Apple announced a $100 million settlement to small app developers that sued it this week. The App Store is too large and dependent on in-app purchases fees to make these changes possible, despite yesterday's announcement.
Apple's settlement contains several new policies which clarify the App Stores rules. Developers are now allowed to contact customers using data from their apps. This is in addition to the previously prohibited practice of notifying customers about other payment options. Apple has promised to maintain the App Store Small Business program, which cuts down Apple's revenue by 15% for developers making less than $1million per year, in its current form for three years.
It also organizes its search results based on objective characteristics such as downloads, star ratings and text relevance. Apple will provide more details about appeals and how developers can set new app prices. Apple will also publish an annual transparency report on the App Store review process.
However, none of these changes will make a significant difference to the App Store's functionality or the way the developers who make the most of it work with it.
The settlement grants concessions to small businesses that use the App Store. However, a few large companies receive the majority of the App Store's revenue.
App Store developers are small businesses, with an estimated 98 percent.
Apple did not give numbers about how many developers fell under the small app category, meaning that they made less than $1million. However, a SensorTower report late last year stated that approximately 98 percent of App Store developers are eligible for the program. The report also stated that the App Store's total revenue is only 5 percent for those developers Apple calls the majority of iOS app developers.
One multitrillion-dollar company has created the economics for the App Store 2021 to collect revenue from in-app purchases on the 2 percent developers who account for 95 percent on Apple's platforms. All these rules, regulations, settlements, and clarifications are designed to placate the vast majority developers who are essentially just bystanders caught up in that bigger crossfire.
What does Apple care that it must give up $100m here (the settlement from its latest class-action suit) and $59m there (the annual cost to Apple for the Small App Business Program)? It can make whatever concessions necessary to get rid of the 30% cut that it receives from larger developers and apps through its store.
Apple's most significant change, the ability to discuss alternative payment methods, has a hidden advantage. Developers can now discuss alternate payment methods for subscriptions or other services using the contact information they have obtained from the app. For example, developers can now offer a form for you to submit your email address to sign up to receive deals to your inbox.
However, if you wish to sell an app item, you will need to use Apples payment methods. You also have to pay Apples cut. This is still a big issue for many developers. As the last year's dramatic battle between Apple and Hey demonstrated, it is not always possible to avoid Apples payments, even if you jump through Apples hoops to only sign up users who aren't in your app.
The App Store is based on in-app and subscription purchases by a small number of developers
Apple's App Store is a huge business. In-app purchases and subscriptions will be the mainstay of their business in 2021. Take a look at the top-grossing Apple apps. App Annies 50 most popular apps does not include any paid apps. SensorTowers 200 list includes Minecraft, which is at 109th position as of publication. It also features in-app purchase. All free-to-play and streaming apps, as well as subscription-based apps, are the most lucrative on the platform.
Apple knew it wouldn't make it possible for developers to notify users about alternative payment options within their apps, given the value of the money at stake.
In 2020, the App Store is expected to generate around $64 billion in revenue. Apple's 30% cut makes it $19 billion in revenue. Apple offers a 15 percent cut for programs like the App Store Small Business Program or subscriptions after one year. This makes it likely that the actual number will be slightly lower.
Apple would not compromise. Apple's App Store is too important and too large for them. The way that the App Store operates in 2021 means that, unless a court rules otherwise, Epic, Spotify and other companies are actively trying not to change the core aspects of the app economy.
This is something Apples clarifications will not interfere with.
