Will Apple finally be forced to give up its 30pc App Store commission? Will regulatory action against it in Europe also end its gagging rules against apps that want to mention cheaper deals outside the Store?
wo cases look likely to bring this a lot closer to reality. Epic Games (which makes the smash hit mobile game Fortnite) and Spotify have both complained about the App Store’s “anti-competitive” rules on either side of the Atlantic.
Epic is suing Apple in the US and the UK while Spotify’s complaint has sparked an EU Commission competition enquiry that looks bad for Apple – Commissioner Margrethe Vestager said last week that the company’s position is anti-competitive and untenable.
Epic, Spotify and Ms Vestager are making the same arguments against Apple – that the 30pc cut it takes is way too much and an abuse of a duopoly (between Apple and Google). They’re also arguing that Apple’s rule disallowing apps from mentioning (within the app) that you can sign up for an app’s service outside the App Store for less is an abuse of a dominant position.
This second condition is something that many people will have run into and been puzzled by from time to time.
Ever see one of your subscription services advertised for way less than you’re paying through your iPhone?
For example, YouTube Premium costs €11.99 a month. But if you sign up from within the App Store, it’s €15.99 a month. You mightn’t know about the standard (cheaper) price because YouTube isn’t allowed tell you about it in its iOS app, even though both sign-up processes give you the exact same functionality within the iPhone app.
This situation has led to other well-used apps adopting awkward and janky user experiences too, without being allowed to clearly explain why to their users.
The Commission’s argument on Spotify’s behalf is the opposite of fair competition.
Amazon’s chart-topping audiobook app, Audible, doesn’t give you the option to subscribe or buy a book from within the iPhone app, seemingly with no explanation. To sign up, you have to go to a web browser, something many people only find out about by Googling how to do it. Amazon isn’t allowed to spell this out clearly from within the app, because of Apple’s rules.
(In the past month, Amazon has begun allowing customers to spend their ‘credits’ within the iOS app, but these credits must still be purchased outside the app, with no explanation as to how within the app.)
Apple says that its 30pc commission reflects the effort it has put in to make the App Store a relatively stable, secure, trustworthy place for both customers and developers. It also argues that its pioneering of the App Store effectively created the smartphone developer economy we see today, resulting in apps such as Fortnite and Spotify being what they are.
(In Ireland alone, there are 17,000 iOS app ‘ecosystem’ jobs, according to the company.)
Apple also points out that one of the main complainants, Spotify, actually got a better deal from Apple.
“Spotify has become the largest music subscription service in the world, and we’re proud for the role we played in that,” a company spokesperson told the Irish Independent.
“Spotify does not pay Apple any commission on over 99pc of their subscribers, and only pays a 15pc commission on those remaining subscribers that they acquired through the App Store. At the core of this case is Spotify’s demand they should be able to advertise alternative deals on their iOS app, a practice that no store in the world allows.
"Once again, they want all the benefits of the App Store but don’t think they should have to pay anything for that. The Commission’s argument on Spotify’s behalf is the opposite of fair competition.”
It’s not clear whether Apple’s special commission percentage arrangement for Spotify strengthens or weakens its case.
But while Apple’s other core arguments on developing the App Store economy are broadly accepted by all sides, its margins may now appear to be excessive. According to testimony in the Apple-Epic case from Ned Barnes, a financial and economics researcher, the App Store had operating margins of almost 78pc in 2019. Mr Barnes says that this figure is based on documents obtained from Apple.
Apple has disputed the claim. But if it’s anywhere close to that figure, the company might find it very difficult to bat off future regulatory accusations that it is now profiteering from the App Store because of its dominant position.
“This does have a monopoly feel about it,” says Dermot Daly, founder of Tapadoo, one of Ireland’s largest app developers.
“When the App Store launched, the raised eyebrows about the size of the cut were initially dispelled. Simple checkout flows like those offered by Stripe today were not common then. Independent developers didn’t have to develop shopping carts, or pay someone to store credit card details in a PCI compliant store somewhere. So many thought that the frictionless checkout of an App Store purchase was worth it.”
Today, though, he says it’s a different landscape.
“The App Store as a source of revenue has really changed. If I’m just selling another level in a game, I think that Apple’s cut is something I’ve bought into with my eyes open. But If I’m trying to run a digital bookstore, it's super hard to compete against Apple, as I have to pay them a percentage. And it has led to worse user experiences for end users. I only recently tried Audible and I don’t really know how to purchase [credits], I just know it's not easy because Apple’s rules make it so.”
In January, Apple tried to take some heat out of the issue by cutting its commission from 30pc to 15pc for app developers that make under $1m per year, which Apple says make up the majority of developers.
However, although the analytics company Sensor Tower estimated that over 90pc of iOS app developers would benefit from the commission cut, it calculated that these developers made up only 5pc of Apple’s App Store revenue in 2019.
Furthermore, as soon as a developer’s income rises above $1m, the higher 30pc commission rate kicks in.
One of Ireland’s most successful independent app developers believes that Apple will inevitably need to change its App Store rules.
“I think there’s too much pressure building up around the world for Apple not to have to take a long, hard look at how they need to run the App Store for its next decade,” says Steven Troughton-Smith, whose apps include Pastel, Broadcast and Grace 4.
“For over a decade, as developers, we’ve had to design our products in such a way that they comply with Apple’s rules, fair and unfair, so that they can fit on that App Store, even as Apple has gradually moved the goalposts and strong-armed app developers into implementing payment models that benefit Apple more than the user.
"That has always felt like more of an abusive relationship than a symbiotic one. And as this ecosystem has become bigger and bigger, and influenced the wider world more and more, their position has looked increasingly untenable for quite a while now.”
Mr Troughton-Smith describes himself as a long-time Apple user.
“As a developer who relies on the App Store to run my business, and who loves the benefits it does provide, I still really hope that this reckoning pushes Apple towards fairer conduct, more competitive commission rates, better interoperability, and a more welcoming and vibrant ecosystem for developers to make better apps, with Apple competing through technical merit instead of restrictive policy and rule sets that apply to everybody except themselves.”
The US case involving Epic and Apple is being heard this week, while the European Commission anti-trust enquiry into Apple’s App Store is likely to take a year.
