A consumer revolt against the “Apple tax” and Google Play Store royalties looks set to change the app model.
Apple said last week that since the July 2008 opening of its App Store, from which applications from Angry Birds to AirBnB must be downloaded, it has generated US$120 billion in revenue for third-party software developers.
That means Apple made a killing. It charges a 30% royalty on all app purchases and 15% of revenue generated by long-term subscriptions.
Now a revolt against that “Apple tax” and the 30% royalty that Google charges for apps bought through its Google Play store, which is available on Android phones, looks set to change the app model.
Streaming-music provider Spotify and video giant Netflix used to let you pay your monthly subscription through the app on your iPhone. Last year alone, that yielded Apple more than US$250 million in royalties from Netflix as it clipped the ticket on all those subscriptions. Now, Netflix has removed in-app payments. If you sign up to Netflix now, or change your subscription, you’ll be prompted to go to the Netflix website. It’s the same for Spotify.
Epic Games, which makes the hugely popular game Fortnite, has gone one further. It has set up its own app store from which Fortnite and other games can be downloaded. The Android version will be available this year. But it has hit a snag with Apple, which will not host apps that serve as app stores in their own right.
These efforts to try to dodge the Apple tax aren’t new. It has always been a minor hassle, for instance, to buy an ebook or audiobook from Amazon in its apps on the iPhone. You can read a sample of the book, but there’s no option to pay for it. Instead, you have to fire up your web browser and pay through the website, releasing the book to the app.
Although Apple prides itself on user-friendly design, it is a jarring experience. No such issue exists with the Android app. Amazon and Google cut a deal over it. But a tense rivalry over ebooks between Amazon and Apple has existed for years and Apple wants you to buy books through its Apple Books service.
Apple doesn’t claim the royalty on the likes of accommodation-booking service AirBnB or ride-hailing app Uber. That’s because those apps take payment for services offered beyond the app environment, in Uber’s case a ride across town in a Prius.
But with the likes of Netflix and Spotify now major media and tech companies in their own right, we are likely to see the app world start to fragment as major players try to go it alone. Epic Games made US$3 billion in profit last year, largely on the back of Fortnite, where players can make in-app purchases. Other game makers, such as Electronic Arts and Ubisoft, will be keen to follow.
The App Store helps the smaller developers get their apps in front of people and it is trusted as a spam- and malware-free zone. But it has also served to inflate the price of apps, with developers passing on the Apple (and Google) tax to us.
We are seeing the tollkeeper effect as Apple and Google leverage their power over software makers – and us as users. They control the phone operating systems as well as the app stores from which we download software. They call the shots – for now.
The long-running Apple v Pepperantitrust lawsuit may change that. It involves a group of iPhone users who have sued Apple, upset at the phone maker’s App Store monopoly. The case has been running since 2011 and last year reached the US Supreme Court. A win against Apple could require it to change its App Store model. Either way, the issue isn’t going away, with app store revenue growing at 20-30% year on year.
This article was first published in the February 16, 2019 issue of the New Zealand Listener.