Explained | Why app store fees are causing a stir?

A number of digital platforms, such as the Amazon App Store, Google Play, Apple App Store, and Microsoft Store charge commissions on apps and in-app purchases, much to developers’ chagrin

November 29, 2022 06:40 pm | Updated 10:18 pm IST

File photo of the Apple logo

File photo of the Apple logo | Photo Credit: REUTERS

The story so far: Claiming that Apple had “mostly stopped advertising on Twitter,” billionaire Elon Musk launched an attack against the iPhone maker on Monday. Sharing tweets that criticised the company’s alleged monopoly, the Twitter CEO wondered whether Apple censored customers. He also called out a “secret 30% tax” it levied on app store purchases.

However, this is far from being a secret. What’s more, Apple is not the only company taking a cut of app purchase revenues.

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What is the issue all about?

While Musk is upset with Apple and its CEO Tim Cook for reportedly slashing ad spending on Twitter (Apple is yet to confirm), his tweets point to an issue that customers and developers have been highlighting for years: the commission policy of platforms like the Apple App Store.

Apple’s commission rate of 30% for apps “selling digital goods and services and making more than $1 million in proceeds” as per a company press release, has been a sore point for developers and a reason for regulatory action across several jurisdictions.

What are developers saying?

While the Apple App Store is a globally trusted platform for buying third-party apps, some users might want to access their favourite apps using other payment options, to benefit from lower prices. Developers too want to offer other options so that they don’t always lose part of their profits to Apple or other app store operators who take commissions. In 2021, Apple allowed developers to inform users about ways to buy apps from outside the App Store.

After considerable criticism from the developer community, Apple introduced its App Store Small Business Programme for 2021, that halved its commission to 15% for developers earning less than $1 million in proceeds in the last calendar year.

Is the issue confined to Apple alone?

Not at all. A number of digital platforms, such as the Amazon App Store, Google Play, Apple App Store, and Microsoft Store charge commissions for apps and in-app purchases. Between 15% and 30%, based on the developers’ revenue, appears to be an industry standard.

In this case, Apple is being called out because Musk is concerned by the “free speech” implications of losing the iPhone maker’s Twitter advertising revenue. According to one Washington Post estimate, not confirmed by Apple, this was about $48 million in the first quarter of 2022.

Musk also claimed on Tuesday that Apple had threatened to keep the Twitter app from its App Store, without providing a reason for this action.

What are Apple and Google saying about commissions?

In April this year, Apple shared a report by the Analysis Group which observed that third-party apps enjoyed success on the App Store, from both regional and global perspectives.

“Across many app types, Apple’s own apps account for a relatively small share of app usage among iPhone users. This is the case even though some Apple apps are preinstalled to enable core functionality of the device,” stated Apple’s summary of the report.

This is one reason why many developers of third-party apps think Apple is stifling competition and unfairly pocketing the revenue that external creators bring to the App Store. Customers and regulators fear that an app sector monopolised by the two companies will hurt developers financially, bringing down the level of innovation and competition.

Meanwhile, Google set a deadline of June 1 this year for developers to compulsorily use Google Play’s billing system. While the Alphabet-owned company extended the deadline to October 31 for India, this was later paused after a ruling by the Competition Commission of India (CCI), along with a ₹1,300 crore fine against Google for other anti-competitive practices in the country.

What is the regulation surrounding this issue?

This spring, South Korea passed a landmark legal amendment that prohibited companies like Apple and Google from forcing developers to use their stores’ payment systems. There are fines if the companies violate these terms, and the platforms cannot retaliate against the channels who are using third-party payment systems.

The EU and the U.S. are also taking notice. In August, Reuters reported that EU antitrust regulators sent questionnaires to developers to understand if Google’s threat of cutting off apps not using its native payment system had affected their business.

In the U.S., Senator Amy Klobuchar is active in the antitrust legislation space. She joined with Senators Richard Blumenthal and Marsha Blackburn to introduce the Open App Markets Act in 2021, taking aim at Google and Apple’s dominance through their app stores. The act was advanced by the Senate Judiciary Committee after a vote early this year.

“For years, Apple and Google have squashed competitors and kept consumers in the dark—pocketing hefty windfalls while acting as supposedly benevolent gatekeepers of this multi-billion dollar market,” Blumenthal stated in a 2021 press release.

While different jurisdictions grapple with the question of how to address Google and Apple’s dominance in their domestic app markets, Elon Musk’s tweets have again made Apple’s commissions a global headline.

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