Recently, the Apple App Store has come under scrutiny for its imposed ‘tax’ on all transactions in the App Store. The game Fortnite was removed from the App Store after Epic (its developer) launched its own in-game payment system that did not give Apple its 30 percent share. Moreover, European regulators have opened an antitrust investigation after Spotify filed a complaint. Are these developers just trying to decrease their costs or is Apple unfairly exploiting their monopolistic position?
From its inception on July 10, 2008, one day before the iPhone 3G was released, Apple imposed a 30 percent fee on all transactions in the App Store. Still, it was a historical moment for developers as it gave access to a huge market of potential users/buyers. To illustrate, within 3 days 10,000,000 downloads were recorded (1). Over the years, the App Store has enabled thousands of developers to make a living while users can download apps for all their needs. In the beginning, few developers complained but this has intensified over the years with some valid arguments.
First of all, if developers do not want to pay Apple’s fee why don’t they directly release apps to their users. Well, this is simply not possible for iOS users since this is blocked by Apple. On the contrary, Android users are allowed to install apps outside of the Android store. Secondly, why don’t high-profile developers ‘unionise’ and threaten to all leave the App Store. While this could work, it is also a major risk since there are currently approximately 1 billion iOS users (2;3) Hence, this would mean a substantial drop in revenue. Moreover, iPhone owners are loyal to Apple and not likely to switch to Android (4). Finally, why would the fee result in antitrust issues? Outside the App Store a Spotify subscription is $10 a month but, because of the App store tax, in the iOS app it charges $13. Apple introduced its own music service (Apple Music) which costs $10 on iOS. You see the problem?
It is clear that Apple is a monopolist in its own ecosystem which still has some advantages. Apple blocking installation of external apps has resulted in iPhones being largely malware-free. But does it justify the 30 percent tax? What is so fundamentally different from a App Store purchase compared to a credit card transaction? Credit card transaction fees are approximately 3 percent which looks like a fair amount in my eyes (5).
NOTE: a reduction from 30 to 3 percent would entail a $13.5 billion revenue decrease for Apple in 2019 alone while its net income was $55 billion (6;7).
(1) https://www.cnet.com/news/apple-one-million-iphones-sold-10-million-app-store-downloads-in-first-weekend/
(2) https://9to5mac.com/2020/01/28/apple-hits-1-5-billion-active-devices-with-80-of-recent-iphones-and-ipads-running-ios-13/
(3) https://gs.statcounter.com/os-market-share/mobile/worldwide
(4) https://www.sellcell.com/blog/iphone-vs-android-cell-phone-brand-loyalty-survey-2019/
(5) https://squareup.com/us/en/townsquare/credit-card-processing-fees-and-rates
(6) https://www.cnbc.com/2020/01/07/apple-app-store-had-estimated-gross-sales-of-50-billion-in-2019.html
(7) https://s2.q4cdn.com/470004039/files/doc_financials/2019/ar/_10-K-2019-(As-Filed).pdf
Hi Hendrik,
Nice article! You mention that Apple being a monopolist in its own ecosystem has some advantages but can you mention more of them besides iPhones being largely malware-free? In addition to the 30 percent tax which is ridiculously high in my opinion, I believe that Apple being a monopolist is one of the reasons that Iphones and other Apple products are lagging behind in terms of innovation compared to its competitors. For instance, the payment service Apple Pay was recently launched in the Netherlands. However, Samsung users have been able to pay with their phone via for instance the ING app for years. The reason Iphone users couldn’t do so is because Apple blocks third party apps from using the Iphone’s NFC chip. I think the service of Apple pay is certainly not better. What is your opinion on Apple’s innovation lagging behind due to its monopolist position?