Apple’s Fee Structure and the Case for Core Platform Services: Comment on Theoretical Analysis of the App Store (Extended Abstract)

Critics point out that Apple will need a 1 million letter of credit from an A rated financial institution in order to open an alternative app store in the EU.

Apple is introducing a new fee structure for apps that want to operate on these third-party stores. On the surface, it looks great: apps pay no cut of sales to Apple if they’re distributed via a third-party store. The developer fee on Apple’s App Store is 30 percent but if a developer still wants to distribute their software through the store, the fee can be reduced to 17 percent. It’s an even lower 10 percent fee for qualifying “small business” apps, down from the original 15 percent. So far, a much better deal.

Going forward, developers could pay no commission to Apple at all in the EU, depending on how they choose to distribute their apps. Apple is making changes to the way it handles fee structures for apps in the App Store and outside of it. If developers choose to use these new business terms they can either stick to the existing model of distributing products through the App Store or do something different.

As well as designating iOS, Safari, and the App Store as core platform services, the European Commission also opened an investigation into whether iMessage should be included (which would include having to make it interoperable with rivals), but reports suggest it might avoid being designated, and today’s announcement from Apple makes no mention of changes coming to iMessage.

It seems like he’s just getting started, since he’ll surely have more to say about Apple’s EU policies. “There’s a lot more hot garbage in Apple’s announcement,” he says. The new horror show has written and unwritten parts so it will take more time to analyze them.

Epic, which operates the Epic Games Store as well as the game Fortnite, has been one of the companies calling most loudly for these kinds of changes. It fought for a long time against the approach Apple took to the App Store.

This is how Apple is currently structured, and the possibilities for developers and the app store are huge. One of them will have to push through Apple’s fee structure in order to make the jump.

The conversation is not over. The European Commission will review Apple’s new rules once they are in effect. Regulators could push back against Apple if they feel that the plan is against the law. This fee already seems to be among the bigger issues that critics will point to.

Hey and Basecamp exec David Heinemeier Hansson described the fee as “clearly one of the poison pills” in Apple’s plan. But he thought for a company at Spotify’s scale, it would be worth it. He wrote that it was still more beneficial than the 30% cut.

Developers that care enough to escape Apple’s fees will have to find a way to compel users to put in this effort. If the only way to download the Amazon app is through the Amazon Appstore (currently Android only), then users will eventually find their way to Amazon’s website and figure it out — Amazon is a big enough draw to make it worth the time. But if Amazon remains available through Apple’s store, too, it’s hard to imagine that anyone would bother.

Only once the apps are very popular will the real caveat come into play. Any app that sees more than 1 million installs per year must pay Apple a 50 euro cent fee (about 54 cents USD) for every new installation over that first 1 million — that fee is charged once per every user each year. Crucially, app updates count as installations, too. Since no major app goes more than a year without an update, that effectively means any sufficiently popular app is going to be indefinitely paying Apple 50 euro cents per user per year, above that initial 1 million. It’s not just apps, either. Third-party app stores must also pay Apple 50 euro cents per user per year, and they do not receive the 1 million install grace that apps do.

Here’s some extremely back-of-the-napkin math: In Europe, Facebook has over 400 million monthly users on all platforms. iPhones make up about one-third of the mobile phone market in Europe. If one-third of Facebook users have the iPhone app installed, Meta would pay Apple $73.4 million a year just for Facebook. There would be another fee for all of them. That number is also just for active users. Meta would also have to pay for people who installed the app years ago and never open it up but still get automatic updates.

There are two more complications in all of this: a company has to launch a third-party app store, and developers then have to migrate their users over to that store. And Apple does not make it easy for apps to shift users from one store to another. A user must first install the new app store, then uninstall the old version of the app that was downloaded through Apple’s App Store, and finally, reinstall the app through the new app store.

The company also calls out the 17 percent commission that Apple will still take from the developers who choose to use third-party payment processors. This will make a “developer’s choice between the status quo and this new program as difficult as possible,” Spotify adds. It seems unlikely that there will be a payment system for Spotify in the EU.

As for the €1,000,000 letter of credit, Testut tells The Verge that it’s a “reasonable” ask from Apple. It does raise the barrier for entry, but I have learned that running an alternative marketplace comes with a strong responsibility to protect users. “By requiring proof of credit, this ensures marketplaces are at least legitimate businesses, reducing the risk of ‘scam’ marketplaces taking everyone’s money and leaving.”

Testut believes that this is positive for the platform. “For the first time ever, entirely new classes of apps can exist on iOS, which I believe will push the platform forward.”

The new guidelines from Apple are open to everyone, despite the drawbacks. The app store will be launched in the EU later this year. AltStore developer Riley Testut tells The Verge that it’s working toward meeting Apple’s requirements so it can allow users to download AltStore directly from their website. Testut says developers will be able to publish their apps for free on AltStore, and that they’ve added “deep Patreon integration so that developers will be able to distribute Patreon-exclusive apps to just their patrons.” AltStore doesn’t plan to charge a commission on Patreon-exclusive apps, either.

The founder of the gas app used an apple fee calculator to show how much Apple will take from apps that are subject to the Core Technology Fee. An app with 10 million downloads and $10 million sales will be charged over $500,000 per month by the App Store payment processor, according to a post on X. In comparison, the existing terms will pay Apple $6.2 million a year compared to $250,000 per month or $3 million a year.

The founder and CEO of Swiss encrypted email and VPN provider, Proton, said that the new fees and restrictions reinforced Apple’s hold over its ecosystems.