App economy – A bearish proposition.

The opposite of that which is intended.

• A proposal to cut app store fees to 20% in Russia but also force developers to contribute a further 30% to a fund that trains IT specialists will have exactly the opposite effect of that intended.
• Fortunately, the proposal is very unlikely to ever pass into law.
• Draft legislation submitted to the lower house of parliament (Duma) would force Apple, Google and presumably Yandex to cut the fees they charge developers for app distribution to 20% from the current industry standard of 30%.
• This sounds great for developers but also tacked onto the bottom is a new requirement for developers to contribute another 30% of their revenue to a fund that pays for special training for IT specialists.
• I assume that this means that the intended use of this fund will be to train young people to write code and become app developers which in theory would be great for the Russian app economy.
• Unfortunately, this is not a realistic expectation.
• This is because app developers selling their wares in Russia will go from paying 30% of their income to 50% which will substantially reduce the attractiveness of writing apps for the Russian market.
• App developers based in Russia will begin to focus on other markets and developers that are based outside of Russia will have no incentive to make their apps available in Russia.
• The one exception to this is apps like WhatsApp or Instagram that are the same wherever they are launched and so there is no incremental cost to a launch in Russia in addition to other countries.
• In this instance, not launching in Russia is throwing money away even after 50% of the revenues have been deducted.
• The result of this will a large decline in apps that are either focused on the Russian market or have been adapted to be more appealing in Russia.
• This will result in a smaller app economy in Russia than the one that exists today meaning that the impact of the legislation will be the exact opposite of that which is intended.
• Fortunately, this legislation is being championed by a lawmaker from the A Just Russia party which holds just 22 of the 450 seats in the lower house.
• Consequently, there is almost no chance that this legislation will ever pass into law for which the Russian app economy should be very thankful.
• A better way to grow the app economy would be to force Apple, Google and Yandex to cut their revenue share take but without the added 30% fee thereby allowing developers to make more money.
• This would incentivise both local and international developers to put more effort into addressing the Russian market because the return on investment would be that much higher.
• The general rule of the more you tax something, the less you get of that something applies very clearly in this case.