Apple Is Cutting App Store Commissions in Half for Smaller Developers (But Its Critics Are Not Impressed)

App Store Small Business Program Credit: Apple
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It’s been one of the most controversial aspects of Apple’s App Store for many years, and has more recently raised the ire of antitrust regulators around the world and created no small amount of vocal opposition from many developers, both large and small.

We’re talking of course about Apple’s App Store and the 30 percent commission that the company takes on apps, subscriptions, and other digital goods ranging from in-game currency to online learning and fitness sessions.

To be clear, while the policy hasn’t always been exercised in the most transparent manner, the 30 percent take itself is nothing new; it’s been Apple’s policy since the App Store first debuted back in 2008. Back then, however — at a time when many other online software marketplaces were taking 40 to 50 percent, and boxed software was even more expensive to market — Apple’s revenue-sharing model seemed like a welcome breath of fresh air to software developers.

Of course, a lot has changed in the past twelve years, and many developers and antitrust watchdogs are beginning to feel that as Apple has grown more dominant and its App Store revenue has moved well into the ten figures, that the 30 percent cut is just starting to seem excessive — even if it is now largely the industry norm.

This has been at the heart of the high-profile war between Apple and Epic Games — a case that will still likely take years to find its way through the courts — along with complaints from services like Spotify and Netflix, which have abandoned using Apple’s in-app purchasing system entirely in order to avoid the 30 percent cut.

While Apple has revised its App Store Guidelines numerous times over the years to try to redefine exactly what should and what shouldn’t be subject to Apple’s 30 percent commission — a line that runs somewhat imperfectly along the border between digital goods and services versus physical ones — it has remained generally firm on the 30 percent rate with only one or two notable exceptions.

First, there was Apple’s attempt to encourage in-app subscriptions by offering developers an incentive for switching to a subscription model and retaining customers for more than a year; while Apple would take the same 30 percent for the first year of any in-app subscriptions, the take for any customers who stayed on into a second year and beyond would drop to 15 percent.

It was arguably a good way to persuade developers to build better apps and services that would be attractive enough to encourage users to stick around, but it also very specifically targeted in-app subscriptions — apps that used any other kind of in-app purchases were still left out in the cold, even if they had a loyal fan base that kept coming back year after year.

Then there was also Apple’s somewhat more secretive Video Partner Program, designed to incentivize developers of premium streaming services such as Amazon Prime, Disney+, HBO Max, and others to embrace Apple’s streaming hardware and software features. In exchange for committing to supporting things like AirPlay and Apple’s TV app, Apple would reduce its commissions for subscriptions for these developers to only 15 percent, and even offer the ability to sell and rent content directly in their apps.

While the program originally came out looking like a special backroom deal with Amazon, once Apple finally opened up about it, it became more clear that it had really just been an invitation-only program that most developers wouldn’t qualify for anyway, and with over 130 premium subscription providers on board, it was pretty apparent that Apple had reached out to pretty much every developer who would qualify, so it wasn’t a “secret” program so much as it was merely an “exclusive” one.

App Store Small Business Program

Along those same lines, Apple is now opening up another special App Store developer program, except it’s announcing this one from the outset, and there’s a good chance that many more developers will qualify.

More significantly, however, with the new App Store Small Business Program, Apple is actually reducing its overall App Store commission in general terms for the first time in the history of the App Store.

Specifically, qualifying developers will see their App Store commissions for all purchases reduced to 15 percent across the board. Not just for subscriptions, but for everything from the initial purchase of the app to any in-app purchases used to unlock features, purchase in-game currency or credits, or pretty much anything else.

Apple announced the new program today, which will launch on January 1, 2021. The announcement only outlines the program in general terms, while noting that it will be sharing more “comprehensive” details in December, but there’s enough here to understand how it’s going to work in the broader sense.

The program will be open to any developer who makes less than $1 million per year in earnings for all of their apps, as well as developers who are new to the App Store entirely, offering them a reduced 15 percent commission on all App Store purchases.

Notably, this $1 million threshold is in post-commission earnings and not total revenue, which means that it’s after Apple takes its normal cut. As of now, that means a developer with apps that have a total revenue of just over $1.4 million would still qualify right now, although going forward that threshold would be lower due to the reduced commission.

In order to continue taking advantage of the reduced commission rate a developer’s total earnings must remain below $1 million in a given calendar year; Apple notes that as soon as their payouts exceed $1 million at any point during the year, the standard 30 percent commission rate will kick in.

For the most part, this means that qualifying developers will still pay only 15 percent on their first $1 million in earnings, but that’s only if they were below that threshold to begin with. If a developer is already earning more than $1 million per year, they won’t be able to join the program unless their earnings fall below that in a given year, in which case they’ll have to wait until the following year to join the program, and the same applies to existing members if they exceed $1 million in a given year — they’ll have to prove that their revenue will be below that in the following year before they’ll be eligible for the lower commission again in the year after.

App Store Critics Are Not Impressed

Not surprisingly, both Epic and Spotify — two companies that are an order of magnitude beyond the small business threshold — are not impressed, and are in fact using Apple’s latest move to fuel the fire of their arguments that the App Store is completely unfair to developers.

According to The Verge, Spotify released a statement that called the new rules “arbitrary and capricious” and maintained that its antitrust complaint against Apple stands based on the requirement that not only are developers required to use Apple’s own payment system, but that it “punishes developers who choose not to use it” by preventing them from communicating alternative payment methods within their own apps.

Epic Games CEO Tim Sweeney accused Apple of simply using the new program to try and appease antitrust regulators and “remove enough critics that they can get away with their blockade on competition,” and continue charging the 30 percent “tax” on almost all other in-app purchases from bigger developers. Sweeney also criticized Apple for the special 15 percent terms given to “select robber barons like Amazon,” as part of its Video Partner Program, and maintained that this is simply a matter of Apple “gerrymandering the community with a patchwork of special deals,” rather than truly opening up the platform to open competition in both app stores and payment systems.

David Heinemeier Hansson, the co-founder of Basecamp and a longstanding tech industry critics who found himself embroiled in his own App Store battle earlier this year over the Hey email app, added his own pointed thoughts, blatantly accusing Apple of trying to divide and conquer by painting large developers as “greedy” and offering token “charity concessions” to smaller ones.

Hansson underscores his point by noting that for developers making $1 million, Apple is still “asking to be paid $150,000 just to process payments on [its] monopoly computing platform,” although he also somewhat disingenuously refers to the App Store as merely a payment processing platform, when of course there’s obviously much more to it than that.

That said, App Store critics aren’t entirely wrong, since while the reduced cut will certainly help smaller developers in many ways — which is clearly what Apple is aiming for in its announcement — it doesn’t address some of the concerns that many developers have about other issues with the App Store, ranging from the control Apple exercises about which apps are allowed to “owning the customer relationship” by allowing developers to use their own payment processors and subscriptions systems where they can actually know who their customers are and communicate with them directly.

The fact that this is largely a token gesture by Apple is also supported by at least one financial analyst, JP Morgan. In a research note to investors reported on by AppleInsider, lead analyst Samik Chatterjee called it “a likely response to increasing scrutiny on ‘Big Tech’ business practices,” and noted that even though a majority of developers will very likely qualify for the program, the impact on the App Store revenue will actually be quite minimal, since most small businesses and independent developers aren’t contributing nearly as much to Apple’s bottom line as the major platforms, many of which are pulling in hundreds of millions of dollars in in-game currency purchases alone.

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