Will Subscriptions Be the Future of Apps?
The app economy is expected to reach $614 billion by 2026 with a user base spending 4.2 hours daily inside apps, according to an article in Forbes.[1] A significant portion of the app economy is mobile subscription apps. What are the benefits of subscription apps? What potential do subscriptions hold in the app economy?
Mobile Subscription Apps Defined
Mobile app subscriptions may be defined as recurring payments a user initiates in exchange for access to the content, premium features, or services of an app. Many of the top apps by subscribers are in the gaming, entertainment, health and fitness, education, and dating categories.
Subscription Apps – A Booming Business Model
Subscription apps have become a large business, as evidenced by the aforementioned predictions cited in the Forbes article. Further highlighting the growth and size of the subscription apps is that there were over 6 million subscription app installations between January 2021 and March 2022. Additionally, annual spending globally during 2021 in the top subscription apps in App Store and Google Play was $13.5 billion and $4.8 billion, respectively. In the U.S., those same figures were $6 billion and $2.5 billion. This U.S. spending was 33% higher than the previous year for App Store and 78% for Google Play.[2]
Benefits of the Subscription App Model
The subscription model may confer many of the same benefits to app developers as it offers other business offerings a subscription-based pricing plan. One of the main potential benefits is a steady, predictable revenue stream.
It has also been noted that subscriptions generate higher revenue per user than apps with other business models. The subscription model may promote higher engagement as users encounter new content and features. It also offers the opportunity to promote additional revenue through the promotion of additional content and consumables.
Mobile app subscribers receive the benefits of regularly updated content and features. But, perhaps the most significant benefit of the subscription model is freedom from ads, which are often prevalent in free apps.
Challenges of the App Model
The challenges of the app model include the need for regular content and feature updates, getting users to remain after trial periods, personalization, and an efficient team to support the app.
Can App Subscriptions Survive a Recession?
The Forbes article noted a decrease in app subscriptions during the beginning of 2022. App spending may fall into the unnecessary category as consumers face the threat of a recession and high inflation.
Flexibility may be the key for app developers to survive a recession. A hybrid model of offering both on-off purchases and a subscription model may allow developers to attract and retain users. Ad revenue, offering additional purchase opportunities, and experimenting with price different points and corresponding benefits may be other strategies for weathering an economic downturn.
In the end, focusing on customer value may allow subscription-based companies, including mobile app developers, to weather economic uncertainty.
The Fount Subscription Economy ETF (SUBS)
The Fount Subscription Economy ETF (SUBS) seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Fount SubscriptionnEconomy Index. The Index was designed to measure the performance of companies engaged in the business of providing subscription services, i.e., companies that sell products or services for recurring subscription revenue.
SUBS may present an attractive vehicle for individuals to gain exposure to companies offering subscription-based pricing models.
For a full list of SUBS holdings, please click here.
[1] Polzin, Roland, How Mobile App Subscription Monetization Will Evolve in 2023, Forbes, 1/2/23
[2] Tafradzhiyski, Nayden, App Subscriptions, Business of Apps, 11/3/22
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