Apple gets into the SEM business with paid-search for app developers

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Apple is getting into the paid-search business. At next week’s WWDC, according to a report in The Verge, the company will unveil paid-search ads for the App Store. It’s also going to introduce a new app-subscription revenue sharing model.

The App Store SEM possibility was first raised in a Bloomberg report in April. The actual product launch will come in the fall, but developers are being invited to join the beta today. According to copy on the Apple site:

Search Ads is an efficient and easy way for you to promote your app within the U.S. App Store search results, helping people discover or reengage with your app at the very moment they are searching for apps like yours. Designed to give users a safe search experience, Search Ads sets a new standard for delivering relevant ads while respecting user privacy.

Paid search ads could certainly help solve the app-discovery problem for iOS developers. There’s no information so far on bidding or ranking, although that will probably be further explained next week. A little less than a year ago Google introduced search ads to the Google Play store.

In addition, Apple will encourage developers to use a subscription model to generate recurring revenue, by giving them a larger cut of the pie after the first year. Apple will continue to take 30 percent revenue cut in year one. But in subsequent years that will drop to 15 percent. Developers will keep 85 percent of the money, accordingly, after the first year.

Apple will also be expanding the app categories that can sell subscriptions. Previously only a few had access to subscriptions. The new subscription option will launch at WWDC next week.

Apple announced last quarter that it had roughly $6 billion in “services” revenue, which includes App Store revenues. In 2015, the company said it saw $20 billion in App Store revenue. Both of these moves will benefit developers but they could equally benefit Apple’s bottom line.

According to several studies, search and search ads (in Google Play) are responsible for a substantial amount of consumer app discovery. In 2014 TUNE found that just under 50 percent (47 percent) of users found apps through App Store search — the primary method and ahead of “friends and family” and a range of others. To date Facebook has reaped millions of dollars in app-download advertising.

I haven’t done an analysis to estimate how much money Apple might stand to make from App Store SEM but it’s probably quite a bit. Even more intriguing is the possibility that it might be a prelude to a bigger SEM play via Spotlight Search.

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