Apple’s App Store Commissions, Practices Called Into Question

Capitol Hill lawmakers will likely have questions for Apple Inc. CEO Tim Cook when he appears before a House panel on Wednesday (July 29) amid an examination of possible antitrust violations. 

One of the issues the House Judiciary Committee’s Subcommittee on Antitrust, Commercial and Administrative Law is sure to ask is whether the California-based global technology company’s $46 billion App Store’s practices give it an unfair advantage over independent software developers.

As Reuters reported, developers have criticized Apple’s commissions being as high as 30 percent on many App Store purchases, along with various rules and requirements.

But Philip Schiller, Apple’s senior vice president of worldwide marketing, told Reuters that the App Store launched a dozen years ago with 500 apps as an experiment in offering a low commission rate to attract developers.

Ben Bajarin, head of consumer technologies at Creative Strategies, a Silicon Valley market research firm, told the news outlet that software sold through brick-and-mortar stores in the mid-2000s required the payment for shelf space and prominence. Such fees could comprise 50 percent of the retail price, and small software developers could not compete, he added.

In 2005, Handango, the App Store’s predecessor, allowed apps to be delivered over cellular connections for a 40 percent commission, the news service reported. 

“Apple took that to a whole other level,” Bajarin told CNBC. “And at 30 percent, they were a better value.”

But the deal came with a price. Apple mandated the use of its billing system, for example.

“We think our customers’ privacy is protected that way,” Schiller told Reuters. “Imagine if you had to enter credit cards and payments to every app you’ve ever used.”

Developers also complained to Apple about the commission costs. However, Schiller insists that Apple’s commissions help fund an extensive system for developers.

Marc Fischer, CEO of Dogtown Media, a Venice Beach, California mobile technology firm, said Apple’s 30 percent commission was established in the early days of the App Store, when it was the price of global distribution for a then-small company. But now, Fischer said, fees should be much lower, in the single digits. “As a developer, you have no choice but to accept that charge,” Fischer told Reuters.

Last week, PYMNTS reported that an Apple-supported study by Analysis Group found that the commission rates on the tech firm’s App Store are comparable to those of other platforms.

Cook will be joined by Amazon CEO Jeff Bezos, Facebook CEO Mark Zuckerberg and Google CEO Sundar Pichai at the Congressional subcommittee hearing exploring Big Tech competitive practices on Wednesday (July 29).