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The Small Business Recovery

'Netflix for apps': Setapp's quest to build a better app store

A subscription to the app store could be a great business — and a crucially stable one, in these uncertain times. But it hasn't always been easy to build.

'Netflix for apps': Setapp's quest to build a better app store

Setapp founder Oleksandr Kosovan.

Photo: Setapp

Oleksandr Kosovan has been frustrated with app stores since way before it was cool to be frustrated with app stores.

Kosovan is the founder and CEO of MacPaw, a Ukraine-based app development company that originally started in 2008 with a tool called CleanMyMac. When CleanMyMac was new, there was no Mac App Store. Even when Apple launched the store, in 2011, "it was very limited in functionality," Kosovan said. The MacPaw team decided to promote a better way, to help developers sell their apps themselves. They built systems for testing early builds of apps and distributing finished ones, and tried to make it easy for developers to keep selling their wares outside of the App Store.

Over the years, though, the App Store kept growing. Apple kept tightening its control over the ecosystem, and something just felt wrong to Kosovan. It was time for another change in the apps business.

Kosovan and MacPaw have spent the last several years building Setapp, a service Kosovan describes as a "Netflix for apps." Countless companies want to be "Netflix for X," but Setapp actually fits the bill: Users pay $10 a month for unlimited access to a growing list of apps — currently just shy of 200 — that are fully available to all subscribers. Setapp users get to-do list apps and wonky Mac utilities, like CodeRunner and Disk Drill, power-user work tools and at least one app for looking at Instagram photos. Developers can sell their apps in other stores as well, but Setapp's rules hold that all features, all in-app purchases, everything has to be unlocked for Setapp users.

Setapp, Kosovan said, was all about solving a business-model problem. Even in 2015, he was hearing from developers that they didn't like the App Store way. "Perpetual licenses were very popular, but you have to purchase every two or three years when the new upgrade has arrived," he said. "We had to keep a lot of functionality for the next major release, because we had to have an argument for why customers would pay for the upgrade." Throw in in-app purchases and the fact that customers feel like they're being nickeled and dimed all the time, and you have a clear problem.

The obvious answer, of course, was subscriptions. Thanks to COVID-19 and the economic chaos it has brought, the appeal of the so-called subscription economy has become even more obvious. Zuora's study of the sector found that even during the pandemic, subscription-based companies continued to grow while the overall economy shrank, because consumers like the one-price-for-everything proposition as well. Revenue-per-subscriber growth was slowing as upsells and expansions went away, but the general rule of subscribers is that most of them don't leave.

For developers, the money matters, but the stability even moreso. Most app developers are small businesses, and Setapp is meant exactly for them. The likes of Adobe and Microsoft may have the marketing and infrastructure to handle their own subscriptions, but most developers don't. Consistent, predictable revenue is much better than fighting for every individual sale, and especially in uncertain economic times, it also helps to not pay Apple a 30% tax. (Setapp's commission is 10%.) More apps over the years have set up their own subscription services, but that solved one problem and created another. "When there are too many subscriptions," Kosovan said, "customers really hate it." And they won't pay for them all.

For Setapp, solving the problem for customers was easy: One subscription, all the apps. Figuring out how to compensate developers was tricker, but after testing some options, MacPaw landed on one it liked. It now tracks every time an app gets opened and pays developers a chunk of every user's subscription fee who opened their app that month. If a user gets both Taskpaper and Bartender through Setapp, but spends eight hours a day in one and only touches the other once every 30 days, both get paid the same. Apps that are more expensive outside of Setapp — developers are free to sell their apps elsewhere, including the App Store — also get a slightly higher portion of the Setapp money.

Ultimately, Kosovan said he wants Setapp to have 300 apps. That's one way he doesn't want to be like Netflix: He'd rather have a smaller set of great, vetted apps than try to offer the entire App Store for a single monthly fee. "300 apps could cover every need a Mac user might have while using the computer," he said. Setapp's intended customer still seems to start with the Mac developer, the same folks MacPaw has been working with for years.

Recently, though, Setapp had a breakthrough. The team figured out how to make Setapp work on iOS devices, where Apple takes a much firmer and more forceful role in policing the App Store. "It was extremely challenging to find the loophole in the App Store review guidelines in order to get on board," Kosovan said. "And even though we are there, we still have a lot of limitations. We don't have the user experience we want to have, that Apple has on its own platform."

The way Setapp for iOS works is pretty hacky: It works only for apps that also have Mac counterparts in Setapp, and that are also available in the App Store. In essence, Setapp is considered a payment-processing service; once users have "paid" for a Mac app with their Setapp account, they're able to log in to the iOS version as well. Setapp isn't allowed to promote itself inside those apps, or even acknowledge that there's another way to get those in-app-purchase features without paying.

As a result, Kosovan said he's not currently spending a lot of time worrying about iPhones and iPads. There are only 10 iOS apps in Setapp right now, and because Apple limits its functionality so much, there's not much more he can do. Setapp's full app store experience wouldn't stand a chance of being accepted on the App Store. But as Apple faces continued antitrust questions on the way it runs its app stores, Kosovan said he hopes there's more opportunity coming. He wants what games maker Epic wants: "Ideally, [Apple] would allow us to do a separate app store, with its own experience and review process and whatever is needed to keep users happy and secure."

Developers might welcome that change. A number of developers who make apps in Setapp told me the same thing: Setapp is a steady — but relatively small — source of revenue, and that it hasn't grown quite as fast as they'd hoped. Markus Müller-Simhofer, the CEO of IdeasOnCanvas, which makes a popular mind-mapping app called MindNode, said that Setapp accounts for about 5% of MindNode's revenue. Ben Surtees, the developer of a Mac utility called Bartender, said the revenue is "not huge but it's a decent amount." They all reported a nice bump in revenue right after joining Setapp, but not much growth afterward.

By bringing all this to iOS, with its massive install base, Setapp could provide its developers with a huge discovery engine and potential user base. Multiple developers said that they've heard from new users who found them through Setapp already. "I think many [Setapp users] would not subscribe to Ulysses directly if Setapp didn't exist," said Max Seelemann, the co-founder of writing app Ulysses, one of Setapp's flagship apps. "Setapp is also an extra marketing channel and creates some visibility and publicity for Ulysses that certainly doesn't hurt. So, I would not want to miss it." Meanwhile, people come to Setapp for a well-known app like Ulysses or CleanMyMac, and then test all the other apps suddenly in their library.

Kosovan proudly spoke of a recent ad campaign Setapp did with advertising giant Droga5, and said he's heavily invested in growing Setapp going forward. He said no Setapp vendor has ever willingly left the ecosystem (though a few have been kicked off for neglecting their apps), and that some developers are already earning more on Setapp than the App Store.

The already good news, developers said, is that Setapp doesn't seem to be cannibalizing their other sources of revenue. They can still distribute their stuff directly, or list it on the Mac App Store, and most Setapp apps do both. When he was deciding whether to join Setapp, Daniel Jaikut, who builds a blogging app called MarsEdit, said that "it didn't appear to impact regular sales at all, so I kind of view that money as 'bonus money.'"

Apple's certainly not new to the "Netflix for apps" idea, either. Apple loves a bundle: Apple Arcade brings a lot of games into a single $5 a month subscription, and with Apple One, the company will now offer several of its services for a single price. A subscription to the entire App Store seems less likely to happen, but it certainly wouldn't be without precedent. (Apple didn't comment on its plans.)

Most developers said they weren't necessarily looking for a replacement for the App Store, though many expressed frustration with Apple's complicated review policies and ever-changing rules. What they want instead is options; they liked being able to sell their apps directly, and list them through the App Store, and be part of something like Setapp. "In my opinion, competition is in general a good thing," Seelemann said, "and when it comes to apps and the App Store, there's too little at the moment, so it's good that a service like Setapp exists." Each serves a different purpose: Direct sales make them the most money, the App Store provides the widest distribution, and Setapp is an ultra-stable source of income and discovery.

Stability is crucial right now, in the midst of a recession. "It's great to have a subscription income source to level out the uncertainty of direct sales at the moment," Surtees said. In a complicated, uncertain economic moment, it's nice for developers to not have to hold their breath for every next sale. Setapp turns every app into a subscription app, with the much-needed predictability that comes with it.

Setapp also makes it easy for people to try apps, the same way they might surf to a random Netflix show they'd never pay $4 to rent — or apps they might not pay $40 to buy. "The biggest problem with the Mac App Store is that there's no trial version," Muharrem Ozkan, who develops an app called PDF Search, said. Right now, he said, Setapp accounts for 50% of PDF Search's revenue, in part because it's hard to explain how useful it can be to instantly search all your PDFs. You just have to try it. Setapp users can.

Setapp on the Mac.Image: Setapp

Still, Kosovan is nervous about what Apple might do as Setapp gets bigger. It's already on iOS through a loophole in the rules, which seriously hamstrings what it can do on the platform, and Apple has shown it's willing to change how it enforces those rules at any time. Kosovan said he worries that he's risking the future of the apps in Setapp and that they could be rejected from the iOS App Store just for being part of his program. Even on the more open Mac ecosystem, Apple could easily terminate Setapp's developer account and make it much harder for Setapp and its apps to work on most Macs. Like every developer trying to compete with Apple, Setapp has to make sure it doesn't poke the beast.

That may be part of why Kosovan said he's interested in expanding. He said MacPaw has looked into a "Setapp for web apps," for instance, as more tools are available as a service and in the cloud. (Think Okta, but for regular people.) MacPaw already offers Setapp For Teams, which simplifies things like managing software licenses and upgrades. "We have a very easy-to-use admin panel where you can do everything," Kosovan said, "managing your employees just by assigning Setapp seats for them."

Right now, Setapp is still fairly small. Even in the best case, though, Setapp's not likely to ever topple the App Store, if only because Apple has absolute power to prevent that from happening. Becoming the biggest thing in apps certainly isn't Kosovan's goal for the product. But it stands as an example of other ways these systems can work, and do work, for developers and users alike. In a pandemic, growth may be hard to come by, because even though people don't tend to cancel their subscriptions, they're likely not inclined to sign up for new ones. But Kosovan soldiers on. He wants to build an app ecosystem that's both a great deal for users and a good business for developers, in a pandemic or otherwise. That has always been too hard to come by.

Meanwhile, in the tug of war with Apple, Setapp's security by obscurity won't last forever. What happens when it gets so big, so Netflix-like, that the rest of the industry suddenly decides it's a threat? Well, Kosovan said with a laugh, "that would be a great problem to have." It worked out OK for Netflix.

The Small Business Recovery Manual:

  1. How small businesses are using tech to get through COVID
  2. How Etsy stopped showing beauty products to mask buyers
  3. Delivery apps say they're trying to boost Black-owned businesses. Is it working?
  4. Flowers, food and wine: How the push to sell online has permanently changed businesses
  5. Why large businesses should think like small businesses
  6. Yelp's pivot to helping small businesses during the pandemic
  7. How businesses can use tech to punch above their weight — even in the middle of a pandemic
  8. This startup is steering money to Black and women-owned businesses
  9. Braintrust: The next step SMBs need to take after going digital
  10. 'Netflix for apps': Setapp's quest to build a better app store
  11. The technology that'll help small businesses in the next pandemic
  12. Dark kitchens are a light for COVID-struck restaurants
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