On November 18, Apple announced a reduction of its App Store commission rate from 30% to 15% for developers who generate an annual revenue of less than $1 million.
On November 18, 2020, Apple Inc (NASDAQ: AAPL) announced a reduction to its App Store commission rate. That is one of the most significant changes to the way iOS developers generate revenue in the history of the iPhone maker’s digital app marketplace. The company made this decision as part of a new program to cater to the needs of small businesses.
Any developer that earns below $1 million in revenue annually is eligible for the new program. This App Store Small Business Program has reduced the App Store cut from Apple’s standard 30% fee to 15% on every paid in-app purchases and app revenue. Thus, they can keep 15% more revenue.
According to the company, most iOS app developers can access this program. But, Apple did not specify the exact percentage of its over 28 million registered app developers would qualify. Also, it never specified the amount of its App Store revenue that would be affected by the reduced commission.
The Apple App Store generated around $50 billion in revenue last year according to CNBC. This segment is Apple’s most fundamental business beyond the iPhone franchise. It also represents a foundation of the digital services strategy with CEO Tim Cook referring to it as the future of the company’s business.
The New Program
This small business program is scheduled to take effect from January 1, 2021. Developers can apply for the program and Apple said that it will be releasing more details in December. Apple fell short of explaining why it decided not to enroll developers into the program automatically.
But, experts believe that Apple preferred this strategy to reduce the possibility for scams and other abuses that may come up if it auto-enrolled everyone below the set threshold. Apple said that it will review developer proceeds for 2020 to determine eligibility beginning January.
New developers can qualify automatically. If any of the participating app makers will exceed the $1 million thresholds at some point in 2021, they will be instantly removed from the program and subjected to the usual 30% cut. On the other hand, anyone who falls below the threshold in the future can re-qualify for the program.
Apple CEO Tim Cook said that the new program aims to support small businesses that are the supporting pillar of the global economy and the backbone of innovation. These types of businesses offer revenue-generating opportunities for communities throughout the world. Cook added:
“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. The App Store has been an engine of economic growth like none other, creating millions of new jobs and a pathway to entrepreneurship accessible to anyone with a great idea.”
The new program will enable developers to fund their small businesses while taking the risk of new ideas. The extra money can be used to expand teams to continue making apps that enrich people’s lives.
It is not the first time Apple has cut commission rates for various developers. The firm’s most recent change happened in late 2016 when it started allowing subscription services to keep 15% of revenue when a subscriber stays signed up via an iOS app for more than 12 months.
Additionally, Apple has cut down its App Store commission or exempted various services entirely; as was the case with sign-ups to Amazon Prime Video. Also, it recently cut costs for in-app Prime Video rentals and purchases. However, the firm normally just cuts these deals in private and has not extended such benefits to the developers that it does not interact directly with.
Indie game developers, niche app makers, and other members of the iOS ecosystem who are yet to feel the impact of the App Store’s success are pleased with the program. These groups have up to now felt that Apple’s success has not translated to tangible developer benefits in recent years.
The Challenges Apple Faced
Apple has survived a rough year of bad press which mainly focused on its 30% cut of all paid app sales and in-app purchases. Also, the iPhone maker is criticised for the many rules that it has imposed on developers. These rules are imposed before the company allows developers to sell their products in the App Store. Also, rivals and regulators have challenged Apple’s cut and other restrictions.
Apple is also facing several other controversies like the public battle with Basecamp over the developer’s Hey email client; the launch of a European antitrust investigation into Apple Pay and App Store; and an unexpected legal battle with Epic Games over the integration of Epic’s in-app payment options in Fortnite. The iPhone maker is also involved in spats with Microsoft, Facebook, and others; over what the rivals believe are unfair limitations on third-party iOS apps.
WordPress also accused Apple of compelling it to include in-app purchases. But, they have just revolved around the App Store model and Apple’s multiple rules around payment options, commissions, and many other financial elements in-app distribution.
Many app makers and famous firms like Tinder’s Match Group and Spotify have joined hands recently to criticize Apple for exerting monopolistic control over the iOS marketplace. They also accuse Apple of using its intense power to thwart competition and extort unreasonably high fees from all developers.
The App Store Small Business Program is designed to give app makers relief in the current economic downturn due to the pandemic. But, it is still linked to the past controversies affecting the company. Apple did not reveal the reason behind the launch of the new program.
But, for now, Apple’s relationship with developers is shaky than in the past years. Thus, the new commission reduction might come as a welcomed relief to help repair the relationship between Apple and developers.
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