Opinion: Apple should consider softening its monopolistic App Store stance
Screenshot of Apple App Store. [Photo: China Plus]
By Nicholas Krapels
The exponential growth of software and the mobile economy has put Apple in an unfamiliar place. Instead of its usual role as darling disruptor, it now faces complaints and even formal charges related to "gangster" monopolist practices at its mobile applications storefront.
Apple's App Store was founded in the depths of the 2008 global financial crisis. At the time, wireless networks were not ubiquitous. Available networks were not even 3G-level in terms of connectivity and speed. The iPhone was known as a one-button curiosity for creatives. Serious business professionals used Blackberry. Thus, when the App Store imposed a 30% cut on all revenues generated from apps on the platform, the market just accepted it. After all, it was an untested business model.
Chinese internet behemoth Tencent, operator of the omnipresent super app WeChat, has failed multiple times in challenging the 30% iOS commission rate. In 2017, the company removed a popular tipping feature for WeChat bloggers because it violated Apple's in-app purchase rules. In 2018, transactions for virtual goods and services in WeChat mini-programs on iOS were banned on similar grounds.
The latest hubbub around Apple's alleged exploitative App Store pricing comes on two fronts. First, Apple threatened to remove a consumer-facing email service called Hey for failing to offer in-app purchases. Understandably, this move angered Hey developers, who in a flurry of anger and disappointment unleashed the "gangster" quote above. Second, both European and American regulators have recently turned up the heat on the App Store, spurred on by complaints from internet stalwarts such as Japan's Rakuten and Sweden's Spotify. In fact, although the process still has a long way to go, Apple v. Pepper remains litigation on track to reach the Supreme Court on a monopolization claim.
Apple is obviously reluctant to let go of such a cash cow. CNBC estimates that Apple netted around $15 billion from this commission in 2019 on $50 billion in sales from non-Apple developers on the platform. That kind of performance would put a standalone App Store among the top 70 firms in the world according to revenue. 2020 numbers should be even better, as the global coronavirus pandemic has led to a dramatic increase of personal screen time. People now spend most of their waking day staring at pocket computers.
The profitability of the App Store explains Apple's unwillingness to compromise on the 30% rate. A recent Analysis Group survey commissioned by Apple estimates that the App Store ecosystem facilitates more than a half-trillion dollars' worth of commerce worldwide, a more than tenfold impact beyond its nominal billings. $246 billion of that impact is felt in China, where the widespread acceptance of retail m-commerce significantly outpaces that of anywhere else in the world.
The question at the heart of these disputes is legitimate. Today we stand at the cusp of the 5G era. Smartphone unit sales per year have increased more than tenfold in the past decade. For years now, Apple has been one of the top 3 most valuable companies in the world. Technology is literally reshaping not only the economy but the entire world we live in. Apple has been at the forefront of much of that change. So why is it that they have yet to change a 12-year-old pricing policy?
Apple has long argued, successfully, that they return some of this value back to developers by reinvesting in the app economy. They showcase the best apps on the App Store. They curate the lists of apps on the platform to optimize user experience. They even have written their own software languages, Xcode and Metal, to make it easier for developers to create their own apps.
However, as the App Store massively scaled, Apple should have at least entertained the thought of reducing their extremely high App Store commission rate. If they truly want to support ecosystem development, the best path to doing that is to put more funds back into developer's pockets. A simple reduction from 30% to 25% could even be a net positive for Apple revenues, but we don't know because they've never tried it.
Over two decades ago, Apple criticized Microsoft for similarly monopolistic behavior. As underdogs, their criticisms were spot on. Microsoft's then-dominance limited innovation. Ironically, in 1997 Apple used a timely investment from Microsoft to pivot into an open-source Unix-based operating system to disrupt the Seattle company at a time when its development was constrained by antitrust concerns.
As leader of the pack now, Apple should listen to its power users – app developers – and reevaluate its App Store payment policies. In these days of exponential technological progress, a 12-year-old business model is quite old and ripe to be disrupted. If Apple refuses to change, some upstart competitor will change the model for them.
(Note: Nicholas Krapels is a China-based American writer, educator, and entrepreneur. He teaches graduate courses in business, strategy, & entrepreneurship at SKEMA Business School and Tongji University. His research focuses on the history of innovation in monetary policy and blockchain technology.)