Howdy 👋🏾, this month’s Apple App Store developments have proven to be quite the doozy. After winning its lawsuit against Epic, the company must permit alternative payment options beyond its standard 30% commission fees (or 15% for smaller developers) for In-App Purchases (IAP).
Generated with Imagine with Meta using the prompt “Nerds and developers protesting Apple HQ.”
Apple unveiled European Digital Markets Act (DMA) compliance plans designed to force changes on the App Store, like allowing rival browsers beyond Safari and enabling third-party marketplaces. Heck, Spotify went so far as to show a preview of what an application would look like post-DMA. Many assumed these new rules would spur developer-friendly policies, ending the so-called “Apple tax” on app distribution. Yet Apple responded with a convoluted system, with critics crying foul, just as Apple launched its Vision Pro headset with companies like Netflix and Spotify not only declining to release apps but explicitly blocking available apps from working.
If you read one breakdown, I recommend John Gruber’s analysis, and this quote from his write-up is the chef’s kiss:
The delicious irony in Apple’s not knowing if these massive, complicated proposals will be deemed DMA-compliant is that their dealings with the European Commission sound exactly like App Store developers’ dealings with Apple. Do all the work to build it first, and only then find out if it passes muster with largely inscrutable rules interpreted by faceless bureaucrats.
Epic vs. Apple
Epic sued, seeking to force Apple to open App Store access and change payment policies. Apple requires apps that sell digital goods or subscriptions to use its In-App Purchase (IAP) system, taking 30% of transactions (or 15% for under $1 million in sales). Applications that do not use IAP are not allowed to list pricing or alternate links to purchase their goods, creating a poor user experience. Epic, whose hugely popular game Fortnite allows in-game purchases of virtual currency or credits, sees IAP as a forced 30% fee on all transactions through Apple’s platform.
This revenue split has fueled intense complaints from companies like Spotify, Netflix, and Amazon, who feel forced to limit subscriptions or pay Apple taxes despite having their own infrastructure to handle these transactions. Of course, Apple defends the structure and fees as essential funding to screen apps and securely handle global payment processing at scale.
While predominantly prevailing, Apple now must permit alternative third-party payments. However, instead of 30%, it will charge a 27% commission, with 12% for smaller indie developers. Companies who elect the 3% discount must provide detailed monthly sales reports to Apple and agree to potential audits. Most eCommerce platforms charge a 1.5-3% fee depending on the perceived risk of fraud. If you consider the administrative cost Apple handles around refunds or fraudulent transactions, this is, for most, a non-option that offers little benefit to building out a new platform.
Lifting Browser Competition
But developers counter that engine-imposed constraints stall browser innovation and disadvantage specific applications on iOS. The EU DMA accordingly compelled Apple to open iOS to alternative rendering choices, and most anticipated Apple expanding browser rendering options globally. Instead, Apple restricts changes to the EU while continuing to control engine rules elsewhere.
Web developers have long been beholden to two web browsers, Safari and the Android browser. Each of these is highly entrenched because of their default status, but Apple’s rules mean that regardless of what browser you use on the iPhone, it’s all still rendered using Safari.
Apple also continues to keep one major feature locked into only its browser, Safari, the ability to save apps to the home screen. Since the original iPhone release, Apple has enabled users to save web pages as apps on their home screen through a capability called Progressive Web Apps (PWAs). This PWA functionality allows web pages to behave and feel similar to full applications once saved locally.
Alternative App Distribution
Many assumed the DMA would compel Apple to enable alternative iOS app stores and sideloading. Sorry, Epic and Spotify, instead, we have a complex new distribution process that maintains Apple’s oversight and revenue.
Apps, regardless of distribution through the official Apple App Store or a third-party marketplace, would require notarization or signing by Apple, ensuring all developers pay an annual $100 fee for an Apple developer account. This allows Apple to continue security and policy vetting of all apps, meaning Apple is still the gatekeeper.
Apple mandates that third-party marketplaces also pay a core technology fee. This fee charges companies $0.50 for each install over 1MM installs, but the trick is that developers must elect to keep with previous App Store terms or forever opt-in for the new core technology fee. At scale, a company like Meta’s Instagram or Spotify, whose app is free, could pay millions for the right to distribute apps through Apple’s platform. Essentially, you must pay rent when building for the Apple ecosystem, regardless of how you distribute your apps. Read more about how the fees apply, or check out Apple’s calculator to determine potential costs.
To developers like Spotify, these changes feel insulting while fortifying Apple’s moats.
The Crux of the App Store Economics Debate
What complicates these issues is that the so-called “Apple tax” essentially funds “free” ongoing iOS upgrades and tools benefiting all users of the iPhone platform. Do you remember buying $129 Mac OS X releases annually? In 2013, Apple switched to making mobile OS improvements free for a device’s lifespan, and then CFO Peter Oppenheimer stated the shift in how the company calculated product revenue:
Apple CFO Peter Oppenheimer said that the company is now changing how it is accounting for revenue from the Mac to include providing free operating system upgrades over the life of the device, not just for Mavericks but for the future.
This change meant Apple would stop seeking a yearly upgrade fee and instead bake the costs into the platform. For most devices, Apple agrees to 7-10 years of operating system and security support and, in exchange, monetizes elements of the devices’ platform or amortizes the purchase costs to cover the continued development costs. The reality is that popular features like iMessage and the latest version of iOS 17.3 with features to prevent theft are not “free” but are subsidized by a strong App Store and developer community.
Generated with DALL-E using the prompt “Nerds and developers protesting Apple HQ.”
So the 30% cut (15% for indie devs) doesn’t just cover App Store management. It subsidizes all iPhone platform development from apps, operating systems, and free services to developer tools like its Xcode IDE for application development. In its proposal to the EU, Apple suggests that it is owed its revenue even with mandated storefront competition. Free-to-us apps like YouTube, Netflix, Spotify, or Instagram cost Apple to review, approve, and distribute. Apple covers these costs but receives nothing in return unless these apps opt-in to use the IAP framework.
On my Mac today, I can happily download and install software from any place I desire at my own risk. As a developer and an explorer, I love this. Frankly, I couldn’t imagine building the software I do today without this ability. I also remember the rise of viruses and SPAM that turned so many computers into useless wastelands. The iPhone and iPad platforms that combine hardware, software, services, and the App Store were not built that way. They’re focused on the idea that a highly curated but safe experience is what people want. They’re also built to get the most revenue out of each of us, and they’ve made it clear that no matter how they implement those rules, they intend to collect. Now, on to my thoughts on tech & things:
Created with Runway ML using the prompt “A 40-year-old nerdy black man with big hair and black glasses sitting on a modern sofa while wearing a red hoodie with a zipper and grey t-shirts puts on Apple’s Vision Pro Augmented Reality headset for the first time and stares in awe as the world changes into a futuristic landscape.”
⚡️Apple sold 200,000 VisionPros, and reviews (The Verge, WSJ, Marques Brownlee, Daring Fireball) have dropped. Common threads so far: the battery is really heavy, the eyesight navigation feels like magic until it doesn’t, and digital personas are beta at best. We have a few en route to Mindgrub, so I’ll share my thoughts once we get them. Hang tight.
⚡️Marketplace has a great interview on SEO and changing how the web looks. AI-generated content is also making search worse as more and more SEO-generated pieces of fluff content pack the web.
My take on this whole App Store thing is Apple’s being a bully. The DMA has issues, but we all get what Apple’s being asked, and Apple is unwilling to compromise. In the balance of what has been offered, here is something that could open sideloading of apps but still push security through its app notarization or signing features.
p.s. Furthering the push to Tesla’s NACS charger, Ford is giving away free converters that will unlock access to the Tesla supercharger network. Let’s hope Tesla is ready for the additional traffic stopping for a charge.