Apple halves App Store fee for the smaller companies

Apple, facing growing antitrust scrutiny over what it charges other companies for access to its App Store, said Wednesday that it would cut in half the fee it took from the smallest app developers.

. Developers that brought in $1 million or less from their apps in the previous year will pay a 15% commission on those app sales starting next year, down from 30%, the company said.

. The move, which will have little impact on Apple’s bottom line, is an abrupt change from the company’s public intransigence over its fees. For 12 years, the App Store has helped fuel Apple’s remarkable growth, and the company has appeared reluctant to do anything to tamper with it. Even when its fee policy emerged as the focus of antitrust complaints, Apple aggressively defended it.

. Now Apple appears to have found a way to earn goodwill from thousands of developers and give its executives ammunition for defending its commission to regulators and journalists, all without costing the company much.

. The change will affect roughly 98% of the companies that pay Apple a commission, according to estimates from Sensor Tower, an app analytics firm. But those developers accounted for less than 5% of App Store revenues last year, Sensor Tower said. Apple said the new rate would affect the “vast majority” of its developers but declined to offer specific numbers.

. Apple said in a statement that it had made the change because 2020 was a difficult year for many small companies.

. “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,” Tim Cook, Apple’s chief executive, said in a news release. The smaller commission will help “developers fund their small businesses, take risks on new ideas, expand their teams, and continue to make apps that enrich people’s lives,” he said.

. The fee cut probably won’t calm the waters between Apple and the larger app developers that have long protested the fee most loudly, and could just be a sop to state and federal regulators.

. Epic Games, maker of the popular game Fortnite, sued Apple in August over its fee. A month later, 13 companies and groups, including Spotify and Match Group, formed the nonprofit Coalition for App Fairness to fight the “app tax.” And U.S. and European regulators are investigating Apple for anti-competitive behavior, partly because of its commission.

. “The only good thing about this cynical, Machiavellian ploy by Apple to split developers with selective handouts, is that it shows they’re sweating,” said David Heinemeier Hansson, a prominent software developer whose company, Basecamp, will still have to pay the 30% commission.

. Tim Sweeney, Epic’s chief executive and another of Apple’s toughest critics, also accused Apple of trying to divide developers. By charging smaller companies less, “Apple is hoping to remove enough critics that they can get away with their blockade on competition and 30% tax on most in-app purchases,” he said in a statement. “But consumers will still pay inflated prices marked up by the Apple tax.”

. In its news release, Apple included comment from several smaller companies who welcomed its change and said it would help them reinvest in their businesses or offer more free features to users.

. Apple introduced its 30% commission in 2008 with its App Store, which had just 500 offerings. Now the App Store is one of the world’s largest centers of commerce, facilitating half a trillion dollars in sales in 2019.

. That has made the commission the biggest driver of Apple’s internet-services business, which brought in more than $53 billion over the past year.

. Apple charges 30% of all sales of “digital goods and services” in an app, such as a virtual item in a game or a subscription to a music, TV, news or dating app. (In the second year of a subscription, Apple’s cut drops to 15%.) Apple doesn’t take a cut of physical goods or services, such as an Uber ride or shoes bought in the Amazon app.

. With the world’s migration online, particularly during the pandemic, the App Store has become an increasingly crucial gateway to customers for companies of all sizes. Apple’s growing power has prompted both lawmakers and developers to call its 30% cut “highway robbery.”

. No company has fought Apple’s commission harder than Epic. In August, the company baited Apple into kicking Fortnite game off the App Store, and then quickly sued Apple and rolled out a sophisticated public-relations campaign against it. This week, Epic expanded its legal fight to Australia, where the laws could favor its complaints.

. Epic has argued that Apple could charge a more reasonable rate. Epic runs its own online marketplace for games, taking 12% of other companies’ sales — and turning a profit of 5% to 7%, the company said.

. Apple has argued that 30% matches other companies’ rates, including app stores run by Google, Microsoft and Samsung, and game stores from Sony’s PlayStation and Microsoft’s Xbox.

. Still, Apple has not applied its cut evenly. Bigger companies with services that Apple wanted on iPhones, to make the devices more attractive to buyers, have negotiated better rates. Documents released by House lawmakers in July showed that Apple executives offered Amazon a 15% commission to release its Amazon Prime Video app on the App Store in 2016.

. Apple said it would use the combined sales of all of a developer’s apps in the previous calendar year to determine which rate to charge a company. Any developer, including new ones, with $1 million or less in the prior year will pay the 15% rate for the year, even if its sales surpass $1 million that year.

Apple halves App Store fee for the smaller companies

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