Apple dropping App Store fees to 15% for small businesses with under $1 million in revenues

Amid increased regulatory scrutiny over how it runs its App Store, Apple today announced it will reduce the App Store commissions for smaller businesses. Under the new guidelines of the “App Store Small Business Program,” as it’s called, developers earning up to $1 million per year will only have to pay a 15% commission on in-app purchases, rather than the standard 30% commission.

The new program will launch on Jan. 1, 2021, and will be based on the business’s revenues in the previous calendar year — meaning 2020. This $1 million threshold will be based on how much existing developers made across all their applications on a post-commission basis, Apple notes. That means the businesses could actually earn up to $1.3 million in gross revenues. The reduced fee will also apply to new developers launching their apps for the first time.

If, during the course of the year, the developer’s apps surpass the $1 million threshold, they’ll be moved to the standard commission rate, generally 30%, for the remainder of the year. They’ll also then enter the following year at that standard rate, as well. Depending on the developers’ business, however, the “standard” rate may not always be 30%. For developers running an auto-renewing subscription business, for example, the standard commission drops to 15% in year two on a per-user basis, based on Apple’s existing guidelines. This will not change.

Developers can have their eligibility for the App Store Small Business Program reassessed on an annual basis going forward, Apple says.

Despite the lowered commissions, there are no planned changes to the services offered by the Apple Developer program as a whole. Smaller businesses will continue to have access to Apple’s development applications, like Xcode, its programming languages, like Swift, its secure payments interface, over 250,000 APIs, as well as new technologies like HealthKit, ARKit, CoreML and others.

Apple today has 1.8 million apps on its App Store, which reaches over 1.5 billion Apple devices across 175 countries worldwide. In 2019, the App Store facilitated $519 billion in commerce worldwide, with over 85% of that total accruing solely to third-party developers. Apple only commissions the smaller 15% of apps that sell digital goods and services through either in-app purchases or through paid application downloads.

While Apple didn’t provide an exact number of how many apps will be impacted by the new program, it did say that it believes the “vast majority” will qualify.

The company plans to announce further details about the eligibility process in December.

Given that a large number of developers could potentially qualify for the new reduced commissions, Apple’s bottom line within its growing Services business may be impacted.

In addition to the App Store, Apple’s Services business includes other subscription offerings, including AppleCare, Apple Music, Apple Pay, Apple TV+, Apple Music, Apple News+, and more. This business hit an all-time high of $14.5 billion in Apple’s fiscal Q4 2020. While the Services business has heavily leaned on the App Store in years past, Apple has more recently found ways to reduce its reliance on App Store fees. For example, the company recently launched Apple One, a family of subscription bundles that make it easier and more affordable for consumers to pay for Apple’s subscription services.

The changes to the commission structure follow a year that’s been particularly tough on small businesses due to the coronavirus pandemic and the resulting hit to the global economy. Meanwhile, Apple cracked down harder than ever in 2020 on developers skirting its rules over in-app purchases.

Apple’s demands for a 30% cut — which the company recently argued is comparable to other marketplaces of this nature — led it to do battle with its own developers over the course of 2020.

It rejected apps like Basecamp’s Hey from the the App Store for failing to offer support for in-app purchases, and it rejected apps that directed users to other ways to pay outside the App Store, like WordPress for iOS. It’s also now battling in court with Epic Games over the latter’s refusal to pay App Store commissions for its game Fortnite, which Apple yanked from the App Store. The growing chorus of discontent from the developer community, led to the creation of the Coalition for App Fairness, an advocacy group comprised of developers large and small fighting against what they perceive to be anti-competitive behavior from Apple and Google.

Apple’s battle with developers wasn’t limited to the fee structure itself. This year, the company oddly to burn developer goodwill in other ways, too, like when it announced iOS 14 would launch in less 24 hours, leaving developers unable to have their apps iOS 14-ready on day one.

And as the battles over App Store played out, Apple rolled out an increasingly complex set of rules around how apps can operate and when fees are assessed, under the guise of being developer-friendly. What’s actually developer-friendly, however, is what Apple is doing now: simply dropping the commission rate for smaller businesses.

“Small businesses are the backbone of our global economy and the beating heart of innovation and opportunity in communities around the world. 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,” said Apple CEO Tim Cook, in a statement about the new program. “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. Our new program carries that progress forward — helping 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.