A series of signals emanating from Apple’s headquarters in Cupertino shows the world’s most valuable company has fully accepted that its iron hold on 30% App Store commissions is finished as legal settlements and new laws pile up.

Apple has ceded ground on payments — accepting alternatives and lowering some of its own fees — and has decided instead to focus its legal fight on protecting its right to approve all app software in the name of tech security. 

The demolition of the 30% standard has been long campaigned for by media companies. Together with a new subscription initiative from Apple, a new benchmark at half the rate and more flexible payment paths has been delivered. 

By choosing this route, Apple appears to accept that it cannot win against the optics of its perceived pricing power over its marketplace.

Apple also hopes that many of these payment alternatives will be inferior to its ecosystem for developers who need it to acquire new customers. So some of the activists might find they will keep using the parts of the system that work best.

This may be especially so for media companies, but first let’s unpack what has just happened over the past 15 days.

Death of the Apple tax

There have been five recent developments that cement the end of the default 30% “Apple tax” on in-app fees in many store categories. 

We’ll explore the details of each in the sidebar within this article, but here are the points that tell the story of Apple’s reset.

• News Partner Programme, August 26: Apple quietly launches what effectively will be its new fee benchmark: a 15% fee announced for publishers to sell their subscriptions from either within their own apps or within Apple News as long as they participate in the company’s aggregated news app.

• Small developer case, August 26: Apple proposes to open alternative payment routes as part of a settlement in California brought by a group of small developers. Its solution would let developers notify their customers via e-mail that there are cheaper ways to subscribe than through the app. 

• South Korea law, August 31: Apple’s new policy was ready just in time for South Korea to become, as expected, the first country to pass a law that requires all app stores to let developers use their preferred alternative payment methods.  

• Japan antitrust case, September 1: Apple consolidates its new position on payments by agreeing with the Japanese competition regulator to let developers share a link with customers of media apps to let them manage their subscription outside the app.

• Epic Games case, September 10: Judge rules Apple must allow developers alternative payment access but confirms Apple’s right to vet all apps that are sold in its store. Epic will appeal but Apple won’t because it’s already proposed to another court that it will provide access to alternative payments. 

Why international inquiries matter

It’s no longer market-moving news when another inquiry or court case is announced involving a Big Tech company. Yet it is news when their rulings and settlements mount up, and that news becomes a major turning point when Apple changes course to try to head off further government or court intervention.  

Apple is subject to 19 inquiries or significant cases globally, according to The Information, so Apple’s recent concessions are unlikely to be the last.  

Most actions relate to its App Store and whether its policies restrict competition. This line of attack is being pursued by the European Union, the U.S. Department of Justice and individual U.S. states, in addition to Canada, Australia, Germany, United Kingdom, Japan, and South Korea.

It is the various actions in the European Union and the United States that will have the most sway on Apple’s pre-emptive remedies. In particular, we are watching a bipartisan bill brought last month in the U.S. Senate. Sponsored by Senators Richard Blumenthal (Democrat), Marsha Blackburn (Republican), and Amy Klobuchar (Democrat), it would force a more dramatic opening of the App Store business, if passed.

Apple will make more than US$21 billion from the App Store this year (the Epic court case didn’t succeed in uncovering exactly how much after infrastructure costs are deducted) and what started as a side venture is now anything but. 

Yet a good chunk of that money may not turn out to be at risk.  

This is because its vast marketplace is made up of big-spending audiences and it has laid down years of purchase convenience, from which both consumer and business have benefited. 

Case briefings at a glance shaping Apple’s new payment regime
Five developments in the space of 15 days have shaped Apple’s new commission structure. Along with the News Partner Programme announced at the same time, here’s a summary of things to know about what’s unfolded.

Epic Games case: A district court judge in the Northern District of California ordered Apple on September 10, 2021, to allow alternatives to its own App Store payment in a case brought by the American video gaming company behind the mega-hit Fortnite. No details were suggested about how those alternatives for an in-app payment would work. The case was initiated in August 2020 after Fortnite tried to introduce its own in-app payment, and Apple booted it out of the App Store for violating policy. The judge found Apple was within its right to block it from its store and ordered Epic to pay costs. The judge also ruled in favour of Apple being able to approve all apps before they appear on its store. Epic says it will appeal.

Small developer case: Apple proposes in a Californian settlement to let app developers notify their customers via e-mail that there are cheaper ways to subscribe than through the app if consumers provide consent. It’s part of the proposed legal settlement of a case brought by small app developers in 2019. If approved by the court, it will allow more price-point flexibility for developers as well (there will be a five-fold increase in App Store price points to 500), but it stops short of offering in-app notifications of alternative payment methods. The agreement between the parties is scheduled to be presented to the judge in October 2021.

Japan deal: Apple agrees with the Japanese competition regulator to let developers share a link with customers of media apps so they can manage their subscription account outside the app. This will allow payment, renewals, and refunds to be handled offline, as well as allow consumers to update their profile and content preferences. The regulator found that the way Apple manages its so-called reader apps — used by Spotify, Netflix, and Kindle, as well as news publishers — was anticompetitive. It’s the first antitrust settlement in this space.

South Korea law: South Korea becomes the first country to pass a law that requires the owners of app stores to allow developers to use any alternative payment methods outside the app store. The law is an amendment to the Telecommunications Business Act and explicitly blocks any app store owner from forcing developers to use their in-app payment flows. It also stops the app store owners from delaying app approvals unreasonably. It applies equally to Google as well as Apple and others. Fines for breaches would be equal to 3% of their national revenue in South Korea. Epic Games immediately announces it will try to have its Fortnite app reinstated by Apple on its App Store in South Korea.

Small developer discounts: Apple cut all of its maximum App Store fees late last year to 15% for all apps run by developers who have less than US$1 million in revenue. Further consolidating this new standard price point, Apple has just locked in these deals as part of a new App Store Small Business Program for the next three years.

Case briefings at a glance shaping Apple’s new payment regime
Five developments in the space of 15 days have shaped Apple’s new commission structure. Along with the News Partner Programme announced at the same time, here’s a summary of things to know about what’s unfolded.

Epic Games case: A district court judge in the Northern District of California ordered Apple on September 10, 2021, to allow alternatives to its own App Store payment in a case brought by the American video gaming company behind the mega-hit Fortnite. No details were suggested about how those alternatives for an in-app payment would work. The case was initiated in August 2020 after Fortnite tried to introduce its own in-app payment, and Apple booted it out of the App Store for violating policy. The judge found Apple was within its right to block it from its store and ordered Epic to pay costs. The judge also ruled in favour of Apple being able to approve all apps before they appear on its store. Epic says it will appeal.

Small developer case: Apple proposes in a Californian settlement to let app developers notify their customers via e-mail that there are cheaper ways to subscribe than through the app if consumers provide consent. It’s part of the proposed legal settlement of a case brought by small app developers in 2019. If approved by the court, it will allow more price-point flexibility for developers as well (there will be a five-fold increase in App Store price points to 500), but it stops short of offering in-app notifications of alternative payment methods. The agreement between the parties is scheduled to be presented to the judge in October 2021.

Japan deal: Apple agrees with the Japanese competition regulator to let developers share a link with customers of media apps so they can manage their subscription account outside the app. This will allow payment, renewals, and refunds to be handled offline, as well as allow consumers to update their profile and content preferences. The regulator found that the way Apple manages its so-called reader apps — used by Spotify, Netflix, and Kindle, as well as news publishers — was anticompetitive. It’s the first antitrust settlement in this space.

South Korea law: South Korea becomes the first country to pass a law that requires the owners of app stores to allow developers to use any alternative payment methods outside the app store. The law is an amendment to the Telecommunications Business Act and explicitly blocks any app store owner from forcing developers to use their in-app payment flows. It also stops the app store owners from delaying app approvals unreasonably. It applies equally to Google as well as Apple and others. Fines for breaches would be equal to 3% of their national revenue in South Korea. Epic Games immediately announces it will try to have its Fortnite app reinstated by Apple on its App Store in South Korea.

Small developer discounts: Apple cut all of its maximum App Store fees late last year to 15% for all apps run by developers who have less than US$1 million in revenue. Further consolidating this new standard price point, Apple has just locked in these deals as part of a new App Store Small Business Program for the next three years.

Publishers won’t abandon the App Store

In short, Apple has perfected a way to help businesses get consumers to part with their money with unrivalled certainty.

Google’s Android system dominates the world (73%), but Apple’s operating system dominates app purchases (currently 65%). Because Apple’s iOS dominates in wealthy countries and Apple’s devices are owned by people who spend money on apps, the App Store will remain an affluent marketplace that publishers cannot ignore. 

The App Store has an audience with the highest propensity to spend and who understand and like its one-click registration, its one-click payment and renewal, and, more recently, its option for one-click anonymisation of that purchase. 

As The Wall Street Journal observed: “It is also possible that many people will choose to keep using Apple’s system. The company has had a billing relationship with its core customers since the launch of the first iTunes store in 2003. Pierre Ferragu of New Street Research wrote … that ‘existing purchase patterns will resist changes in the environment,’ adding that selling through the App Store ‘will remain a valuable alternative for app developers.’” 

Or as Sumit Sharma, a senior researcher for Consumer Reports, told The New York Times: “I’m sure app developers will benefit somewhat, but it’s unclear to me to what extent consumers will actually use this.” 

Media subscriptions represent a small fraction of the app purchase market, which is dominated by video gaming. 

And the commission cut or full Apple payment bypass may not amount to a saving for media companies if and when the bypass also amounts to new customers foregone.

Apple’s concessions and new discounts instantly rewrite the options available for news publishers, which are hunting new acquisitions or targeting renewals. In particular, it adds more possibilities to the mix.

Scenarios for subscription marketing within the Apple ecosystem will now draw from this wider choice of tools. They are not mutually exclusive scenarios, depending on the segments to be targeted.

• Traditional Apple Tax: It stays relevant for those who want the benefit of using the full store and its marketing reach. Use the App Store marketplace for its power to acquire. If you won’t or can’t join up to the News Partner Programme to get the half price rate, you’ll pay the 30% for the full service. The 30% drops to a 15% trailing commission in the second and subsequent years of renewal. The App Store process is ultra simple and worth publishers paying the price to acquire for those segments that prefer it and may not be reachable otherwise.

• Differential pricing: Draw up a new rate card, which offers lower rates to people who agree to transact outside the App Store. This may be of interest to some target segments but might result in the loss of others who are so attuned to Apple-everything that they may not trust a link to a multi-stepped outside process. Current App Store policies prohibit cheaper rates being offered by publishers outside the store, but this will end. Differential pricing, however, brings with it its own risks, worsened if you don’t have enough personal data to be able to segment them properly.

• Use contact data obtained from an app download — if consumers agree to provide their information — to directly market the promise of cheaper offers if they transact outside the store. That might be conveyed by an e-mailed marketing message. Or, if things unravel further for Apple, it might be allowed to be an in-app message or push notification. Directing people to transact outside the App Store would allow off-app marketing, purchases, and other account management, including refunds. The risk with trying to take them out of the Apple ecosystem for payment is the friction from the extra steps you’ve just thrown at them. And that could be big. You may lose them, even if you are tempting them with simplified payment steps such as Apple Pay or a PayPal where publishers would pay a small financial transaction fee, not a sales commission. There is also a chance Apple will insist on its own easy-as-pie-just-click-here-payment receiving equal billing alongside all your marketing of your payment alternatives.

• Finally, opt in to using Apple’s new 15% option via the News Partner Programme (if it’s available in your country). This lets you sell masthead subscriptions directly from articles you post into App News, and it also qualifies you for the 15% rate on all subscriptions you sell from within your own masthead app. The News Partner Programme discounts are an interesting addition that require some explanation, which we’ve posted in an accompanying blog post.

We’ve known from an INMA survey for the Digital Platform Initiative that repeal of the Apple Tax is near the top of publisher concerns. The concessions now being offered won’t go far enough for some, especially for those who want a permanent low fee regime. But at least they have some lower cost options to consider for use as part of a segmentation plan.

Closing thoughts

The Apple Tax default of 30% is officially on the ropes for media apps. We can call this moment for what it is: the end of Apple’s era of full pricing power.  

The 30% Apple Tax will stay as the top-of-the-ratecard fee for media apps, or what Apple calls reader apps, at least for companies that can’t access the News Partner Programme discounted rate but want to access the App Store audience and convenience.

Some media companies will be happy to pay the 30% fee to reach and renew segments that might otherwise be unreachable.

But those same media companies also undoubtedly will be happy to try to exploit the soon-to-be-exposed links to payment sources outside their app, as this might help them reach price sensitive groups with other deals. 

Some companies will choose to pursue the separate Apple News ecosystem as well as the Apple Store ecosystem. This way they reach people while they are in news-reading mode instead of just when they’re in app-buying mode. Those publishers will be happy, of course, to pay the reduced commissions to Apple of 15% on sales from both locations — but that discount is available on the proviso they can participate in the News Partner Programme.

The further push for price reduction, meanwhile, will continue to be pursued by gaming developers who have always had more mature rival forms of alternative marketplaces and much more at stake. Any further gains they win through the courts or legislatures around the world might also flow through to reader app and media consumption, too.

Whatever else happens to free up pricing and payment flows, expect from now on that Apple will be preoccupied elsewhere. It has signalled it will fight longer and harder in the name of system integrity to hold on to its right to approve each app in its store, even as it comes to grips with losing its grip on their pricing.

Editor’s note: An earlier version of this article incorrectly reported the details of the revenue split with Apple customers. This article reflects the correct revenue share.

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