Apple will deduct commissions of its app store in half for most of the developers starting next year amid an intensifying debate. The debate was regarding that the iPhone maker was using the fees to wrongly fatten its profits and stifle rivals competing against its own music, videos and other subscribed services. With effect from January 01, the concession announced on Wednesday will lower Apple’s commissions for in-app subscriptions and other purchases from 30 percent which was 15 percent since 2008.
The discount will only be applicable to the developers having annual app store revenue of up to $1 million. The group includes Apple’s two fiercest critics – music streaming service Spotify and Epic who is the maker of the popular Fortnite video game.
Both those companies helped spur growth of Apple’s app store practices amid lawmakers and regulators in the US and Europe. Apple sold its music streaming and video services to those who helped to offset a slowdown in iPhone revenue recently.
The app store commissions feed Apple’s services division which experienced its revenue hike to 16 percent which is nearly $54 billion during the company’s last financial year ending in September. iPhone sales only generate more revenue than its services for Apple.
Apple is framing its fee reduction as a way in order to help most of the companies which made roughly 1.8 million apps in its store during the tough economic times of pandemic. Approx. 98 percent of the app developers generate less than $1 million revenue annually as per the mobile analytics firm SensorTower.
But, the reduced commission probably will not affect Apple’s revenue much. This is because of the small developers which are in line to qualify for the cut contributing only approx. 5 percent of Apple’s app store revenue on the basis of SensorTower’s estimates.
Moody’s analyst Raj Joshi has made a prediction that the reduced commission will cut Apple’s annual revenue by less than 1% while purchasing more goodwill of the company through app developers as well as regulators. He further said “The move will alleviate risks to some degree from the growing global regulatory scrutiny of the App Store’s pricing and business model.”
This probably might be one of the reasons which investors seemed unfazed by Apple’s upcoming fee cut. The company’s shares reduced by close to 1 percent which is at $118.03 on Wednesday.
Spotify highlighted Apple’s lower commissions as “window dressing” which is designed to demoralize regulators from breaking down from its practices. Spotify made a statement “This latest move further demonstrates that their app store policies are arbitrary and capricious.”
The Match Group, which owns popular online dating sites also made a statement “If you manage to grow your revenue over $1 million, they then double their cut — arbitrarily — making it even harder for the startup to continue to grow.” Epic is continuing to follow a lawsuit which was filed against Apple earlier this year making an effort to win the right to sell products within its apps without paying Apple’s fees.
Apple CEO Tim Cook called the fee reductions a mutually beneficial move for everyone who is involved. In a statement he said “We’re launching this program to help small business owners write the next chapter of creativity and prosperity on the app store.”
More information regarding reduced commissions will be released next month.