App Store Small Business Program's Lower Fees Cost Apple Less Than 5% of Revenue

[MacRumors]

Apple in November launched the App Store Small Business Program, which drops App Store fees from 30 percent to 15 percent for all developers who earn less than $1 million from the App Store, and it turns out the price drop isn't costing Apple much money.

According to estimates from app analytics company Sensor Tower shared by CNBC, had Apple's program been in place for all of 2020, Apple would have missed out on $595 million, or approximately 2.7 percent of the estimated $21.7 billion in App Store fees in 2020. The apps that earn the most money in the App Store are still subject to the full 30 percent fee and make up most of the money that Apple collects.

Google today also announced a similar price drop for developers, and starting on July 1, Google will collect 15 percent in Play Store fees from developers earning under $1 million. Google too stands to lose little money. Sensor Tower estimates that if Google's lowered fees had been available across 2020, Google would have missed out on $587 million, or about five percent of the $11.6 billion in Google Play fees for the year.

If the 15% fee schedule on revenue up to $1 million had been in place on Google Play in 2020, Google would have missed out on $587 million, or about 5% of Sensor Tower's estimate of $11.6 billion in Google Play fees for the year.

If Apple's program had been in place for 2020, Sensor Tower estimates that it would have missed out on $595 million, or about 2.7% of its estimated $21.7 billion in App Store fees in 2020.

Neither Apple nor Google share specific data on App Store sales, so Sensor Tower's data is based on estimates and is a rough calculation rather than an exact number. Apple lumps revenue collected from the App Store alongside other services, and Apple collected $54.76 billion in fiscal 2020.

All developers who earn less than $1 million from the App Store in a calendar year are eligible for reduced fees, which applies to approximately 98 percent of developers. Developers who exceed $1 million in sales will face the standard 30 percent fees. The fee reduction applies to app purchases, in-app purchases, and subscriptions.

Sensor Tower in January estimated that 2020 App Store spending hit $72 billion, with users spending the most on games and entertainment.

Article Link: App Store Small Business Program's Lower Fees Cost Apple Less Than 5% of Revenue

 

[Labeno]

I'm surprised small or large companies complained about 30%... the only other option is to invest into an enormous amount of money to create your own phones and ecosystem.

EDIT: To put my comment in context, I'm a developer and never take for granted that I can get 70% (now 85%) of something versus 100% of nothing.

 

[funman895]

Small percentages of very large numbers are still large numbers. Not sure many companies want to lose $595 million dollars...

 

[ersan191]

I’m looking forward to the day where I think 600 million dollars is “not much money”

 

[omenatarhuri]

I think a lot of people would be surprised with just how small some of us devs are.

If you don't believe me, ask my wife, she'll sigh and confirm.

 

[amartinez1660]

Small percentages of very large numbers are still large numbers. Not sure many companies want to lose $595 million dollars...

Exactly, whether by peer pressure or by “suddenly felt nice to do good”, the fact that they are basically giving back over half a billion dollars on aggregate it is A TON, A TON of money.

 

[szw-mapple fan]

I doubt anyone is surprised by this. It benefits small devs much more than it cost Apple. It was a good move all around.

 

[TheYayAreaLiving 🎗️]

I hope all this is benefitting the developers.

 

[ChedNasad]

It was a great business move. Good PR. Higher probability of smaller devs growing into bigger more profitable ones by being able to reinvest more in the early stages. Eventually this pays out more for apple than the loss in the long run I would wager.

 

[aknova]

Interesting. The previous Mac rumors forum outrage would suggest that this number would have been MUCH higher than 5%

 

[goobot]

Small percentages of very large numbers are still large numbers. Not sure many companies want to lose $595 million dollars...

It’s better than being regulated and loosing billions and control of your own platform

 

[BGPL]

600 million is a lot, but not compared to the 30% they are making on developers over the 1 million mark - I think that's the viewpoint of the article.

 

[paradox00]

I'm surprised small or large companies complained about 30%... the only other option is to invest into an enormous amount of money to create your own phones and ecosystem.

EDIT: To put my comment in context, I'm a developer and never take for granted that I can get 70% (now 85%) of something versus 100% of nothing.

But without developers such as yourself, Apple wouldn't have an app ecosystem, or even sell 30% of the phones they do now. Their only other option would be to create every app themselves. This one-sided narrative of Apple perpetually owed something doesn't hold up to scrutiny.

 

[paradox00]

Interesting. The previous Mac rumors forum outrage would suggest that this number would have been MUCH higher than 5%

Wasn't the "outrage" that Apple wasn't doing enough, and doesn't it only being 5% support that idea? Or were there a bunch of angry shareholders on the forums?

 

[HiVolt]

It's not "costing" them anything. They just make less.

 

[JPack]

Power adapters and earphones don't cost much either.

But Apple decided to remove them even from iPhone 11, XR, and SE.

 

[rp100]

What’s the incentive for devs to grow their app revenue from $900k to $1.1mm? After fees, the revenue growth is only $5k. A small business reaching $900k is thinking about growth and increasing headcount while still very much in cost-control mode. It would be painful to add overhead and have an unexpected success cause them to go slightly above $1mm and lose money. You add $75k to the payroll anticipating an additional $150k in revenue in year one. Instead, Apple has taken their 15% “olive branch” and turned it into a 30% “olive switch”.


Reminds me of progressive tax theory - increased success yields increased taxation, except in this case the tax doubles immediately at a certain amount. The only thing I can figure is that very few developers hover around $1mm - most must be well over or under that amount, and the ones that are over have already established their businesses on that cost structure.

I’m not saying I oppose the 15% rate (and I think 30% is very fair based on what developers are provided for $99/year), but nevertheless policy drives behavior. Once too many businesses start hovering around the $1mm mark, a new wave of outrage will emerge...

 

[Rogifan]

Wait…did people actually think Apple would do this if it was a big hit to revenues? Of course not. That’s one reason they structured it the way they did - so they could say they’re giving a break to the little guy while barely impacting their financials at all.

 

[countryside]

What’s the incentive for devs to grow their app revenue from $900k to $1.1mm? After fees, the revenue growth is only $5k. A small business reaching $900k is thinking about growth and increasing headcount while still very much in cost-control mode. It would be painful to add overhead and have an unexpected success cause them to go slightly above $1mm and lose money. You add $75k to the payroll anticipating an additional $150k in revenue in year one. Instead, Apple has taken their 15% “olive branch” and turned it into a 30% “olive switch”.


Reminds me of progressive tax theory - increased success yields increased taxation, except in this case the tax doubles immediately at a certain amount. The only thing I can figure is that very few developers hover around $1mm - most must be well over or under that amount, and the ones that are over have already established their businesses on that cost structure.

I’m not saying I oppose the 15% rate (and I think 30% is very fair based on what developers are provided for $99/year), but nevertheless policy drives behavior. Once too many businesses start hovering around the $1mm mark, a new wave of outrage will emerge...

Agreed. Makes more sense to just say the first 1m in revenue is not subject to the commission.

 

[aesc80]

I hope all this is benefitting the developers.

Thanks for the care! 😊

 

[Eso]

I'm surprised small or large companies complained about 30%... the only other option is to invest into an enormous amount of money to create your own phones and ecosystem.

I'm really so tired of this stupid way of thinking. Without developers (developers, developers, developers!), the iPhone is dead in the water. Just go ask Windows Phone about that.

Apple created a digital store - wow (they already had one). So did Valve in 2003. So did Amazon in 1999. Apple spent 3 years selling iPhones off the back of "there's an app for that" and flexing App Store statistics. So cut the BS, because Apple is not some miracle worker turning arm chair developers into Zuckerburgs. Comprehensive developer tools and an app repository is a minimum viable product.

I haven't seen anyone argue that there should be no fees in the App Store. Any arguments about the cut are also just semantics. The biggest issue is the exclusivity of distribution, as it hurts competition. Because let's say I come to the market and say, "you know what? I can distribute iPhone apps better than Apple can." I'm only going to charge a 15% fee, and only 10% for subscriptions from day one. Tired of these news stories that you see every week about this app getting caught doing X, and that app getting caught doing Y? Well, I'll vet apps much more throughly than Apple does. This will include not bloating my store with all these child-gambling-simulator mobile games. My store will have higher quality apps with less fluff.

What would happen if I did that? Well, that creates competition for the App Store. It may drive Apple to lower fees, provide better service, and increase innovation in App Store features. The consumer wins, because they get a better quality product and lower prices. But that can't happen, now can it.

 

[macduke]

As web designer and developer who wouldn't mind becoming a small-time App Store designer/developer, this larger cut does make it more tempting. Someday it would be nice to work completely independent, perhaps once healthcare is figured out and not tied to jobs for some reason. Makes it hard to strike out on my own when I'd lose benefits for my entire family, especially during a pandemic. I've dabbled in app dev and have designed some apps, but really need a lot more work to get good at it. Meanwhile I've watched small startups purchased for hundreds of millions of dollars that actually built out the same idea that I had.

Gross I'm becoming so bitter in my 30s.

 

[now i see it]

This is only a token fig leaf gesture. They're horrified they might lose the whole App Store monopoly in the courts. Half a billion $? Thats nothing compared to the untold billions they make with their App Store racket

 

[SDJim]

This just in: $600M is "not much money"

I get that scale is context, but some on, that is a crapload of money. It doesn't matter how much you make beside, that is a six-figure salary for over 300 employees. SIX. HUNDRED. MILLION.

 

[Abazigal]

I'm really so tired of this stupid way of thinking. Without developers (developers, developers, developers!), the iPhone is dead in the water. Just go ask Windows Phone about that.

Apple created a digital store - wow (they already had one). So did Valve in 2003. So did Amazon in 1999. Apple spent 3 years selling iPhones off the back of "there's an app for that" and flexing App Store statistics. So cut the BS, because Apple is not some miracle worker turning arm chair developers into Zuckerburgs. Comprehensive developer tools and an app repository is a minimum viable product.

I haven't seen anyone argue that there should be no fees in the App Store. Any arguments about the cut are also just semantics. The biggest issue is the exclusivity of distribution, as it hurts competition. Because let's say I come to the market and say, "you know what? I can distribute iPhone apps better than Apple can." I'm only going to charge a 15% fee, and only 10% for subscriptions from day one. Tired of these news stories that you see every week about this app getting caught doing X, and that app getting caught doing Y? Well, I'll vet apps much more throughly than Apple does. This will include not bloating my store with all these child-gambling-simulator mobile games. My store will have higher quality apps with less fluff.

What would happen if I did that? Well, that creates competition for the App Store. It may drive Apple to lower fees, provide better service, and increase innovation in App Store features. The consumer wins, because they get a better quality product and lower prices. But that can't happen, now can it.

You probably won’t be able to deliver on that promise either. It’s simple economics. Lower fees means less resources (and motivation) to police and maintain the App Store. In the same vein, how do you get your store to attract more developers and stand out from the rest? You start allowing apps that other stores won’t allow or just close an eye to some questionable practice.

Because now there’s choice.

It therefore stands to reason that the chief reason why stores like Epic charge less is because they do less.

Competition won’t make things any better (at least not in a way that a customer would find meaningful to them). It will simply mean a race to the bottom with commission fees, with quality control being the first to go out the window. Nor will the cost savings be passed on to the consumer either.

That’s why you will never see me advocating for zero / low fees, or even alternative app stores. There’s nothing in it for me as the end user.