Apple to cut App Store commission from 30% to 15% for developers with up to $1 million annual revenue

Apple is going to cut the app store commissions in half for most developers beginning next year amid an intensifying debate about whether the maker of iPhone has been using the fees unfairly fatten its profits and stifle rivals competing against its own music, video and other subscription services. The recently announced concession will lower the commissions of Apple for in-app subscriptions and other purchases from 30% rate that has been in place since 2008 to 15% effective 1st January.

The discount will apply to developers with app store revenue up to $1 million annually which is a threshold that excludes the makers of some of the most popular apps downloaded on iPhones, iPads and other Apple devices.

The group also includes two of the fiercest critics of Apple, music streaming service Spotify and Epic, the maker of the popular Fortnite video game.

Those companies, on the other hand, have helped spur to increase scrutiny of Apple’s app store practices among lawmakers and regulators in US and Europe. Apple sells music streaming and video services that help to offset a slowdown in iPhone revenue in recent years.

The app store commissions feed the services division of Apple which saw its revenue climb up to 16% to nearly $54 billion during the company’s last fiscal year ending in the month of September. Only the sales of iPhone generate more revenue for Apple instead of services.

Apple is framing its fee decrease as a way to help most of the companies that make roughly 1.8 million apps in its store during the tough economic times brought by the pandemic. Around 98% of the app developers generate less than $1 million revenue annually as stated by mobile analytics firm SensorTower.

But the decreased commission won’t leave much of a dent in Apple’s revenue. This is because the small developers in line to qualify for the cut contribute around 5% of Apple’s app store revenue, based on the estimates of SensorTower.

The analyst of Moody, Raj Joshi predicted that the decreased commission will pare the annual revenue of Apple by less than 1% while purchasing the company more goodwill from app developers and regulators. Joshi said that the move will alleviate risks to some degree from growing global regulatory scrutiny of the pricing and business model of App Store.

This might be one reason why investors seem unfazed by Apple’s forthcoming fee cut. The shares of the company slid 1% to close Wednesday at $118.03.

Spotify scoffed at the lower commissions of Apple as “window dressing” designed to discourage regulators from cracking down on its practices. Spotify also said that the latest move further demonstrates that their app store policies are arbitrary and capricious.

The Match Group that owns popular online dating sites lashed out at Apple in a statement questioning how much the lowered commissions would help. Match also said that if they manage to grow their revenue over $1 million, they then double their cut arbitrarily and makes it harder for the startup to continue to grow.

Epic has continued to pursue a lawsuit they filed against Apple earlier this year in an effort to win the right to sell products within the apps without having to pay the fees of Apple.

A group known as the Coalition for App Fairness, a Washington-based nonprofit has called for fair treatment in the way the tech giants run their app stores. Its members are Epic, Spotify, online dating app maker Match Group, Tile, Basecamp, Protonmail and European media industry associations.

European regulators are also investigating Apple’s mobile app store and payment platforms over concerns that its practices distort competition and is part of the EU’s battle against the dominance of big tech companies.

Apple CEO Tim Cook cast the fee decrease as a mutually beneficial move everyone involved.

Cook also added that they are launching the program for helping small business owners to write the next chapter of creativity and prosperity on the app store.

More details about the reduced commission will be revealed next month.