The Apple App Store makes a significant contribution to the company’s total revenue, but that may soon change as voices grow against the high commission charged by Apple from app developers.
Netflix plans to bypass Apple App Store
Netflix is the latest to revolt against the Apple App Store and its high commission. The streaming service is reportedly testing a payment feature that will allow it to bypass iTunes billing. Netflix is among the most popular apps on the App Store. Though the app is free to download, users need a subscription to access Netflix’s vast library. Apple takes a 30% cut of the first year’s subscription, which earns the company millions of dollars, but Netflix wants to get around that.
The streaming service is testing its new payment feature in select markets across Latin America, Europe, and Asia. The new feature will redirect users looking to subscribe via the app in the Apple App Store to Netflix’s mobile web version, where they can make payment directly. Netflix is currently testing the feature in 33 countries, including Japan, Korea, Malaysia, Argentina, Australia, Austria and others.
The technology industry has long been on the receiving end of billions of dollars in capital, but what's next for the industry? Greylock General Partner Sarah Guo joined Wall Street Journal reporter Zoe Thomas to talk about the future of tech investment. Q3 2021 hedge fund letters, conferences and more Seed Funding Thomas asked Guo Read More
“During this time, customers in these countries may experience any of the following when launching the Netflix app on an iOS (mobile or tablet) device: 1. Ability to sign up in app with only iTunes Mode Of Payment. 2. Ability to log into Netflix but not sign up (sign up only via mobile browser),” the streaming service said.
A similar thing happened in the past when Valve’s Steam, which is the biggest distributor of video games for PCs, announced plans to launch a free iPhone app to allow gamers to play games even when away from their PCs. However, Apple blocked the app and updated its guidelines to ban any app that appears to be a separate app store within an app.
Apple App Store may lose billions
Such backlash against the Apple App Store could cost the company up to $16 billion annually, according to Macquarie Research analyst Ben Schachter.
“We believe that the traditional … commission rates for app distribution may come under pressure,” Schachter wrote in a note to clients (via Business Insider). “Changes in the commission rates would meaningfully impact profits.”
Further, Schachter notes that many game developers were already of the view that a big cut from companies like Apple just to host their apps is unfair. The analyst also sees legal challenges against the big commission charged by the Apple App Store. The iPhone maker is already facing a lawsuit over the alleged use of its dominant position by charging a high commission.
Even if the lawsuit fails, it could be enough to attract regulators’ attention to the issue. Schachter also does some number crunching to suggest the potential loss of revenue for Apple. The App Store is expected to hit $20 billion in revenue by 2020, or over one-fourth of Apple’s projected earnings. If Apple is forced to reduce its commission by 5%, that revenue would drop by $3.7 billion, while a 15% cut would drop the revenue to $11.2 billion.
Google faces the same criticism
Apple is not the only company to face the ire of developers when it comes to charging exorbitant commission rates. Earlier this month, Epic Games announced plans to distribute its massively popular game Fortnite through its own website rather than via the Google Play Store.
Epic pulled out because it didn’t want to share the money it generates from in-app purchases, its biggest revenue stream. Epic’s decision drew widespread publicity because it is very rare for a developer to ditch the major app stores.
It is not just game developers that are wary of the high commission charged by app store owners. In a recent SEC filing, Spotify also accused Apple and Google of being unfair in the commission rates they charge. The music streaming service claimed the two tech firms don’t charge the same commission rate as its rival music-subscription services.
Spotify has limited its presence on the Apple App Store. Though users can still download the Spotify app from the App Store, users must visit its website to subscribe to the premium service.
In their defense, Google and Apple have touted their capabilities in removing fake apps and malicious software and giving developers an opportunity to distribute their apps widely. Further, the app stores handle all payment-related things, assisting both developers and users with the complex process.
For now, it wouldn’t be wrong to say that only big and popular apps can afford to ditch the major app stores. The rest can only hope regulators force these tech firms to lower their commission rates.