In the last week, Apple has announced that it’s making a few changes to its App Store rules. These have run the gamut in importance, with some potentially having substantial ramifications to the status quo, while others seem to do little more than pay lip service to the displeasure of developers. But they have one thing in common: they’re the result of outside forces targeting Apple’s marketplace.
But even as these risks have been dealt with, more threats are massing on the horizon. The App Store remains the company’s most significant vulnerability, the one that has put them in the crosshairs of competitors, regulators, and legislators alike. The real issue Apple needs to consider is not whether the App Store will evolve, but how.
Pros and concessions
In these last two weeks’ worth of developments—particularly in the case of Apple’s choice to allow “reader” apps to link to their sites from inside the app—one thing has become abundantly clear: Apple is willing to make concessions.
The magnitude of those concessions is a different matter entirely. In this case, the App Store Small Business Program, announced last year, is perhaps the perfect example. While cutting its percentage of revenue from 30 percent to 15 percent might seem significant (hey, it’s half as much!), the caveat that it applies only to developers with less than $1 million in sales lessens the blow to Apple’s bottom line substantially. External estimates peg the percentage of developers under that threshold at around 98 percent, suggesting that the vast majority of the tens of billions that the App Store makes in revenue stems mainly from a small number of very profitable developers.
This is the pattern that we can expect to see from Apple as it faces down these challenges: it wants high-profile announcements that look great but don’t actually require it to give away the farm. Yes, the App Store’s revenue will probably grow slower with the Small Business Program in place than without, but Apple’s still going to make plenty of revenue regardless.
The missing link
Last week’s announcement that Apple will allow links from within reader apps to external sites is likewise structured to appear as though it’s a big win for Apple without doing too much damage to the company’s bottom line.
For one thing, the rule only applies within this category of “reader” apps. While Apple says it will be updating its App Store guidelines with more details, the current rules already define reader apps as follows:
3.1.3(a) “Reader” Apps: Apps may allow a user to access previously purchased content or content subscriptions (specifically: magazines, newspapers, books, audio, music, and video).
On the one hand, big players like Amazon and Netflix fit into this category. But, on the other hand, because these apps were already free to download and neither currently use Apple’s in-app payment system, Apple wasn’t directly making any revenue off them anyway. (iOS, however, does accrue value from having those services available.)
So Apple gets to tout a loosening of rules, makes it easier for customers of those high-profile reader apps, and—just for kicks—gets to put a thumb in the eye of big, profitable companies that don’t benefit from the change…such as game developer Epic, with which Apple is already engaged in a legal battle over the use of third-party payment systems.
The oncoming storm
All of this leads us to the next tightrope Apple’s going to have to walk. This week South Korea passed legislation that prevents platform owners, such as Apple and Google, from forcing third-party developers to use their built-in in-app purchase system. India’s government is thought to be eyeing a similar move, and the European Union and the U.S. Congress have also raised concerns.
The question is how Apple is going to deal with this issue. Despite contentions to the contrary, I don’t believe the concessions the company has already made are enough to let it escape the scrutiny of regulators. But is there middle ground when it comes to requiring developers to use Apple’s in-app purchase system? It’s hard to see what concessions Apple could offer that would allow it to maintain its status quo.
And the bigger question is… should it maintain that status quo?
Despite loosening strictures, Apple can’t seem to escape the fundamental image problem that the App Store has become, which is that the tightness with which the company holds to the revenue that the store generates has long seemed out of step with the way that Apple has traditionally done business. The company prides itself on making products that combine its acumen at hardware and software to deliver devices that surprise and delight its customers.
But with the company’s focus on finding more growth in Services, the App Store has become a prime generator of revenue for the company, helping boost the division to the point where it’s second only to the iPhone. While one can’t begrudge a corporation trying to turn the biggest profit it can, it’s hard for many long-time customers to not feel as though something ineffable has been lost. And the more Apple tightens its grip, the more that goodwill will slip through its fingers.
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