Apple is making a significant change in the European Union by allowing third-party app stores on iPhones. This move could reshape the app ecosystem, but there’s a catch. Developers are facing a new hurdle: a €0.50 fee for every user after the first 1 million installations. This is a significant development, as numerous apps have over 1 million installations and continue to attract users regularly. This puts Apple at an advantage of earning billions of dollars annually from this small fee.
In this write-up, let’s break down the details of this new change by Apple and how it will affect developers
Apple’s new fee structure aims to encourage apps to use third-party stores. Apps distributed through these stores pay no sales cut to Apple. For those still opting for Apple’s App Store, the cut decreases from 30% to 17%, or even 10% for qualifying “small business” apps.
The challenge arises when apps exceed 1 million installations per year. Beyond this threshold, developers must pay Apple a 50 euro cent fee for each new installation, including updates. This fee applies annually per user, making it a considerable long-term cost for popular apps.
Implications for Developers
This fee structure presents a dilemma for developers. They can stick with Apple’s App Store, facing the 30% cut but avoiding the installation fee. Alternatively, they can venture into third-party stores, escaping the steep revenue cut but paying a substantial upfront fee.
For major companies like Meta (formerly Facebook), with millions of users, the fees could accumulate significantly. Using Facebook as an example, Meta might end up paying around €67.5 million per year just for active users in Europe. This doesn’t account for users who installed the app but rarely use it, yet still receive automatic updates.
Impact on Subscription-based Apps
Subscription-based apps like Spotify, longing to break free from Apple’s 30% cut, face a gamble. While the fees may offset through new subscriptions, the risk lies in users who won’t pay, leaving the company with substantial download fees.
Smaller apps that go viral may quickly surpass 1 million installations, incurring substantial fees. This situation could be detrimental for briefly explosive social apps, potentially costing them millions even if they sit unused on users’ phones.
Launching a third-party app store comes with its own set of challenges. Developers need to migrate users to the new store, a process made difficult by Apple. Shifting users involves installing the new app store, uninstalling the old app version, and reinstalling through the new store, a cumbersome process for users.
Potential Stifling of Competition
The 50 euro cent fee might deter competition. Companies like Amazon, which currently pays no cut for purchases through its app, would face significant fees if they opened an app store. The first big app store announcement, by Epic Games, comes from a company with no established user base on Apple’s App Store.
Critics, including Epic CEO Tim Sweeney and Spotify CEO Daniel Ek, have raised concerns about the 50 euro cent fee. Sweeney referred to them as “junk fees,” while Daniel Ek questioned the worth of engaging with the new scheme. Some see the fee as a major obstacle in Apple’s plan.
Nikita Bier, the creator of the Gas App, expressed his concerns on Twitter about the App Store’s revised fee structure for Europe. According to Bier, if an app generates $10 million in sales, Apple’s portion amounts to $6.2 million annually. Taking into account no operational expenses or salaries, the net income would be $2 million after tax, equivalent to 20% of the total sales.
Under the App Store’s new fee structure for Europe, if you make $10 million in sales, Apple’s cut is $6.2 million annually.
Assuming you have no operating costs or salaries, your take home amount:
$2 million after tax—or 20% of your salesI will never launch an app in Europe. pic.twitter.com/MUCxVHcHOo
— Nikita Bier (@nikitabier) January 25, 2024
Apple justifies the fee by stating that it invests time and effort in creating developer tools, especially beneficial for larger apps. They argue that these apps make the most use of their tools. This approach marks a departure from the earlier era when platform operators offered such tools for free to encourage third-party developers.
The European Commission will review Apple’s new rules when the enforcement of the Digital Markets Act (DMA) begins in March. If regulators find any violation, they may challenge Apple’s fee structure. The fee is already becoming a focal point for critics.
Several netizens have created memes mocking Apple for its major fee changes, accusing the company of using its position as the world’s top operating system provider. Here are some examples:
Devs: We want to install apps outside the App Store!
Apple: Why?
Devs: We don’t like your fees!
Apple: Fine. You can…
Devs: Thank you!
Apple: …For a fee pic.twitter.com/Jseu2CJnyh
— Tailosive Tech (@TailosiveTech) January 25, 2024
And if you make a successful alternative App Store, and get, say, 100m people in the EU to install it, you’ll owe Apple €50m/year as a “Core Technology Fee”.
NO GATEKEEPING HERE, EU! None at all! Full compliance, totally. Pinky promise!! pic.twitter.com/Q9yPBgsh8Y
— DHH (@dhh) January 26, 2024
Spotify, Netflix and YouTube refusing to put their apps on the Vision Pro after Apple spent the past decade strong-arming them on the App Store’s 30% tax and external web link restrictions. pic.twitter.com/4tK1ILrgry
— Trung Phan (@TrungTPhan) January 22, 2024
While Apple’s new fee structure presents challenges, it opens up significant possibilities for iOS developers and the app ecosystem. However, the decision to make the jump comes with navigating Apple’s multimillion cent fee structure, a hurdle that developers must carefully consider.
