Apple gaming studio predictions for 2022

If Apple were a person, it would seem they are (still) living on top of the world. Still flush with cash, flexing those privacy muscles with the final rollout of iOS 14.5 and then benching more with iOS 15, and up 29% year over year. But like a senior year quarterback with three championships already to their name, expectations are high and when they’re not met across all areas, disappointment inevitably sets in.

Take the ruling in September, for instance, that allowed app developers to route players to alternative platforms to make payments, avoiding the 30% App Store fees. It was a relative win for Epic Games in the company’s fight for "fair competition" among in-app payment methods and app stores for the billions of consumers in the app ecosystem. The loss for Apple revenue is estimated as about half of the $6.3 billion it now gets.

So how is Apple planning to shore up revenue in the future? What is their game plan?

Speculation #1: Apple will beef up its search advertising business, specifically for app discovery.

Why people think this:

• The privacy moves essentially handicapped major ad networks and now limits their ability to target users, specifically for app discovery outside of the App Store.
   
• Apple has made it clear to investors that its “services” line of business is a key growth driver of business for the future, and with a revenue share from other apps potentially falling, getting more from advertising (publishers paying to be discovered) seems like low-hanging fruit.
   
• Search ad revenue constitutes the majority of the now $3 billion/year ad business, which just four years ago was a mere $300 million. Projections say it could hit $7-10B in another 2-3 years.

Why they’re wrong:

While it’s entirely possible that Apple might follow the Amazon model and build out a significant ad business, I don’t think that’s the route they’re going. Ad-based search is a giant mess, and it still relies on tracking consumer behavior and thus goes against the company’s stance on privacy.

Speculation #2: Apple will start a display ad network. 

Why people think this:

• Same data reason as the potential search ad play, Apple could offer advertisers the only way to reach high-quality users at scale, using Apple’s data while the company "protects" it from third parties.
   
• The company has even more data than a regular display ad network, such as apps they have installed or uninstalled, IAPs, and other behavioral actions that are not tied to keyword searches.
   
• Apple has a significant amount of proprietary apps (Stocks, News, etc.) in which they could serve premium native and display ads, and those apps have an unfair advantage over others because AppTrackingTransparency doesn’t apply by default, as it does for all third-party apps.

Why they’re wrong:

Even though Apple hired (and quickly fired) one of the most famous ad network minds earlier this year, which made it appear this was the direction they were going, there is a reason why the company phased out iAd in 2016 and moved away from the idea of an ad network. They are so focused on creating premium user experiences and I just don’t see interstitial video ads or rich media banners, no matter how well done, being congruent with that mission.

Speculation #3: They will focus on in-app monetization to get more cash from developers.

Why people think this: 

• Apple has historically been on the side of developers and wants to help them monetize their apps, so this would be in alignment with that partnership.
   
• Discovery (search, UA advertising) and premium content delivery are still a high priority for the brand; we’ve even seen them now secretly buying Google ads for App Store purchases of HBO, Tinder, and Masterclass to be able to collect their cut of the subscription revenue.

Why they’re wrong:

The Epic ruling is just the beginning I think the days of the full Apple "cut" might be numbered, and they know it. The money to be made lies with the biggest developers, and they’re not going to keep lying back and letting Apple take such a huge chunk of their hard-earned revenue without fighting back.

My Theory: Apple will create the largest gaming studio in the world. 

Why I think so:

• Apple is acquiring different apps right now like Dark Sky and turning them (and/or their features) into native apps for iOS, in this case, its weather app. They can do the same in gaming, or…
   
• Build their own. With access to the first-party data from developers, they can follow the Amazon model where they take what they know consumers are buying and create their own version of the same product that will surely be successful.
   
• Then, they could also use first-party data from the monetization of those apps to fuel the growth of the others in their portfolio, similar to the black-box content-to-attribution mobile ad tech stack companies out there.
   
• Subscriptions are hot. Going back to their emphasis on "Services" fueling the growth of the business, that includes subscriptions, and that is where the profit margins are highest. Apple’s subscriptions now boast 745 million subscribers and, despite headwinds, is poised for more subscriber acquisition and scalable growth.

Apple gaming studio

Gaming is the perfect subscription business, as the company can spend to acquire exclusive titles and attract an audience of two billion mobile gamers worldwide. Moreover, since Apple Arcade already exists, they can test their own games by putting them into that bundle.

In this way, Apple could also create new markets in new technologies like, say, augmented reality. Doing so would allow Apple to leverage the gaming vertical as a technology accelerator, much like Niantic did with AR through Pokémon GO. This could be done through current offerings or ones yet to be announced. Either way, by leaning into gaming, Apple could vertically integrate content and technology, marrying its state-of-the-art hardware to the Apple brand consumers have grown to love.