Last week, Apple announced that the company is reducing its App Store commission from 30% to 15% for small businesses earning up to $1 million annually. Apple is calling it the App Store Small Business Program, and the company says the commission reduction “will benefit the vast majority of developers.” Proceeds from the previous calendar year will be the benchmark to determine who qualifies. Developers who make more than $1 million in proceeds from their apps will pay the standard 30% commission, or “Apple tax.”
Program launches January 1
“The App Store Small Business Program, which will launch on January 1, 2021, comes at an important time as small and independent developers continue working to innovate and thrive during a period of unprecedented global economic challenge,” Apple said in the November 18 announcement. “Apps have taken on new importance as businesses adapt to a virtual world during the pandemic, and many small businesses have launched or dramatically grown their digital presence in order to continue to reach their customers and communities. The program’s reduced commission means small developers and aspiring entrepreneurs will have more resources to invest in and grow their businesses in the App Store ecosystem.”
Apple plans to release additional details in December, but they shared the framework for the App Store Small Business Program in their announcement.
- Current developers who made up to $1 million in 2020 for all of their apps and new developers are eligible for the reduced commission.
- If a participating developer exceeds the $1 million ceiling, Apple’s standard commission rate applies for the balance of the year.
- If a developer’s business comes in below the $1 million threshold in a later year, they will be eligible for the 15% commission the following year.
CEO Tim Cook comments
“Small businesses are the backbone of our global economy and the beating heart of innovation and opportunity in communities around the world. We’re launching this program to help small business owners write the next chapter of creativity and prosperity on the App Store, and to build the kind of quality apps our customers love,” said Apple CEO Tim Cook.
“The App Store has been an engine of economic growth like none other, creating millions of new jobs and a pathway to entrepreneurship accessible to anyone with a great idea. Our new program carries that progress forward — helping developers fund their small businesses, take risks on new ideas, expand their teams, and continue to make apps that enrich people’s lives,” added Cook.
App Store stats
Apple shared the following statistics about the success of the App Store since its launch in 2008:
- More than 250,000 APIs for developers to use when building their apps
- There are currently 1.8 million apps in the App Store.
- A half a billion people visit the App Store each week.
- There are 1.5 billion Apple devices in 175 countries in 40 languages in existence.
- In 2019, the App Store “facilitated” $519 billion in transactions with 85% of that going to third-party developers and businesses.
Fortnite removed from App Store
Apple’s actions are both reactive and pre-emptive. For years, companies like Basecamp and Spotify have complained about the 30% “Apple tax,” but the business practice and complaints continue. Earlier this year, Apple removed Epic Games’ popular game Fortnite from the App Store, stating the company had violated the App Store’s terms of service.
The mobile game Fortnite uses a freemium model. It is free to download the app, but users can purchase virtual currency within the app to enhance their playing experience. Apple gets a cut of all those in-app purchases. Fortnite instituted a workaround, and Apple balked, kicking Fortnite out of the App Store. Epic Games fought back by filing a lawsuit against Apple in the U.S. District Court of Northern California, alleging that Apple uses “anti-competitive restraints and monopolistic practices,” which violates the Sherman Antitrust Act.
Coalition for App Fairness
In October, subscription companies like Basecamp, Blix, Deezer and Match Group formed the Coalition for App Fairness (CAF), an independent nonprofit alliance fighting back against Apple’s App Store policies. On its website, CAF outlines its proposed App Store principles which would apply to Apple’s App Store, as well as others like the Google Play Store.
“As enforcers, regulators, and legislators around the world investigate Apple for its anti-competitive behavior, The Coalition for App Fairness will be the voice of app and game developers in the effort to protect consumer choice and create a level playing field for all,” said Horacio Gutierrez, Head of Global Affairs and Chief Legal Officer at Spotify.
In addition, the U.S. government has been investigating tech giants to see if they are violating antitrust regulations, and the European Union is expected to release legislation in the near future to regulate digital platforms, reports Politico.
Through its new program, its announcement, and its commitment to “earning the trust of users and developers,” Apple is offering a form of compromise. Depending on what side of the equation you are on, some feel that this is a much needed boost to small businesses and developers. Others like Basecamp co-founder David Heinemeier Hansson and Epic Games’ Tim Sweeney don’t feel like Apple is going nearly far enough, according to Politico.
On one hand, Apple is being proactive by adjusting commissions before they are forced to do so. On the other, this might be too little too late. U.S. and international governments and courts may not feel Apple is doing enough, and they could potentially level the playing field. If they do, however, they’ll have to apply any changes or restrictions to all applicable app stores, not just Apple’s.