Up until the trial between Fortnite publisher Epic and Apple, most people probably weren’t aware of just how astronomically high a fee Apple charges developers for offering in-app purchases through the App Store.
I’d wager that most people would probably assume it’s somewhere close to the 3% average fee charged by merchant processors to take credit cards. It’s not. It’s ten times that.
That outlandish number means that for every $100 you spend on your favorite apps, app subscriptions, games, or other digital goods, $30 goes straight into Apple’s pocket.
And most of it is pure profit for one of the largest companies on the planet. While Apple relaxed this fee down to a still significant 15% for small developers until they earn their first million dollars, 30% is still the overall prevailing rate. It’s equal parts offensive and oppressive.
The Epic-Apple Battle
To briefly recap, Fortnite had been de-platformed — removed from the app store — for introducing its own proprietary payment method into the game, which was explicitly against the App Store Guidelines.
Apple wasn’t amused and booted one of the highest-grossing apps of all time from the store.
But U.S. District Judge Yvonne Gonzalez Rogers ruled that Apple, despite being allowed to run its store and charge whatever rates in the process, is not allowed to muzzle developers from directing users to their own payment methods.
This is, at least on paper, a big win for developers.
Software development is really expensive. I’ve worked with clients who built business plans around fairly thin margins and focused on winning in volume — a risky strategy, but workable with enough growth and luck.
But when I informed them that their assumptions were off and that Apple would immediately siphon off 30% of their revenue, it completely blew up their business models.
They’d need more capital to get the subscriber count they’d need in order to hit their numbers. As a result, they’d see less money per subscription, unable to reinvest that cash in further development.
The ‘Apple Tax’ — Chilling Effect
And therein lies the chilling effect: Prospective innovators sitting on a compelling idea but finding it running headfirst into the buzzsaw of the “Apple Tax.”
And while it’s easy to wave your hands and suggest that a true entrepreneur should be able to pivot and innovate their way out of these constraints, at a certain point, we have to leave a lot of ideas and business models on the cutting room floor, unable to survive with these margins.
How Developers Could Respond
It’s too early to see how Apple complies with this ruling and how brave developers will be in their efforts to direct users to their own payment methods.
There’s a lot of room for “malicious compliance” here.
Apple could claim that allowing developers a small footnote-sized link is good enough, but that wouldn’t have the effect of actually offering that choice to users.
Reactions We’ve Already Seen
And we’ve already seen plenty of companies choose not to offer subscriptions or the ability to upgrade from a trial or free plan within the app directly. Spotify is one of the most famous examples of this, and it even launched an entire site devoted to its complaints about Apple’s practices.
But Epic took it a step further and spent millions of dollars fighting this fight, and I applaud them.
On the surface, the fundamental takeaway from this ruling is that we may see a trickle-down impact on the price we pay for specific apps.
Developers can be more competitive if they’re not required to pay 30 cents on every dollar they collect.
The Big Central Question
But there’s a bigger philosophical question at play that I think is worth exploring: What sort of ideas have fallen to the chilling effect of the 30% fee up to this point?
And what sort of business models and app innovations might we see now that developers can avoid such a steep fee?
Time will tell whether the ruling carves out enough daylight to impact the marketplace significantly.
Will the Ruling Open Up the Marketplace?
Probably not. After all, Apple is still allowed to require developers to include the In-App Purchase button that will still be subject to the 30% fee.
But developers can now offer their own payment options, presumably at a lower price to boot.
While some users may value the convenience of having their App Store subscriptions all in one place and the ability to one-click cancel, I’d imagine most people will gladly take a nearly 30% savings on their subscriptions. Sign me up.
