I wrote about this a bit as part of my roundup of news for June 17, but after thinking about it more, I believe this warrants more detail, and some extra content, so here we are.
The App Store
When Apple launched the App Store for the iPhone in 2008 (most people forget the first iPhone did not have any kind of app store), it changed many things in the mobile industry forever. The App Store was, in my opinion, more important than the iPhone itself. At the time, it was revolutionary. Other smartphones of the day had the ability to run apps, but actually getting them was difficult. It involved finding them on the internet, and then somehow transferring them to the phone manually. It was a cumbersome process that was too difficult for many people to attempt. Apple changed that. With an App Store built into the phone, users could go into the store, tap a couple buttons, and the app would automatically download to the phone. That was it. Everything we do on phones today revolves around apps, and this was how it began.
How Apple accomplished this was to centrally manage the system. Apps would be stored on servers run by Apple, and users would download the apps directly from Apple. There are several advantages of this. Someone who wishes to create an app doesn’t have to figure out a system of getting it to people, or paying for that cost. Since all of the apps live in one store, Apple also was able to ensure there was nothing malicious in those apps. If a user downloads an app from the App Store, they could be assured that it would be safe. It was a win for developers and a win for users. How does Apple win in this scenario? Well, developers could charge for their apps, and Apple set a policy where the company took 30% of every transaction in the store. If a developer charged $1 for an app, when someone bought it, the developer would get 70 cents, and Apple would get 30. Apple’s reasoning for taking 30% was explained as a way for Apple to pay for the costs of the App Store. There are costs to actually host the applications, costs to handle the transactions themselves, and costs to have a system to make sure that apps were of a high quality and safe since Apple approves every app in the App Store However, considering the ease of use, developers embraced this system, and the App Store exploded. 12 years later, and these policies still apply with few exceptions.
The Apple Tax
That is about 400 words on how the App Store came to be, but context is important. And we aren’t even done with the context. Apple has taken the two core pieces of the App Store, the 30% cut, and approving every app, and used it to their advantage. On the 30% cut, this applies not only to apps purchased up front, but also applies to purchases made in an app. We’ve all seen the thousands of free to play games in the store, where in app purchases rule the world. Every time you spend a couple dollars on those gems, or extra lives, or whatever “gotcha” feature these games have, Apple also takes 30% of that transaction. It was a logical expansion of the system, and does make sense. And the financial windfall for both developers and Apple has been massive. Apple claims that $519 Billion US worth of commerce was done on the App Store in 2019. That is a lot of revenue for both Apple, and the developers making money. This should be a win/win scenario, with little to complain about. However, Apple applies this 30% to every transaction, even subscriptions, and that is where the troubles really begin.
Let me use Spotify as an easy example. The single user Spotify Premium plan costs $10/month. You can go to Spotify’s website, sign up for an account, and then use Spotify across all of your devices. In this scenario, Spotify keeps the entire subscription fee of $10/month. If Spotify offered the option to subscribe to Premium from within their iPhone app, they are still bound by the App Store policy of a 30% cut. This would mean that for that $10/month cost, Apple would take about $3.33. But that doesn’t happen once, that happens with every transaction, so every single month, Apple would take $3.33 ofo the $10 cost. Spotify does not want to lose 30% of their fee every month, so the company has decided to not allow users to sign up for a Spotify subscription within the app on the App Store. You can download and install, and the app will tell you all about the features of Spotify Premium, however the app tells you to go to the Spotify website to sign up. This is obviously not an ideal user experience, as it would be easier for users to just be able to sign up within the app, but Apple’s App Store policy makes that difficult. Adding to the difficulty, Apple also has a policy that apps cannot link at all to an external source to make a transaction. This means that Spotify is not allowed to add a link in their app to take users to a page to sign up for the Premium Plan. Spotify can tell users to go to the website, but can’t tell users how to get there. Other major services face the same restrictions. This is why you can’t sign up for Netflix, Disney+, Crave, etc. Or buy books on the Kindle app, or audio books in the Audible app. There are many other examples, but those are some of the more high profile. Some apps do allow users to buy the subscription from within the app, and some just take the 30% loss on revenue, while others increase the price to subscribe to the service from within the App Store to make up the difference. It is a less than ideal scenario because of Apple’s draconian application of this policy. And to top it all off, there are even more complications to that, which I’ll get to later.
The Apple Gatekeeper
The other tent pole feature of the App Store is that Apple approve every app. This has the advantage of ensuring that apps are safe to download, and won’t include malware, or any content that will cause performance or other issues with the phone. However, approval is a double edged sword. Apple also requires all apps to adhere to all of their App Store policies to be approved. If a developer builds an app in a way Apple doesn’t like, or a feature Apple doesn’t like, it doesn’t get into the app store. So, back to the Spotify example, if they tried to submit a version of the Spotify app that included a link to subscribe to Spotify Premium, Apple would not approve it, and it wold not be allowed in the App Store. This forces developers to play nice with Apple.
Trouble in Paradise
1100 words of context later, the current situation is a culmination of long term results of these policies. Earlier this week it was found that email service hey.com had an app update rejected. Hey.com sells a premium email subscription service, the app is unusable without that subscription. Hey.com did not allow users to sign up for the service within the app so as to not lose 30% of the revenue, nor did they provide any link to a place to sign up within the app. Apple did not provide a reason for a rejection of the app update, and Basecamp, the company that makes the hey.com service, went to tech news outlets. Those outlets, which have more of an ability to talk to Apple, asked, and Apple gave a statement which indicated that any app that has a subscription service offering *must* include the ability within the app to subscribe, giving apple a 30% cut. But, as stated earlier, there are many apps in the store that have subscription services that do not face this restriction from Apple.
So, more digging was done. Apple’s App Store policies list several exemptions to their policy about offering subscriptions in app, the most notable is a category of “reader” style app. A “reader” style app is described as an app that provides content consumption services like video streaming, or music, or books. Apps in those categories are not required to offer an ability to subscribe to the service in app. However according to the policy, other types of apps require the ability to subscribe within the app, giving apple that 30% cut, if they offer the ability to subscribe to the service from anywhere else in the world.
Let me break this out into its own paragraph. If a company or developer offers a way to subscribe to a service via any method at all elsewhere, Apple also requires that company or developer to provide a way to subscribe within the app, giving Apple 30% of that subscription.
Now, whether you agree with that policy or not (and for the record, I definitely do not), that is Apple’s policy, and one would assume it is applied evenly. But that is not even true. Another premium email application, Newton Mail, offers a subscription service, and does not offer a way to subscribe within the app. That service has existed for years, and has not run into these issues from Apple. This shows that Apple is not applying their own rules evenly or fairly, and are arbitrarily applying the rules. Newton mail is a service that has existed for a few years, while hey.com is a new service. I am speculating that Apple grandfathers some older applications in, which is part of the reason they created the entire “reader” category for exemptions. Many of the apps in that category are from larger, previously established companies. Think of the uproar Apple would face if it attempted to tell Netflix that it had to offer a way to subscribe within the app and take 30% of that. That would make news headlines all over the world, and is PR Apple does not want, so exceptions were created to allow apps like that to continue as is, while punishing newer, sometimes more innovative services.
Not All Apps are Equal
Apple makes that 30% cut the cornerstone of the App Store. It has been part of every App Store transaction since 2008. Apple’s refusal to budge became a big issue. Now, in recent years Apple has budged just a little bit. In 2016 Apple changed the policies on subscriptions where if a user remains continuously subscribed to a service for over 1 year, the revenue split changes. After one year Apple will only take 15% of the revenue instead of 30, giving the Developer 85%. This was a concession, but still leaves the vast majority of transactions at 30%, including every one time purchase.
On April 1 of all days, a bombshell dropped. Amazon’s Prime Video app suddenly started allowing purchases of individual TV shows or Movies within the app, and those purchases could be done using Amazon’s infrastructure, not Apple’s. This indicates that those transactions are not subject to Apple’s 30% cut. It was believed to be the first time Apple had ever allowed this. Apple later put out a statement that said, in part, that Amazon was allowed to do this through a “well established” program for Premium video services. However, the only examples provided for Premium services in this program were two services almost no one had ever heard of before. Amazon became the first large provider, and as far as I know, still the only large provider, to get this type of exemption.
The Apple Advantage
Almost 1900 words in and we can see just how confusing and convoluted this situation is. Apple has an iron grip on the the App Store, and does not exercise that grip evenly across the ecosystem. I haven’t even talked about Apple’s own services. Apple has music, cloud storage, video services and many more that it offers. Apple Music, for example, has the same $10/month price that Spotify has, but Apple can provide that subscription in app and get all of that revenue, while if Spotify provides that subscription for the same price Apple takes their 30%. That gives Apple an inherent advantage in that they get the revenue no matter what, while punishing 3rd party services. Apple’s App Store polices create an unfair playing field, and there is no way to get an app onto an iPhone or iPad without going through Apple. It has always been this way, but now the situation is coming to a head.
Storm’s Coming
On the day that the issues that hey.com has been experiencing came to light, the European Union announced two separate antitrust investigations into Apple and the App Store policies. Several high profile developers have also become more vocal with their opposition about the system as it exists now. It is an unfair playing field, and it seems that a tipping point may finally be here. It is becoming more and more clear that the current system, in place largely unchanged for 12 years, is not working. It is unfair to smaller developers, newer apps and services, and significantly disadvantages anyone who dares to build a service that competes with something Apple provides. I do not expect Apple to go exquisitely into the night here, but my hope is that after all the legal fights, and the higher level of backlash for large companies, that the end result is a fairer system for all, one where anyone can thrive, instead of the current ways that Apple has taken advantage of for far too long.
