As regulators circle, Apple halves its App Store commission – at least for small developers

Apple is slashing the commission it charges smaller developers to sell through its app store in a partial concession to critics – who range from Fortnite maker Epic Games to regulators in various countries.

The company says starting next year, it will take a 15 per cent cut on App Store sales from companies that generate less than US$1 million ($1.4m) in sales through its platform, including in-app purchases.

But companies that exceed US$1 million – including Epic, which withdrew Fortnite from the App Store in protest at Apple’s commission rate earlier this year – will continue to pay 30 per cent (the same rate charged by Google to all-comers on its app store, Google Play).

In September, following a similar move by the EU, the Australian Competition and Consumer Commission (ACCC) opened an investigation into Apple and Google’s app stores. Among other issues, the watchdog said it wanted to learn more about how some apps gain high-profile spots on each platform, and others do not; what data is collected; and how that data is used.

A spokesmans for our Commerce Commission said it did not have an App Store investigation underway.

On a briefing call with journalists, the Apple executives refused to comment on the cost of the commission cut, how much money would go to small developers.

But they did point to a third-party analysis of their app store, which found the store and associated ecosystem generated US$519 billion in billings and sales globally in 2019, adding that only 15 per cent of that (some US$78b) was subject to Apple’s 30 per cent commission.

NZ developer: ‘Clever move’

Meantime, a small local developer – while keenly aware that political machinations probably behind the move – is delighted that Apple is halving its clip of the ticket.

“This is a clever move by Apple, especially at this time given the current legal battles with Epic,” Majic Jungle founder Dave Frampton tells the Herald.

“There has been a growing sentiment among developers that the commission has been too high, and that Apple hasn’t been doing enough to justify that expense,” says the Hawke’s Bay developer.

“This move will help to ease these concerns among app developers. It will also definitely help us, and is very welcome.”

Frampton worked in TV weather graphics before the relative ease of global distribution via Apple’s App store delivered the amateur game maker a worldwide hit, Chopper allowing him to pursue his passion full time.

More than 1 million App Store punters downloaded the free version of Chopper, with more than 350,000 paying 99c for the premium version. Chopper 2 and The Blockheads followed. His latest effort, Sapiens – a first-person civ builder that begins in the hunter-gather era – should be out next year.

Opposite approach to Valve

As someone who has been immersed in the world of online distribution, Frampton also has an intriguing take on the strategic landscape.

“It’s very interesting that they [Apple] chose to exclude larger and more successful developers, as they have been some of the most vocal on the issue, and have the most power to fight or potentially negotiate with Apple,” he says.

“This, in some ways, helps to make the move seem even better to smaller developers, like me, as it’s not simply submitting to the pressure from the big players, but seems more of a genuine move to try to help us out.”

He adds, “Valve does the exact opposite on Steam, where the first US$10m is at 30 per cent, and this drops up to 20 per cent as revenue increases.”

Valve – founded by US billionaire Gabe Newell, who has become an accidental NZ resident after being hit by lockdown mid-holiday – is the dominant platform for online PC game distribution although, in the PC world, there are lots of alternative channels, too.

“Valve wants to keep the business of the most popular games, and in the PC market there are multiple distribution services available to choose from,” Frampton says.

“But when it comes to iOS app distribution, the App Store is a monopoly. So, for now at least, Apple doesn’t have to drop the rates on the most popular apps, and can continue to profit nicely from them.

“The vast majority of revenue will actually be generated by the few developers making more than US$1m, so as a result this move actually won’t cost Apple very much financially.”

How Apple’s new rates work

Apple says:

• Existing developers who made up to US$1m in 2020 for all of their apps, as well as developers new to the App Store, can qualify for the programme and the reduced commission.

• If a participating developer surpasses the US$1m threshold, the standard commission rate will apply for the remainder of the year.

• If a developer’s business falls below the US$1m threshold in a future calendar year, they can requalify for the 15 per cent commission the year after.