Apple's smallest cut

Fully Charged
Bloomberg

Hi everyone, it's Mark here. Apple made the biggest change ever to its controversial App Store revenue-sharing structure on Wednesday—cutting the fees for small developers in half. But it still isn't enough for some app makers. And while regulators haven't weighed in yet, they may not be appeased either. 

Since Apple launched the App Store in 2008, the company's fee structure has been simple: 70% of the money on paid app sales, in-app purchases of digital goods and subscriptions goes to the developer. The other 30% goes to Apple Inc. That structure worked for a long time, helping create an industry that might have been far smaller if it weren't for the company.

But in recent years developers—and subsequently regulators—have been increasingly unhappy about that cut. The 30% fee was put into place years before apps became big business, predating Netflix, Spotify and popular subscription games. And while Apple certainly does provide valuable development tools and distribution on its devices, app makers feel that they're responsible for a crucial feature of Apple's iPhones, helping the company generate billions a year in profit. They want to keep a larger portion of their own receipts.

Wednesday's concessions were a step in that direction. The company said that developers who bring in App Store revenue of up to $1 million each year will pay only a 15% fee for the following calendar year—until they hit $1 million. After that, the rate goes back up to 30%. That means a developer who makes $900,000 a year would get an extra $135,000 before taxes. For some, that's a big deal. "I lost about 30% of my revenue to this COVID recession we're in," app developer Frank Krueger wrote on Twitter. "It's been an insanely stressful financial year." The fee reduction, he wrote, "almost has me in tears."

Not all developers were as impressed. Ireland-based app maker Steven Troughton-Smith said that Apple still "has all the power" and the company could change the discount program at any time. Meanwhile, other frustrations with the App Store remain—like app rejections developers think are unfair, the presence of direct competition from Apple and the inability to get around the company's payment system to process subscriptions.

The move also doesn't impact some of Apple's largest critics. Major developers like Microsoft Corp., Basecamp and Match Group Inc. make too much to benefit from the fee reduction. And Spotify Technology SA and Epic Games Inc. were quick on Wednesday to slam the announcement as meaningless.

Some developers, like Troughton-Smith, think the move was mostly an olive branch toward antitrust officials rather than a pure-minded concession for app makers. But regulators may not be swayed much, particularly if the biggest companies are still lobbying against the model, and Apple's business remains basically unchanged.

For Apple, slicing its fees for app makers making less than $1 million, even though they represent an estimated 98% of all eligible developers, won't move the needle on its financials. The vast majority of App Store sales come from the largest players. Most estimates indicate that Wednesday's reduction will represent less than a 1% hit to Apple's annual revenue, with little damage done to the company's more than $50 billion in annual services sales.

The bigger danger for Apple is the still-simmering developer discontent, as well as the looming threat of antitrust regulation. Some developers got a win today, but the fight is far from over. Mark Gurman

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