For Apple, the move to forge an ecosystem with services at the center has been years in the making.
But now, with new payments practices taking root, the question becomes:
What happens to the billions gleaned from the App Store?
Though Apple does not disclose just how much it makes from its App Store, the company said last year that the “ecosystem facilitated $1.1 trillion in developer billings and sales in 2022,” with “more than 90 percent of the billings and sales accruing solely to developers and businesses of all sizes — without any commission paid to Apple.”
That implies that billions of dollars of commissions are in fact paid to Apple. And as PYMNTS has detailed in past earnings coverage, the services division has been an integral part of growth plans, logging double digit growth in sales, where paid subscriptions have passed the 1 billion mark.
Services revenues came in at $22.3 billion, up 16% year over year, per the report, with what CEO Tim Cook said were “all-time revenue records” across the company’s App store, advertising and payment services. The services segment’s momentum stood in stark contrast to the volatile ebbs and flows of various hardware lines.
But changes are coming to the App Store, wrought by court rulings, and now Apple is revamping its practices tied to how it interacts with developers who create the apps sold via its online store.
As PYMNTS reported this week, the Supreme Court said it would not hear Apple’s appeal in its legal jousting with Epic Games over Apple’s payments practices. The appeals court ruling that would have been heard by the Supreme Court judged that Apple had violated California’s Unfair Competition Law.
That ruling stemmed from ways in which Apple had been informing users about alternative payment options and whether they’d cost less than making in-app payments.
Now, Apple is opening up the U.S. app operations to allow external, third-party payment options.
Apple’s App Store guidelines has been updated with a nod to outside payments. In a section titled “Link to Other Purchase Methods,” the guidelines state: “Developers may apply for an entitlement to provide a link in their app to a website the developer owns or maintains responsibility for in order to purchase such items.”
In terms of functionality, apps that are sold to U.S. consumers now can feature links and information that will take consumers to other sites where they can opt to make their payments.
But here’s where the legal battles may be waged in the future: The tech behemoth also noted that it will seek to collect a commission “as much as 27%” from apps where consumers “link out.” The commission will be 12% for transactions that are on auto-renew.
In communications aimed at developers, Apple said that it “will not be able to assist users with refunds, purchase history, subscription management, and other issues encountered when purchasing digital goods and services through an alternative purchasing method. You will be responsible for addressing such issues.”
The commissions may give rise to challenges from the developers themselves, and links that let consumers pay the developers in a more direct fashion may wind up blunting Apple’s top line momentum.
There have already been a few renewed shots across the bow from Epic.
In a post on Twitter/X, Epic’s CEO Tim Sweeney spoke out against the new policy.
“Apple has introduced an anticompetitive new 27% tax on web purchases. Apple has never done this before, and it kills price competition. Developers can’t offer digital items more cheaply on the web after paying a third-party payment processor 3-6% and paying this new 27% Apple Tax…Epic will contest Apple’s bad-faith compliance plan in District Court.”
A quick summary of glaring problems we’ve found so far:
1) Apple has introduced an anticompetitive new 27% tax on web purchases. Apple has never done this before, and it kills price competition. Developers can’t offer digital items more cheaply on the web after paying a… pic.twitter.com/YkHuapG7xa
— Tim Sweeney (@TimSweeneyEpic) January 16, 2024