Monday 25 January 2021

JDN - Eric Thean - App Store's 30% commission: the apple
of discord

JDN - Eric Thean - App Store's 30% commission: the apple of discord

Apple's App Store and its 30% commission fee are currently the source of heated debate. The fee has angered the likes of Spotify, Fortnite and Digital Content Next. Are the tables turning? 

Apple reaps significant profits from its store, where, in exchange for a secure environment, simple transactions and a large audience, a 30% commission is charged for each payment. In 2019, the revenue generated was $50bn. While the commission seemed to be no problem for developers up until now, they are beginning to make their voices heard. Three organisations in particular have expressed their discontent with what they refer to as the "Apple tax".  

Spotify, Fortnite and Digital Content Next: big fish that feel like they are caught in a net 
 

Spotify, the leading music streaming provider, was one of the first to publicly denounce the 30% commission, describing it as anticompetitive. This is because Spotify and Apple have been competitors ever since the Apple Music service (priced at €9.99) appeared on the market in 2015. The latter is, of course, not required to pay the "tax". One year before, Spotify had increased the price of its monthly subscription on the App Store (from €9.99 to 12.99), passing on the cost of the commission to the customer; it later came back on the decision, however, in order to remain competitive. In 2019, Spotify filed a complaint against Apple with the European Commission, arguing that it was undeniably at a disadvantage to Apple Music.  

Furthermore, in the autumn of 2020, Apple launched Apple One, a bundle subscription including TV+, Arcade, iCloud and Music, starting at €14.95 a month, provoking the ire of Daniel Ek, Spotify's CEO, who declared that "Apple is using its dominant position and unfair practices to disadvantage competitors and deprive consumers by favouring its own services." 

In the gaming sector, in-app sales on the game Fortnite, developed by Epic Games, earned $2.4bn in 2018, beating the record for most annual revenue in video game history. It has been available on the App Store since 2018 and, in August 2020, the publisher launched an alternative payment system in order to get around the commission. Furthermore, this allowed gamers to get 1000 V-Bucks (the game's virtual currency) for €7.99 instead of the €9.99 they paid through Apple's in-app payment system. Apple's response was swift and Fortnite was removed from the store the same day for violating its terms of use.  

Following this eviction, Epic Games immediately responded by filing a complaint against Apple, in order to put an end to practices it sees as anticompetitive. Fortnite's creator was well prepared, presenting a solid case, and even a publicity campaign based on the 1984 launch campaign for the first Macintosh (which was aimed at IBM and its "old school" approach). The trial is still underway, with a possible conclusion in July 2021. 

The American trade association Digital Content Next has also been in the news of late. Its members include the New York Times, Washington Post and CNBC, which attract an audience of more than 220 million unique visitors.  

In August 2020, Digital Content Next asked Tim Cook if it could benefit from the same "advantageous" conditions as those granted to Amazon for its Prime Video service. Instead of a 30% commission (and then 15% from the second year), Amazon immediately benefited from the "privilege" of only paying 15% of its revenue. Legal documents revealed that this agreement was concluded between Jeff Bezos and Apple's Vice-President, in order to attract Prime Video to the App Store. Following these revelations, Tim Cook admitted that this type of arrangement was possible with other companies, if they were able to satisfy certain conditions. Digital Content Next did not receive a direct answer concerning the "terms" required to benefit from the 15% commission, which would enable its members to invest more in providing quality information… Unless the condition to be satisfied was "simply" to become one of the most valuable groups in the world or, conversely, to be a "small player". Indeed, in November 2020, Apple launched the Small Business Program, which enables developers that generate less than one million dollars in annual sales to pay a 15% commission right from the first year. 

What can we expect in 2021 and subsequent years? 

In September 2020, a dozen companies, including Spotify, Epic Games, Deezer and Match Group (Tinder, Meetic, etc.), grouped together via the non-profit Coalition for App Fairness in order to put pressure on Apple to change store regulations. There are now nearly 50 members.  

Developers may need Apple to exist and prosper, but the opposite is also true. Specialists in this area, such as Brian Armstrong, CEO of Coinbase, and Mitch Stoltz, lawyer of the international non-profit Electronic Frontier Foundation, agree that winning cases like this against Apple would be a good thing, in order to experiment with new ways of doing things and new business models. For the time being, the only solution is to reduce dependency on Apple by finding alternative channels, as Spotify has done by investing massively in its Progressive Web App (accessible from a browser) to offer a quality experience, while increasing its margin. 

We are indeed seeing the beginning of a shift in the balance of power between these major brands. Companies are no longer shy about expressing their views on the company with the apple logo and what they see as anticompetitive practices. First steps have been taken with the cases against Apple, the Coalition for App Fairness and the Small Business Program. We will be watching to see what happens next.  

Eric Thean, Mobility Consulting Manager

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