Apple reduces App Store commission for small developers: Shall we all be happy?

App Store - Apple

Apple has attracted significant regulatory attention for obliging iOS apps selling “digital goods or services” to use its payment solution In-App Purchase (IAP) to accept user payments and pay a related 30 % commission. Apple’s policy on in-app payments is at the core of the Commission’s ongoing investigation into Apple (following complaints by developers Spotify and Rakuten) and the high-profile Epic Games litigation in the US – even though the (exclusionary) theories of harm in these cases seem to significantly diverge (in the EU the question seems to be whether the obligation to use IAP and pay a 30% commission distorts competition between Apple’s own apps and competing apps such as Spotify, while in the US Epic Games claims that Apple has illegally monopolized the market for in-app payment processing on iOS devices). Apple’s 30% commission was also the subject of harsh criticism in the recent US House Antitrust Report.

Dimitrios Katsifis and I have written extensively on Apple’s 30% commission. Besides exclusionary concerns, we have argued that Apple’s policy on in-app payments raises issues of exploitation under Article 102 TFEU. A central question (that we think Apple has consistently failed to answer) is why, if the 30% commission is charged for app distribution on iOS devices (as Apple has asserted on various occasions), Apple has chosen to charge such a commission on a small minority of apps in the App Store, namely apps selling “digital goods or services” (approximately 16%, according to Apple data). These apps get to pay the fare for everyone, with 84% of apps paying nothing save for an annual $ 99 developer fee. As we have explained in our papers, Apple’s distinction between apps selling “digital goods or services” (think of a game like Candy Crush Saga) and apps selling “physical goods or services” (think of Lyft) is entirely artificial, unprincipled, and arbitrary.

Throughout the years, Apple has introduced (often in response to public or regulatory pressure) various exceptions to its policy on in-app payments, such as the “reader rule” (for apps enabling users to consume content purchased elsewhere; Netflix is an example), an exception for apps sold to organizations or groups for their employees or students, or an exception for apps offering real-time person-to-person experiences between two individuals (think of a fitness class delivered remotely during the ongoing pandemic). Yet rather than elucidating Apple’s rules, these exceptions have introduced additional problems and confusion (for instance, why is there an exception for apps offering real-time person-to-person experiences between two individuals but no exception for experiences including three individuals?). In the end, these exceptions confirm the lack of any principled approach on the part of Apple when defining and applying its policies (remember, reader apps or apps sold to organizations for their employees are equally distributed on the App Store). Apple has even changed its policies ex post facto to align its rules with prior decisions made on the fly (see Apple’s public feud with Basecamp over HEY and the subsequent introduction of an exception for “free stand-alone apps”).

Today Apple announced a new App Store Small Business Program, expected to launch officially in January 2021. Participating developers will benefit from a reduced commission of 15% (as opposed to 30%; note that the commission drops to 15% also in the case of subscriptions lasting more than one year), provided they generated no more than $ 1 million in proceeds from all of their apps in the previous calendar year. New developers will also be eligible to participate in the program. According to Apple, the new program will help small businesses and independent developers in a period of unprecedented global economic challenge.

Apple’s new program for “small” business will no doubt be welcomed by developers that fall within its scope (which Apple claims are “the vast majority” of developers selling “digital goods or services“). It’s also a clever move from Apple, as the latter tries to appease regulators and frustrated developers that have long pointed to the fact their apps benefit Apple in several ways (e.g., increasing the value of iPhones and allowing for the creation of a profitable App Store ad business for Apple). Seeing Apple relaxing its policies may thus be viewed positively.

Yet at the same time, much like the exceptions referred to above, the new program highlights once more the arbitrary nature of Apple’s policies on in-app payments. An app developer that generates $999,999 in one calendar year will profit from a 15% reduction, while a developer that garners $1,000,001 will have to pay a 30% commission. This is a huge difference, which distorts competition. It’s also not clear why from now on, some developers will have to pay the full fare (30%), while the majority of developers selling “digital goods or services” will pay half of it (15%), while again at the same time, the large number of apps that do not sell “digital goods or services” will pay nothing (0%) – despite the fact that in all these cases the developer receives the same services from Apple. This also shows how Apple’s fees are unlikely to bear any relationship with Apple’s costs …

In addition, one should not forget that Apple’s new program concerns only one issue, that of the level of the commission paid by app developers. It does nothing to address other equally important issues relating to IAP, such as the fact that through IAP Apple confiscates the customer relationship of app developers (e.g., they cannot refund their customers) and collects sensitive commercial data of potential rivals. As Dimitrios and I have argued, addressing these issues would require Apple to “unbundle” the 30% commission from the obligation to use IAP, thus allowing app developers to use their payment solution of choice.

In sum, while we are pleased that small apps will benefit from a reduced commission rate, this PR stunt from Apple is far from addressing the issues that have been raised by many app developers. If anything, this shows that Apple’s App Store policies are arbitrary and discriminatory.

PS: These views are mine only.

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