The Best Money Tim Apple Ever Spent
In November, Apple announced the “App Store Small Business Program”. If you’re an app developer that clears less than $1M in post-commission revenue, you’re allowed to apply for an 85/15 fee structure instead of the standard 70/30. Very magnanimous, no? Who doesn’t love helping small businesses? You some kind of coastal elite?
This is a masterful PR move, but in reality, is nothing more. It’s a shrewd mechanism of quieting the volume of complaints about App Store economics by, inexpensively to Apple, reducing the number of those subject to it, while doing nothing to address the core complaint about their monopoly position as hardware marker and software gatekeeper. For context, platform analytics firm Sensor Tower estimated that this program would make 98% of developers eligible, but that they account for less than 5% of total App Store revenue.
Taking a haircut on 5% on app store commissions, part of their ever important and rapidly growing services category, in exchange for all but eliminating the majority of aggrieved parties is smart. And with small time indie devs being the most sympathetic opposition to the $2T Apple, reframing the conversation from ‘all developers’ to only ‘fat cats like Spotify and Epic Games’ allows regulators and the public to mostly ignore this as another business dispute between the big guys.
But what I take issue with, and am still grouchy about being unable to clearly articulate on my podcast when the news broke, is that this changes nothing about the anti-competitive nature of the App Store as it exists today — especially when Apple directly competes with the companies it disadvantages as gatekeeper.
Many businesses, especially those with hefty content costs, don’t have 30% margins to absorb Apple’s cut on providing a service, payment processing, with a street value closer to 3%. Spotify competes directly with Apple in the $10 all-you-can-eat streaming music business, and Apple doesn’t need Apple Music to be a profit center whereas it’s Spotify’s entire business.
Customers are disadvantaged through reduced choice because Apple takes 30% of all in-app purchases and subscriptions, while also barring companies like Spotify from using another payments processor in app (e.g., Adyen, Braintree, Stripe), nor can they tell users how to sign up on the web to avoid that cut. You don’t have to magically figure out how to sign up for Apple Music in the browser. In fact, you get three free months just for buying the phone and get system level nudges for the life of your iPhone if you have the audacity not to sign up.
The value in the App Store for Apple isn’t that it’s a vehicle to take 30% of all commerce that occurs on an iPhone. It, plus developer tools like Xcode, and iOS itself, are components that make the iPhone a more compelling product for customers. An iPhone without a robust app ecosystem isn’t an iPhone. Apple’s questionable and likely illegal monopoly of software distribution is untenable because the 30% cut on in-app purchases specifically simply isn’t justifiable anymore. Story after story over the past year show Apple’s thirst for services revenue has led them down the road of pandemic profiteering, sketchy selective enforcement, and elimination of new app categories (see: cloud gaming).
By removing the majority of affected parties, but not even coming close to resolving the actual issue at hand, is genius. And without a government possessing the attention span or will to address antitrust issues without a human interest angle, Apple may have pulled a Softbank and hit the jackpot on ROI with this scheme.
I keep reaching for an analogy and can’t quite find it. It’s like residents of a city complaining about their transit options, and city hall responding by giving the people who ride the subway once a month a free trip while the people commuting to work daily nothing. Oh, and if you ask if you can ride your bike to work instead, you get booted off the App Store.