be doing a rich, competitive ecosystem in your web environment, which you could use to drive traffic to your web store. If you’re a casino game, you’ll be optimizing more towards VIP service, loyalty tiers, exclusive content. What’s exciting about this is that it really ties in well with your game economy and you need to be tailoring this to your game or at least your genre, and maximizing what you know your gamers care about. 

I think all this stuff isn’t just a way to drive traffic to your web shop, it’s a way to massively increase your game experience, increase your retention, boost LTV, and as well as capture email addresses. It has tons of benefits outside just the margin.”

Productizing discounts and offer strategies

31:19 “If you come to us and say ‘we wanna share 15-15 split with our players’, one of our products will automate the process of distributing that 15% across a bunch of different offers, discounts, tiered loyalty programs, access to free things - and make it really engaging in a way that averages out to that 15% discount. So you don’t have to do the work of applying that discount to productize it in the most engaging way. We’ll do it but you still control your incentive cost. Right now we’re investing heavily in designing these programs to be custom to games, while cannibalizing the least amount of spend for certain giveaways. For our partners, it’s a compelling proposition. 

Use your voice, talk to the EU

33:32 “From a regulatory perspective, we will see what the EU’s response to this is. They don’t need further regulation to reject this as non-compliance. They will make evaluations in coordination with developers they’re speaking to. The EU really listens to your voice, you can just email them. I would encourage you to have an input into that. 

The opportunity in pro-competitive innovation

34:44 “I think regulation is just one piece of this - the other piece is technology. The advent of game streaming, the increasing power of HTML5 game distribution - these are all other things that are undermining the dominance of the device and operating providers, and that’s not stopping anytime soon. We’ll see how much AR picks up, or the new game streaming platforms on mobile offer. 

What I think you’ll find is A) a more unified experience across environments and B) meaningful impacts from regulations and C) developer innovation finding ways to productize what is possible in these new markets in ways you don’t expect, whether it’s single app experiences that are alternatively distributed. I think the most successful companies will be thinking creatively about how this new policy landscape unlocks opportunities for product innovation.