Apple cuts App Store fees in half to help small businesses

Brief:

Apple plans to cut in half the fee it charges smaller software developers that sell apps in the App Store, per an announcement. As part of its App Store Small Business Program starting on Jan. 1, developers that generated $1 million or less from download fees or in-app purchases in the prior year will pay a 15% commission on those proceeds rather than the 30% fee they are currently paying.
Apple will keep its 30% fee in place for developers whose sales through the App Store, excluding commission payments, are more than $1 million. The company will apply that 30% fee when a developer's revenue rises past the $1 million mark. If a developer's revenue falls below $1 million, it can reapply for the lower commission rate for the following year, per Apple.
The move comes as the iPhone maker faces growing antitrust scrutiny over its fees. The company next month will release more details about the plan.

Insight:

Apple's changes to its commission structure could save smaller app developers as much as $150,000 a year in fees, though it's unlikely to quell criticism from larger companies that generate the most fees from downloads and in-app purchases through the App Store. About 98% of the companies that pay commissions to Apple will be affected, but they only generated 5% of App Store revenues last year, according to an estimate from app analytics firm Sensor Tower cited by the New York Times. That estimate suggests that 2% of top app developers pay 95% of the commissions.

Among those top companies is Epic Games, maker of the hit game "Fortnite," which has generated $360 million in revenue for Apple since March 2018, per a separate Sensor Tower estimate cited by the New York Times. Epic Games in August sued Apple and Google, which oversee the two most popular app stores in the world, claiming that the companies abuse their market power and violate U.S. antitrust laws. A month later, Epic was among the 13 industry groups and companies, including Spotify and Match Group, to form the Coalition for App Fairness to fight app store fees.

Tim Sweeney, CEO of Epic Games, was dismissive of Apple's new fee structure, telling the Wall Street Journal that the iPhone maker is trying to create a rift among app developers. He said Apple is "is hoping to remove enough critics that they can get away with their blockade on competition and 30% tax on most in-app purchases. But consumers will still pay inflated prices marked up by the Apple tax."

Sweeney on several occasions has said Apple and Google should lower fees. Two years ago, his company opened an online games marketplace that charges a 12% commission, and makes profit of 5%-7%. Apple has countered those arguments by claiming its 30% commission matches the fees of Google, Microsoft and Samsung's app stores, along with the online game stores for Sony's PlayStation and Microsoft's Xbox, as shown in a study funded by Apple.

It's too soon to tell if Apple's effort to help small businesses will dissuade antitrust regulators from looking into the company's business practices. The Justice Department, Federal Trade Commission and European Union are investigating Apple, Amazon, Facebook and Google to determine whether their behavior is anticompetitive. Last month, a congressional committee on antitrust released a report claiming that Apple stifles competition, and specifically mentioned App Store fees.

Apple has made exceptions to its fee structure before, including another recent move to help small businesses. The company in September waived its commission on some paid events and livestreamed experiences sold through mobile apps like Facebook and Airbnb through the end of the year. Apple in 2016 agreed to cut its App Store fee in half for Amazon as part of their arrangement to offer the e-commerce company's Prime Video streaming service on Apple devices, Bloomberg News reported.

For Apple, the change in fees is unlikely to have a major effect on its earnings, given that the change only applies to about 5% of App Store revenue. In announcing the App Store Small Business Program, the company said the App Store ecosystem facilitated $519 billion in commerce worldwide, and more than 85% of that went to third-party developers and businesses of all sizes. The App Store reaches more than 1.5 billion Apple devices in 175 countries, giving app developers a venue to potentially reach a broad audience. The App Store currently has 1.8 million apps and half a billion visitors every week, according to the company.