When you spend a dollar at Apple’s App Store, up to 30 cents of that goes to Apple.
Now, a US court ruling may change that radically — opening up a future where Apple collects almost none of the money users spend on apps.
Emphasis on may: Developers and regulators have been complaining about Apple’s App Store fees for years. And while they’ve won some battles, Apple has been able to keep its business more or less intact — which is a big reason Apple’s services business, a core part of the company’s financial machinery, has kept growing even as iPhone sales sputtered.
Epic Games CEO Tim Sweeney, Apple’s most committed opponent on this front, says this time is different. Sweeney, whose company makes the (still) popular Fortnite game, intentionally broke Apple’s App Store rules in 2020, which got Fortnite kicked off iPhones and started a legal brawl that’s still working its way through the courts.
He thinks a new ruling from a federal appeals court is the one that will fundamentally change the way Apple’s App Store works. The big takeaway: While Apple was previously forced to let developers like Sweeney tell Apple users they could buy things (like game credits) directly from a developer instead of using Apple’s App store, Apple was still charging a 27% fee on those transactions — meaning there was little practical reason for anyone to do it, since the fee was nearly the same on Apple’s seamless iOS platform. Now the court is saying that fee is a “prohibitive commission,” and says it should be scrapped.
What replaces it? We don’t know: The court ruling suggests that Apple and Epic try to work something out. And failing that, a court will do it.
But in Sweeney’s eyes, the ruling makes it clear that Apple will only be able to charge a truly minimal fee if someone wants to buy something outside of its App Store, given that it’s not likely to incur any meaningful costs when people buy something off-site.
On a press call Thursday night, I pushed Sweeney to try to guesstimate what that fee might be. He ended up with something like this math: An app that generated $1 million in annual revenue might generate costs of up to “several thousand dollars” for Apple; passing along those costs to consumers would mean something like less than 1%.
So: If Apple’s fees on transactions that happen outside its App Store are truly capped at a tiny number and lots of developers and users start to take advantage of that — meaning lots of users start spending money on iPhone apps outside of Apple’s iOS ecosystem — then this could be a very big deal for Apple, developers, and users. It would deprive Apple of a crucial revenue stream, and either give developers more money or users lower prices (or some combination of both).
So far, Wall Street seems unfazed: Apple stock is more or less unchanged since the court’s ruling was released late Thursday afternoon, presumably because investors expect the fight to keep going via an Apple appeal. (I’ve asked Apple for comment.)
There’s also a question of whether normal people who buy things for apps — mainly games — on iPhones want to spend time and energy buying things for those apps on other platforms, even if they can save money.
On his press call Thursday night, Sweeney acknowledged that so far most developers haven’t followed Epic’s lead and aggressively pushed the idea of off-platform purchases, which he says is due to “fear that Apple will retaliate against them.”
Entirely possible. But it’s also possible that a meaningful number of developers and users just don’t want to deal with extra hassle, and are willing to eat costs for convenience.
If this really is a turning point, you’ll see it when the stuff you buy in apps gets cheaper or comes with better rewards. We’re not there yet.
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