It’s just not the same after Apple’s had their cut
Apple has held a tight grip on the App Store since its inception. The original version of the iPhone, running “iPhoneOS 1” wasn’t even capable of running apps. Apple begrudgingly added it later after user complaints and seeing third party options, like jailbreak stores, popping up. Since then, they’ve worked hard to make sure users and developers are locked into their system.
With the exception of jailbroken devices, all apps must be signed with a developer certificate from Apple, they must come from the App Store if they’re not a pre-release test version, and all payments for in-app items must go through Apple’s payment processing. This allows Apple to take 30% of all purchases for themselves. Normal payment processing fees, like those from credit card companies, are usually only 3%. Apple eventually agreed to lower that amount, taking 15% from subscriptions after the subscription reaches its second year. That’s the only exception Apple has made, and it’s not one that favors startups or small companies.
Developers are tired of seeing their profit margins go directly to Apple. In the Netherlands, a groundbreaking case took Apple to task. Developers wanted to be able to use third party payment options on iOS. Apple refused. The Dutch court ruled in favor of the developers, forcing Apple to make third party payment options available to developers. Apple complied in the most pedantic sense, and Dutch developers aren’t happy. Neither are the courts. They’ve continued to fine Apple 5 million euros every week. If Apple doesn’t comply, they could increase that to a maximum of 54 million euros per week. So far, Apple has refused to comply with the order, according to the courts, but they did allow third party payments on the platform. They added enough caveats that no one would ever consider it.
Apple’s 27%
https://twitter.com/stroughtonsmith/status/1489558951905669120?s=20&t=c5d4GcervZZisgnaBDGqdw
Apple should have allowed third party payments without an exception. That’s what the Dutch court ruling asked them to do. Instead, Apple made things incredibly difficult. Developers had to apply for a “StoreKit External Purchase Entitlement.” From there, they could only accept third party payments, not the first party Apple payments some users may still prefer. They’d then have to put a warning before accepting payments, claiming that they’re using third party payments instead of safer Apple-based payments. Furthermore, developers could not release the same versions of their app worldwide. They’d have to make a special release for the Netherlands exclusively, then one for everywhere else. Finally, Apple would still take a whopping 27% from developers, forcing them to report all sales to Apple anyway.
This last part was an especially large insult. To process credit card payments, developers have to give credit card companies 3% or more of the purchase price. In other words, Apple made it more expensive to use third party options. They intentionally forced developers to stick with the existing program, even as the law required otherwise. Their guidelines also ensured users would be less willing to pay through third party payment options.
Apple’s Needs App Store Payments
Apple isn’t charging for the payments here. The 30% fee isn’t the same as a fee for a credit card payment. Apple’s share goes to hosting apps. Apple wants to encourage App Store developers to release free apps. To do this, they can’t charge for hosting their apps in the App Store, or the costs would be too high for free apps, small developers, or even lone developers just trying to publish an app for the experience. Therefore, they push those costs onto those who do intend to make money from their apps, with a whopping 30% fee. The problem is, that fee is too large. It gets in the way of profits. It doesn’t incentivize making apps. No one will be willing to quit their job and start their own company if they know Apple will eat their profits.
https://twitter.com/marcoarment/status/1489600038749847553?s=20&t=QBkx4FsMyNB0l394sEDfwA
This is also a problem of Apple’s own making. They don’t let developers self-host or publish their app through any other app store. Apple’s business model relies on developers needing to use them, then setting their take high enough to make up for free users. It’s clear that, regardless of whether or not Apple eventually must allow third party payments and even third party app stores on iOS, that they have to treat developers better. Losing such a large chunk of revenue means that most indie developers can’t afford to make an app, let alone make money from it. In a sense, Apple has pushed indie developers towards privacy-violating and annoying ad-driven or freemium price models. Users and developers lose so Apple can profit.
The Fines Keep Coming
Apple’s monopolistic behaviors aren’t lost on the court. The Dutch Authority for Consumers and Markets (ACM) ruled that Apple’s third party payment system did not meet the standards set by the ruling. Therefore, Apple has faced fines of 5 million euros every week they have refused to comply. So far, it’s been 15 million euros, with the costs continuing to grow.
Apple will be willing to sink millions into this fight. If one country wins the right to process payments without Apple, Apple may have to re-think how they collect money from App Store developers. They may ask that even free app developers have hosting, collect ad revenue, or increase developer registration fees. Apple won’t put their cash cow out to pasture. Taking that massive cut of developers’ money was a great business model for Apple. They’re afraid if they lose it in one nation, they could lose it worldwide.
Apple’s going to have to find a middle ground that makes developers happy and still allows them to make a profit. Apple won’t get to have their cake and eat it too. With governments around the world cracking down on the monopolistic behaviors of big tech, Apple’s sure to lose this battle in the long run.
Sources:
- Killian Bell, Cult of Mac
- Sami Fathi, MacRumors
- Natasha Lomas, TechCrunch
- Ben Lovejoy, 9to5Mac
- Malcolm Owen, AppleInsider
- Joe Rossignol, MacRumors, [2]
- Michael Simon, Macworld