With the new court ruling requiring Apple to let developers inform users of alternative payments for their games, how will the industry change? Let’s take a closer look.
We've recently shared a post on a settlement between Apple and a class-action lawsuit from US app developers. The two sides agreed upon a $100 million payout from Apple, but there's more than that. Apple agreed that iOS developers could contact their customers, with permission, to tell them about payment options available outside the App Store. In 2019 App Store brought Apple $55 billion in revenue. Last year that number jumped to $72 billion, likely due to the pandemic and the flow of new users it created.
Worldwide gross app revenue of the Apple App Store from 2017 to 2020 published by Statista:
The spark that ignited the lawsuit was Fortnite that got banned on App Store, and Google Play for using its own outside payment options in the game a year ago. Epic Games allowed players to do in-game purchases using direct payments. They wanted to remove the additional fees that were included in the prices.
"By offering an alternate payment system, we’re not only offering players more choice, but we’re able to pass along the savings to players," Epic said in August 2020. "In operating Fortnite on open platforms and operating the Epic Games Store, Epic has processed over $1,600,000,000 of direct payments successfully, and uses industry-trusted encryption and security measures to protect customer transactions."
Google and Apple acted quickly, saying that this update violated their store terms – meaning that they didn't get their 30% cut off of each purchase in the store and the app. Apple then proceeded to remove the game from the App Store and Google chose the same response.
On August 28, 2020, Apple removed Epic’s access to developers' accounts and cut Epic off from development tools for Mac and iOS. Epic Games then decided to take the case to court.
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A couple months later Google announced they planned to add more options to install and use other app stores in Android 12. The team reiterated its previous Payments Policy for in-app purchases of digital goods, which made Android developers selling apps and games on Google Play use Google’s billing system by default.
As for Apple, it allowed developers to contact users back in June, but there was an obstacle for developers: they weren’t able to tell users about alternate payment options using information obtained inside the app. Apple said developers needed to obtain info another way. The new proposed agreement, if approved, will make it easier for developers to reach out to users meaning that they can collect contact details directly inside apps.
Apple describes the move as a generous offer to developers, including the anti-steering change, "to give developers even more flexibility to reach their customers, Apple is also clarifying that developers can use communications, such as email, to share information about payment methods outside of their iOS app," the press release states. "As always, developers will not pay Apple a commission on any purchases taking place outside of their app or the App Store. Users must consent to the communication and have the right to opt-out."
The settlement also includes a payout of $100 million for small developers who earned $1 million or less "for all of their apps in every calendar year in which the developers had an account between June 4, 2015, and April 26, 2021." Apple called this move the "Small Developer Assistance Fund."
Apple also promised to keep the App Store Small Business Program, which, for at least the next 3 years, lets teams earning less than $1 million in a year apply for a reduced 15 percent commission from their sales. In a report published in June 2021, Apple said that "App Store supports hundreds of thousands of small developers. In fact, between 2015 and 2020, more than 90% of all developers on the App Store met the definition of 'small.'
The company agreed to share an annual transparency report about the App Store which must include "meaningful statistics about the app review process, including the number of apps rejected for different reasons, the number of customer and developer accounts deactivated, objective data regarding search queries and results, and the number of apps removed from the App Store."
Further, developers will get the ability to set more than 500 price points for subscriptions, in-app purchases, and paid apps (the current policy is limited to less than 100.) Apple also plans to keep the current App Store Search system in place "for at least the next three years."
"This power raises serious competition concerns and impacts consumers and app developers alike," Sen. Amy Klobuchar (D-Minn.), chair of the Senate Judiciary antitrust subcommittee, said in a statement. "This new action by Apple is a good first step towards addressing some of these competition concerns, but more must be done to ensure an open, competitive mobile app marketplace, including common-sense legislation to set rules of the road for dominant app stores."
These changes could actually be minimal for Apple, meaning that users still can't download iOS apps from outside app stores or on the Web, plus the settlement doesn't let people purchase apps via other app stores on iPhones and iPads. Developers are now allowed to email and text customers, but they are still not allowed to use directions or links to outside payment options inside their apps. What is more, commissions within the App Store will remain the same.
Commission rates for leading app stores worldwide as of July 2020, according to Statista:
What does Apple have to say about the company defending its strict rules? Apple CEO Tim Cook thinks their strategy is crucial for controlling malware, scams, and other unsavory apps. The Washington Post studied 1,000 of the highest-grossing apps on the App Store. Nearly 2 percent were scams.
Revenue among suspicious apps:
Apple is still waiting for a decision on the big Fortnite case from a federal judge in a separate lawsuit filed by Epic Games. The lawsuit's goal is to force Apple to remove the App Store commission for developers completely. It appears that Apple hopes its move will persuade Fortnite case judge Rogers, that the company supports developers.
In the meantime, other countries started to question Apple's rules too. Russia's Federal Anti-Monopoly Service (FAS) decided to warn the company for abusing its dominant position in the distribution of apps and violating Russian federal law under the protection of competition. The government states that Apple should eliminate the violations by September 30 meaning that users should not be blocked from being informed about outside payments options with lower prices.
Here is what Epic did back in 2020
The FAS believes this policy restricts developers in independent behavior and negatively affects competition. Previously, the FAS also fined Apple $12 million for the company's "dominant market position" giving preference to its own applications.
Australia's government is developing new laws to regulate digital payment services like Apple Pay. Australia's Treasurer Josh Frydenberg believes the government should carefully consider adapting new rules for such services.
"Ultimately, if we do nothing to reform the current framework, it will be Silicon Valley alone that determines the future of our payments system, a critical piece of our economic infrastructure," Frydenberg noted in an opinion piece shared in the Australian Financial Review newspaper.
In the meantime, the National Assembly of South Korea voted to pass a law that will force Apple and Google to let developers use alternative payment methods on the iOS and Android app stores. If they don't comply they will have to pay up to 3% of their South Korean revenue in fines, writes PCgamer.
Top Grossing Apps in South Korea for July 2019 according to Sensor Tower:
In the coming weeks, we'll discuss the topic with developers and share solutions that might help game developers benefit from new rules. The new rules are still not ideal for developers but there are some ways that can help studios make more money with their mobile titles, and we'll share some of them in the next articles.
What is your take on the settlement? Did Apple win with minimal damage? How will the Fortnite case change the situation?