App Store Payments

Late on Thursday, Apple announced some refinements to their App Store policies. The most important one is about so-called “steering”, which is the practice of letting customers know about out-of-app options for transacting with them. 

I couldn’t not write about the trifecta of payments, platform strategy, and video games. (Disclaimer: while I work at Stripe, these are my own opinions.) The bottom line: This is likely to be important for app developers. I think people underappreciate the magnitude of the likely impact due to the incrementality of it. It is not what developers have asked for, which is the ability to pitch users within the app itself on consummating payments out-of-band, but it also is not simply a return to the status quo ante to this summer, when Apple announced it would rigorously enforce guidance against steering transactions off-platform.

To appreciate why, remember that a large share (60% or so) of revenue on the App Store is from games, and game developers are in the business of incentivizing users to take small incremental actions within a play session. Sometimes those incremental actions involve e.g. learning the UI of your princess saving application, sometimes they advance the plot, and sometimes they directly achieve business goals for the developer. Consider MiHoYo’s Genshin Impact, which I’ll use as an example because I think it is up there with Fortnite or WoW in terms of future expected impact on games industry practices.1 Genshin Impact is an extremely well-implemented gacha game.

Gacha games, and other games with virtual currency systems, are extraordinarily well-positioned to directly influence user payment behavior.

Gacha games are named after the onomatopoeia describing vending machines in Japanese malls and arcades which dispense toys and trinkets for, typically, 100 to 200 yen (about $1-$2). The pool of trinkets is displayed prominently on the machine; which trinket you get is effectively randomized. If you had your heart set on a particular one, you might spend much more than $1 on getting it, and some children (and adults!) very much do.

Many very successful games have a monetization strategy which descends from a variant of this. Generally, there is game content (most typically, characters) gated on receiving a random draw within the game. Pulling these random draws is a core game mechanic with many systems supporting it. One can generally purchase draws both with limited free currency, awarded through gameplay (and capped on an absolute or periodic basis), and with a paid currency, which you can purchase with real money.

This is far from the only gaming monetization model, but its an extremely effective one, because it tends to naturally incentivize “whales” (high spenders) to go after the characters whom they most wish to play, and those whales can probabalistically spend surprisingly large amounts of money in small increments.

Full Version

OK, let’s go back to rewards systems and how they’re going to be used to modify payments choices.