Apple cuts commissions: Industry reacts, regulators watch

As regulators watch closely, Apple today announced it would cut its App Store commission for small businesses, taking its cut down from an industry standard 30% to 15% for app and game developers that make less than $1 million a year.

The move could earn Apple points from small app makers who are hurting during the pandemic. But critics were quick to point out that it wasn’t a big concession or one that would cost the tech giant much money.

Epic Games CEO Tim Sweeney is suing Apple for antitrust violations and has said that Apple’s 30% take is excessive. He was unimpressed by Apple’s new fee structure, however.

“This would be something to celebrate were it not a calculated move by Apple to divide app creators and preserve their monopoly on stores and payments, again breaking the promise of treating all developers equally,” Sweeney said in a statement to GamesBeat. “By giving special 15% terms to select robber barons like Amazon, and now also to small indies, 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 added, “But consumers will still pay inflated prices marked up by the Apple tax. iOS and Android need to be fully open to competition in stores and payments, with a genuinely level playing field among platform companies, app creators, and service providers. That, and not gerrymandering the community with a patchwork of special deals, is the only path to a fair app marketplace.”

Other reactions were less strident.

“For years I have privately been saying that it would be nice to have a more progressive approach to platform revenue sharing,” Zach Gage, the creator of iOS premium games such as Pocket-Run, Sage Solitaire, and SpellTower, said in an email to GamesBeat. “It seems simple and obvious, and I’m really excited that Apple is adopting this approach.”

Measurement firm Sensor Tower said 98% of all developers are affected by Apple’s decision to cut the fees. But those developers account for only 5% of total revenue, Sensor Tower said. The firm estimated that 97% of game publishers generated less than $1 million last year and accounted for 2.3% of revenue.

The antitrust picture

Paul Swanson, an antitrust attorney at Holland & Hart, said in an email to GamesBeat that this doesn’t seem like a conciliatory move at all in the lawsuit with Epic Games.

Above: Apple CEO Tim Cook

Image Credit: Apple

“If anything, it’s more of a stick in Epic’s eye,” Swanson said. “If Apple felt pressure to compromise with Epic to resolve this antitrust case, it wouldn’t make much sense to take action that helps smaller developers while keeping commissions high for Epic.”

He said Apple’s pricing change doesn’t clearly strengthen or weaken its defense against the Epic lawsuit.

“The new Small Business Program doesn’t really change Epic’s concerns,” Swanson said. “If anything, Apple’s decision to set up differential pricing could support Epic’s argument that Apple does have the power to unilaterally set supracompetive prices — a hallmark of monopoly power. So, from Epic’s perspective, Apple’s pricing change does nothing to reduce Apple’s monopoly power, which Epic presumably still thinks is unlawful.”

While Apple clearly doesn’t want to placate Epic, the move reflects awareness of the need for good public relations or political savvy.

David Hoppe, managing partner at Gamma Law, said in an email to GamesBeat, “Given the pressure Apple is under on multiple fronts, this is not at all surprising, but the scope of the reduction is limited. Maybe it’s a sort of test by Apple to see how much positive impact they’re able to get from a pretty low-impact concession. Our expectation is that this the first step of what’s likely to be a significant realignment of the platform economics, to the benefit of app developers.”

Apple’s program

Above: Epic Games has been provocative in its spat with Apple.

Image Credit: Epic Games

“Regulators are trying to figure out what to do with Big Tech. Given this increased attention, Apple may think avoiding regulators and lawmakers is like outrunning a bear — you don’t have to be an unappealing target, just less appealing than the other potential targets of regulators and lawmakers,” Swanson said. “Taking steps that Apple characterizes as helping small business is the kind of small, proactive step that may garner Apple some goodwill in Washington and make other Big Tech targets more attractive for regulation.”

Apple’s new program for small businesses will start on January 1. The fees will be charged on the basis of revenues in the previous year, beginning with 2020. Small businesses will not see a service cut, as Apple will offer the same access to development tools like Xcode, programming languages, payments, and application programming interfaces.

Apple has 1.8 million apps in the App Store, with a reach to 1.5 billion devices in 175 countries.

Apple said the App Store generated $519 billion in commerce last year, with more than 85% of that going to third-party developers. CEO Tim Cook said the vast majority of app developers would qualify for the lower commission.

Besides Epic Games, Apple has had battles with Basecamp, WordPress, and others who are part of the Coalition for App Fairness, an advocacy group with large and small devs. Apple has also said it will retire the Identifier for Advertisers (IDFA), emphasizing privacy over targeted advertising. This decision has prompted a big battle with advertisers — including app and game publishers — and mobile marketing companies.

Apple said in a blog post that the new fee program comes at an “important time as small and independent developers continue working to innovate and thrive during a period of unprecedented global economic challenge. Apps have taken on new importance as businesses adapt to a virtual world during the pandemic, and many small businesses have launched or dramatically grown their digital presence in order to continue to reach their customers and communities.”

Above: Tim Sweeney is the outspoken CEO of Epic Games.

Image Credit: Epic Games

Apple reiterated its position that the App Store has been an engine of economic growth that has created millions of jobs and a pathway to entrepreneurship for anyone with a great idea. The company also said an independent study by the Analysis Group earlier this year found that its commission structure is in line with the mainstream for app distribution and gaming platforms.