Apple’s ‘Big Commission Cut’ Will Cost Only 2% Of App Store Profit, According To One Estimate

This morning Apple dropped App Store commissions from 30% to 15%, meaning app developers pay less to Apple for hosting their apps and managing payments. The catch: developers have to be earning less than $1 million for all of their apps.

But the move might be more PR than substance.

Because it will only cost them about 2% of their App Store revenue. At least, according to one mobile marketer’s estimate.

“By halving the AppStore fee for developers making under $1 million, Apple makes a master PR move,” says Thomas Petit, a Europe-based mobile growth consultant for dozens of mobile companies. ““The extreme power law of app’s unit economics means it won’t cost them much — around 2% of the AppStore fee revenues per my estimates — and it will fend off regulators at a time the App Store is under scrutiny.”

The power law that Petit is referring to is something like the Pareto Principle: 80% of the benefit accruing to 20% of the players. But in mobile, the principle is even more powerful: a huge percentage of App Store revenues are collected by the major players.

In fact, 94% of App Store revenue goes to just 1% of developers, according to SensorTower.

That means that the developers who have been complaining the loudest about the 30% App Store fees won’t see any benefit. Specifically, Epic Games, whose signature Fortnite game was booted from the App Store for enabling off-platform purchases that skipped Apple’s commission, and Spotify, who has referred to Apple as a monopoly that requires antitrust legislation.

In fact, it will be worse for them.

Their competition — new mobile publishers who are looking to unseat the incumbents who are currently on top of the App Store revenue mountain — will now have an incremental advantage in the early stages of their development.

“This would be something to celebrate were it not a calculated move by Apple to divide app creators and preserve their monopoly, again breaking the promise of treating all developers equally,” Epic CEO Tim Sweeney said in a statement to MSN. “Apple is hoping to remove enough critics that they can get away with their blockade on competition.”

Others agree.

David Heinemeier Hansson, creator of the Ruby programming language and CTO at Basecamp (which had a dust-up with Apple about in-app payments earlier this year) called Apple CEO Tim Cook’s email about the move “beyond cynical” and said that “Machiavelli would be so proud of Apple.”

But take a step back for a moment.

The big developers may be right in asking for better terms, and frankly, who wouldn’t want to pay less? But they also have a biased point of view: they’re currently at the top of the App Store heap in terms of revenue and app installs and attention. It’s probably not shocking that they’d like to keep it that way.

Mobile growth expert and investor Eric Seufert sees some good in the move while acknowledging the downside.

“Apple’s establishment of its Small Business program for developers making less than $1 million per year goes a long way in building goodwill with the vast majority of iOS developers while not addressing many of the core concerns of the developers that generate the vast majority of revenue on iOS,” he says. “This development is a master class in PR and narrative control: Apple provides very helpful relief to small businesses without meaningfully impacting its own revenue, and big developers like Epic look greedy in the face of any rebuke.”

Apple has already cracked the door open to another developer demand: off-store purchasing. But it’s only a crack, and still requires purchases to be available in-app.

And, Apple is highlighting that what’s at issue here is only digital purchases used in the app.

Included in the Apple announcement is a statement that “in 2019 alone, the App Store ecosystem facilitated $519 billion in commerce worldwide — with over 85 percent of that total accruing solely to third-party developers and businesses of all sizes.” That’s true: 80% of the value on mobile is made by transacting real-world goods and services. Those revenues aren’t impacted by any App Store fees.

Ultimately, this announcement is good for small developers, which Petit acknowledges, saying he’s “happy for the many indies and early stage startups for whom this represents a significant change in revenue.” And it should help address competitive balance.

But it doesn’t address what the big developers want most: more freedom in choosing payment structures and fewer fees.

One thing we can be sure of: we haven’t heard that last of this.

There are other things Apple can do around App Store commissions to make the system more fair, and the big developers will continue to seek legal as well as technical ways to force change.

From Apple’s point of view, however, a more level playing field with many mid-size publishers is a much better scenario than the currently unbalanced one with a few massive winners and a lot of small players. It’s much easier to manage and control small players with small budgets for legal teams, and it’s no big loss if small apps get tossed off the App Store.

Big players with big budgets and big audiences, however, are much harder to deal with.