Apple’s response to being required to allow developers to lever payment options apart from its in-house system is drawing a bevy of negative commentary from tech folks. And with good reason: Apple is offering little and demanding much, ensuring that it can continue to demand a massive cut of developer revenue.
Apple and Epic Games both appealed a lower-court ruling that largely sided with Apple but required that the technology giant allow developers to send their users to the web instead of keeping them inside of its App Store’s walls. When the Supreme Court declined to weigh in on the lower court ruling, the prior case stood, and Apple had to make it possible for developers to charge users apart from Cupertino’s existing systems.
The Exchange explores startups, markets and money.
Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.
And oh boy did Apple not give much ground. The company still intends to demand “27% on proceeds you earn from sales (‘transactions’) to the user for digital goods or services on your website after a link out (i.e., they tap ‘Continue’ on the system disclosure sheet), provided that the sale was initiated within seven days and the digital goods or services can be used in an app.” In short, even if a user leaves Apple’s closed ecosystem and buys something from a service elsewhere that can be used in an app, the tech behemoth is expecting 27% of that money so long as the sale happens within a week.
The reduction in demands constitutes a full 3% reduction from its existing 30% fee charged to payments that occur inside of its App Store system. Simply put, Apple is trying to offer developers what it has to, but with enough costs attached to make it economically unpalatable. Eric Seufert of Heracles Capital, described Apple’s posture as “heads I win, tails you lose,” which feels pretty accurate.
But let’s not be too hasty. How does Apple argue that it should get 27% of developer revenue from apps that are used on its platform even when it is not handling the transaction? From Apple (emphasis added):
All App Store developers — including those who place buttons or links with calls to action in their apps — benefit from Apple’s proprietary technology and tools protected by intellectual property, and access to its user base. This includes Apple’s investment in developer tools, SDKs, and APIs, and updates to the platform itself. Apple also provides a safe and trusted experience on its platform, in which users and developers transact freely.
Apple is charging a commission on digital purchases initiated within seven days from link out, as described below. This will not capture all transactions that Apple has facilitated through the App Store, but is a reasonable means to account for the substantial value Apple provides developers, including in facilitating linked transactions.
This is a concept of user ownership that really rubs me the wrong way. If Microsoft took this posture with Windows, it would shatter the economics of a great number of software companies that sell enterprise and consumer software. If Google took this posture with Chrome, it would crush the economics of a great number of websites and digital services. For more fun, imagine if Microsoft followed Apple’s logic of “we own all customer use that happens on our platform” with Windows, charging Chrome a 30% vig on all revenue that the browser generates. Bonkers, right? (DHH of 37Signals fame makes a similar point here.)
Apple could have said, “Hey, we took this to court, we lost, and we’ll get right with developers by providing a simple, fair way for them to link externally and collect payments,” and we’d all move on. But with Apple hardware revenue growth slowing and its overall top growth rate in the red lately, the company seems hellbent on keeping a massive cut of developer revenue on iOS, even though it’s the developer of the app in question.
The way that I see things is as follows: I buy a phone that has an OS built into it. I have paid for the hardware and the software. Whatever else I buy is between me and that transacting party. Sure, Apple wants me to use its identity, payment and app store systems, but when I do not want to, I should be able to make my own selections. This is how computing works on desktops and laptops. It’s great. I love it. Microsoft offers a store for Windows; Apple offers a store for OS X. But if I want to use $BONK tokens to pay for a digital JPG on my PC or Mac, or buy a game using my credit card on Steam, that’s between me and the NFT holder, or games developer, and pertinent stores and exchanges. Not the OS.
Apple’s arguments that it built the OS — “Apple’s investment in developer tools, SDKs, and APIs, and updates to the platform” — and thus is owed a lot of the revenue applies to any computing platform. Either it should apply the same model everywhere — meaning that it should expect to pay massive cuts of its revenues on phones sold to users browsing on Chrome to Google, and Google to pay Microsoft for transactions that occur on Chrome when Windows users are on the Google browser — or it should admit defeat and stop trying to, indeed, have its cake and eat it, too.
I am not alone in my view here. Even former TechCruncher and Apple fan M.G. Siegler appears displeased with Apple, per his recent posts. Epic Games is clearly irked and intends to contest what Apple is trying to pull off. Other gaming folks are unhappy. Some founders are mocking Apple’s move as well. Even developers who won Apple awards for their apps are taking shots at the company. Spotify is not pleased, which isn’t a surprise — the list goes on and on and on.
The vibes here are bad. Apple is effectively refusing to budge, because it either thinks that it is right or because it realizes that without its ability to yank huge cuts of third-party developer revenue, its economics are worse. Well, too bad. Rent-seeking is the opposite of innovation. What sad moves from a former innovator.