Apple’s response is a cynical move with no effect

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on November 18, 2020.

The Apple Tax. That’s what critics usually call the fee that the company charges developers when they sell through the App Store. Now it is cut in half for the smallest players, all to appease the court of public opinion. The cost for Apple? At best, it can be seen as a rounding error on their bottom line.

The dispute with Epic Games over the cost of Apple’s services has now become a lawsuit starting in May next year. The underlying question is whether individual developers should be able to offer their own payment solutions via the App Store, or whether they must use what Apple offers.

It may sound like a technicality, but there are billions of dollars that run through these systems where Apple takes 30 percent of all revenue. The fee is now cut in half for companies with revenues of up to $1 million.

The change comes at a sensitive time for Apple, as sales of their flagship product, the iPhone, are not growing as strongly as before. Instead, more and more focus has been placed on the company’s services – including iCloud for storage, the music service Apple Music, and the App Store itself. And it is the latter that is by far the largest and most significant among them.

It is also in this context that one should understand the quarrel with Spotify – a company that is not only forced to give almost a third of all iOS revenue to Apple, but also directly competes with one of its most important services, Apple Music. The company has also packaged Music together with its other services at a lower price directly in the operating system – something that Spotify does not have the opportunity to do. Unsurprisingly, Spotify was not impressed by Apple’s announcement.

Apple often talks about how much money the company has paid out to developers – more precisely $155 billion until this year. What is much less talked about is how that money has been distributed among the developers. The reason for this is that the distribution is very top heavy.

One of many examples of how the biggest developers take a very large part of the pie, and the long tail of hundreds of thousands of developers share what is left, is the Finnish gaming company Supercell. They are behind games like Clash of Clans and Clash Royale and have revenues of just over $5 billion over the past three years, most of which comes through Apple.

Seen in this light, today’s proposal from Apple is not as generous as it first seems. Reducing the fees for the smaller developers will probably be appreciated by many. It will also position Apple as a company that stands on the side of small businesses, something that could be used in the upcoming lawsuit. But since the change only affects developers with relatively low revenues, the cost to Apple will also be low. Probably virtually invisible, given their huge revenue overall.

This is a smart – but cynical – move by Apple. The company keeps Epic Games and Spotify at arm’s length, and ties the smaller developers closer. And they do it without it costing them almost anything.

This analysis was first published in SvD Näringsliv, in Swedish, on November 18, 2020.

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