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Has Apple Turned the App Store into a Protection Racket?

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Developer says Apple has stolen tactics from the mafia.

Hey's "Imbox"

You’ve likely seen the scene in a movie. Mafia baddies come by a store one day, asking for protection money. If the owners don’t pay up, they come back and smash the windows. The next day, they come back, asking for money to “protect” the neighborhood. The app version of that might be waiting until a developer needs to release an urgent bugfix to tell them you need 30% of their subscription revenue.

Which is exactly what Apple’s doing to the developer of the Hey email service.

Now Hey either has to allow their iOS users to languish with serious flaws in the app, face removal from the App Store, or give up a large chunk of their income, which the small company obviously needs.

I wonder if Tim Cook himself swings by to break your thumbs if you hold out.

Goodbye, Hey

Apple approved the Hey email app. This app features a $99/year subscription. Because you can’t subscribe within the app, Hey gets to keep that $99/year for their own expenses and revenue. This is the same path Netflix, Amazon, Spotify, and many other subscription services take, but they also offer in-app subscriptions, where Apple gets its cut. If they allow users to subscribe within the app, they’ll lose 30% of their revenue for the first year of service to a particular user, and then 15% for each year after that. The fact that a new company could lose nearly a third of their revenue for their first year could be devastating. It could ruin them. But so could having your app removed from the App Store.

Currently, Apple allows companies to offer subscriptions to services outside of the App Store’s process. They allow Netflix and others to do this. Because Apple takes such a large chunk of revenue, many companies allow users to subscribe on their website or put the 30% charge on the customers by charging more if they sign up through the iOS app. However, Hey, created by the same company that made Basecamp, doesn’t have the same kind of support as a company like Spotify or Amazon. Hey’s not large enough to have a loyal and angry fanbase, or large enough to fight Apple’s legal team, they just launched their product. The truth is, they’re completely at Apple’s mercy, and it seems Apple has none.

Slipped Past the Rules?

“Apple told me that its actual mistake was approving the app in the first place, when it didn’t conform to its guidelines. Apple allows these kinds of client apps — where you can’t sign up, only sign in — for business services but not consumer products. That’s why Basecamp, which companies typically pay for, is allowed on the ‌App Store‌ when Hey, which users pay for, isn’t. Anyone who purchased Hey from elsewhere could access it on iOS as usual, the company said, but the app must have a way for users to sign up and pay through Apple’s infrastructure. That’s how Apple supports and pays for its work on the platform”

– A summarization of a statement provided to Protocol

Certain apps, “Reader” apps, are allowed to include purchases outside of the app. This is why you have to go to Amazon.com to buy Kindle books or Comixology’s website to buy comics, instead of doing so through the app. Apple allows these “reader” apps to move all purchases out of the app so they can avoid Apple’s 30% cut. Presumably, this is due to the fixed pricing of digital versions of print media.

While you might be thinking, “Of course email’s a reader app, you read emails.” Well, that could be how the app slipped through Apple’s initial review without anyone noticing it. However, it’s a communications app, not a reader, and therefore they need to have subscriptions available within the app. Apple only makes exceptions for business apps, and Hey is targeted at individual consumers.

Tough Choices

Apple’s cut of the revenue is quite steep. Considering the fact that apps often don’t sell for very much, subscriptions became the only way they could make money. 30% off of the first year, however, makes getting a new company off the ground very difficult. Many companies charge more for their services through Apple’s in-app purchases. They pass that 30% charge along to the customer. That can add up. While an app that costs $10/month now is $13, you might not think of it too much. $3/month? That’s not so bad. But it comes out to an additional $36 per year, $120 vs $156. That’s something people would seriously consider. So when you consider a company like Hey which offers a yearly $99.99 subscription, $129.99/year may come off as too steep. For a new company, a price point that doesn’t make new users want to sign up can be a death sentence.

For Hey, the best option would be monthly subscriptions through the app. It won’t seem as shocking as $129/year. They could do $10.99/month. Sure, it comes out to just a little more, but it’s somehow an easier ask, especially for people trying a new service who may consider canceling after the first few months. Hey could still offer their $99/year plan online, dodging Apple’s fees, but they couldn’t link to it in the app. They’d just have to hope people find it, or market outside of Apple’s ecosystem.

This might seem like a simple solution, but it’s not. It complicates the pricing structure, adds overhead costs, increases the need for support staff, adds tech debt, and slows feature production. If the company is short on investor money now, the initial setback of revenue could spell trouble for the company’s future. They may have needed a strong start to survive.

Apple holds all the cards. A small company like Hey can’t bully Apple. Instead, they should try to play ball and see if they can cover their expenses for at least the first year of subscriptions. The sooner they start, the sooner they can start collecting 15% more revenue on each of their year over year subscribers.

Antitrust Lawsuits

App Store screenshotsThis isn’t fair. It puts unnecessary risks and pressure on new companies. Apple’s policies, especially since they take more for new companies, can hurt their ability to get started. It prevents small businesses from getting into the App Store easily. While Apple does deserve to be paid for hosting the app, the App Store, iCloud storage, and providing users and an ecosystem, they’re double-dipping. Apple charges developers for Apple Developer accounts, just so they can build and deploy apps to devices or the App Store. This is how they make money off of free apps. However, it’s not enough for Apple. They split the costs with developers who sell services or features through their apps.

While it’s true Apple should collect revenue for hosting the App Store ecosystem, they also don’t give developers an alternative. It’s not as though a developer could release their app through a different app store and still get their apps on iOS. Apple prevents this. Because developers and consumers have no choice but to use Apple’s services, the company has incurred the wrath of businesses all over the world. In the U.S. politicians have pushed to break up Apple. In the EU, Apple’s being sued for monopolistic behavior. A move like this right now could hurt their case, but likely not by enough for Apple to give in to Hey. If they gave into Hey now, they’d have to give into everyone.

Apple certainly is guilty of antitrust behavior, and the company should either be broken up or forced to allow third party app stores on iOS. It’s the only way to ensure fair treatment of developers and users in situations like these. But the legal battle for that will be long. After all, companies have been trying since Apple introduced the App Store in 2008, and Apple still hasn’t changed.

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