Apple’s concessions are too late

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 2nd, 2021.

Developers and legislators around the world are questioning Apple’s business model. Slowly, the company has been forced to back down. But the latest concession will not solve the big app conflict.

Once we are making over $1B a year in profit from the App Store, is that enough to think about a model where we ratchet down from 70/30 to 75/25 or even 80/20 if we can maintain a $1B a year run rate?

That’s what Apple executive Phil Schiller wrote in an email in 2011 to, among others, Steve Jobs, then CEO of Apple. Even then, ten years ago, it was suggested that the profitability of the App store could be maintained with a different revenue split.

“70/30” that Schiller refers to is the commission model that Apple has in the App Store. For every dollar a developer sells for, Apple charges 30 percent. That fee was also the first concession that Apple made, when the company last year lowered the commission to 15 percent for developers who had less than $1 million in revenue per year.

This change affected the majority of developers – close to 97,5 percent, according to the computer company Sensor Tower. But the reduction was criticized because it would not, in principle, affect Apple’s revenue at all. Moody’s, a research firm, estimated the effect to be less than 1 percent of Apple’s profits from the App Store, whose total revenue is secret.

The App Store is very top heavy – it is the biggest developers who basically make all the money. Retaining these developers – and revenue from them – is Apple’s primary interest. It is in light of this that last week’s rule change, and Wednesday’s adjustment should be seen. Apple will now allow apps that provide video, music, and news to link directly to a web page where you can charge your customers without having to give Apple any commission.

In practice, this is a very small change. Major apps such as Netflix and Spotify are already charging outside Apple’s ecosystem. The only difference now is that they can link directly to their web pages instead of relying on users to find their web sites on their own. The change will therefore mostly symbolic, and does not cost Apple anything. A way of trying to appease both politicians and developers, but which will have very little economic impact.

The big question for Apple concerns mobile games. This is where the absolute majority of revenue in the App Store comes from. If the gaming companies can circumvent Apple’s payment system completely, this could start to make a dent , even in the income statement. A decline in revenue in their important service sector could worry a stock market that has seen this as an area for growth. Giving Spotify and Netflix a link to a website is therefore a cheap concession – as long as the regulators allows Apple to keep a tight grip on game developers.

Another question is whether this attempt at self-regulation is coming too late. This week, South Korea – as the first country in the world – came up with legislation that forces Apple and Google to allow more payment systems in their app stores. The big lawsuit between Epic and Apple, where a verdict is expected this fall, has pointed the spotlight on the issues. Judge Yvonne Gonzales Rogers has indicated that neither party will be completely satisfied with her decision. But just the fact that there is now talk of Apple as a monopolist can be seen as a win for Epic, regardless of the outcome of the case.

In parallel, lawsuits and legislation are underway in several countries, all of which look at issues of competition and monopolistic behavior. It is unlikely that all these instances would be satisfied with the small adjustments that Apple itself has initiated. For many years, Apple refused to adapt its rules at all, and that attitude has upset both developers and legislators. A more pragmatic approach could have deescalated the issue. Instead, Apple is now in a position where they are playing defense and trying to reduce the damage of potential regulation, rather than proactively changing their rules before the problems arise.

This column was first published in SvD Näringsliv, in Swedish, on September 2nd, 2021.

Success! You're on the list.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.