Apple to Collect 27% Commission on Third-Party App Payment Systems in the Netherlands

[jace88]

I know I’ve missed quite a few pages of comments so won’t bring up old discussions around audit requirements etc, but what surprises me is people don’t mention the whole discounted gift cards or credits.

In Australia for a long time it was quite common to buy iTunes and App Store credit at 15-20% off. AFAIK if I used discounted gift cards/credit to buy something on the App Store, it didn’t impact how much the developer got and just came out of the apple margin. Granted since they integrated all apple credit into one balance those promotions are a lot less frequent but again, I don’t think the “3% payment processing cost” is really too accurate either since there’s plenty of people who use prepaid credit acquired at a discount. And even if we disregard this, let’s not forget not all credit cards cost the same in the four party model (ie how much each party charges in each transaction, and how it’s impacted by the “value” or type of customer and card status).

 

[theotherphil]

Ah okay, that helps me understand better. Thanks. I know that Apple collects 30% normally for IAP, which makes sense since that's their own system.

The title of the article made me think they were somehow collecting 27% from each purchase made via a third-party payment system, which was weird to me because ... at which point does that money flow through Apple's systems? That's where I was confused.

Let's see if I understand this now... so, if a developer uses a third-party payment system, then Apple doesn't get a percent of each sale (and they also wouldn't know what the user is purchasing). So instead, they charge the developer 27% of... what?

Apple’s IAP doesn’t just process payments. It is also the API that unlocks purchased content. This is already in the developer agreement. Apple can quite easily tell what was purchased and how much was paid with this same API.

For example, a game may have a list of “power up’s” to buy. The price is listed. The user makes a selection and clicks “buy”. A list of payment providers is listed, or just the one the dev wants to use. Once the payment has been made, a cookie/ transaction ID is passed back to Apple with total cost and items to be unlocked. The IAP API unlocks the content and Apple now have a record of who and what was purchased (the audit).

At the end of the month, Apple send out an invoice for their 27%.

 

[cardfan]

I'd rather see lower commission fees than alternative payment systems. It's win-win for both developers and consumers, and apple really.

The most important win for consumers would be alternative app portals. Having the App Store as the only way to install apps is the big issue.

 

[johnnytravels]

My answer.

1. Don't use apps/services that use third party payment systems. Having my credit card number floating around in more places on the internet does not seem like good OPSEC.
2. Assuming Apple will be forced to offer side loading apps, don't side load apps from third party sources. Not unless you like having your device compromised and personal information stolen.

Sure, Apple isn't perfect, but using third party payments and apps stores is akin to the Wild West. Android is a prime example. https://www.androidheadlines.com/2016/01/third-party-app-stores-blamed-for-malware-infections.html

If you don't like Apple's closed ecosystem, you are free to switch to Android. I think governments time would be better spent on solving corruption, embezzlement, drugs, and providing social services to its citizens. Unless of course government officials are the ones committing crimes and they are just using this as a way to deflect attention away from the real problem.

Stop the fear-mongering, this is one article. Android is no less secure than macOS.

Yes.
Next step might be 27% per transaction is considered too high.
Then they will lower that and get paid by charging for Xcode, hosting, downloads, app review, etc.

And are they going to charge the free apps as well? Currently the paid apps seem to subsidise the free apps. That needs to change.

 

[Abazigal]

I'd rather see lower commission fees than alternative payment systems. It's win-win for both developers and consumers, and apple really.

I think the main problem with going down that route is the difficulty of agreeing on what a suitable lower commission rate ought to be. How much is low enough? 20% 15% 10%? Who decides what is fair?

Say Apple lowers their cut to 15% tomorrow. How long before the developers feel that this is still too high and start fighting for 5%?

I see the appeal of allowing alternative payments or app stores and basically leaving it to the market to work itself out. Thing is, payment processors don’t need to contend with the cost of operating an App Store. Even epic store Tim Sweeney loves to tout so much is fairly lacking in certain functionality.

It’s easy to charge less when you are also doing less for the money.

 

[bsolar]

I think the main problem with going down that route is the difficulty of agreeing on what a suitable lower commission rate ought to be. How much is low enough? 20% 15% 10%? Who decides what is fair?

Say Apple lowers their cut to 15% tomorrow. How long before the developers feel that this is still too high and start fighting for 5%?

In theory that would be the job of competition in a free market, where different providers compete on various aspects including price.

The reason many different antitrust regulators are looking into these commission rates not only from Apple but also from other vendors is the suspect that free market competition is not doing its job.

Consequently, the reason many of these vendors are introducing lower rates in some situations is in part to try to appease regulators, in part maybe because they are starting to actually compete instead of sitting on what was a de-facto tacitly agreed 30% commission rate.

 

[Abazigal]

In theory that would be the job of competition in a free market, where different providers compete on various aspects including price.

The reason many different antitrust regulators are looking into these commission rates not only from Apple but also from other vendors is the suspect that free market competition is not doing its job.

Consequently, the reason many of these vendors are introducing lower rates in some situations is in part to try to appease regulators, in part maybe because they are starting to actually compete instead of sitting on what was a de-facto tacitly agreed 30% commission rate.

Who are these vendors who are lowering their rates?

 

[wanha]

Lol that's ridiculous.

At least they're kinda admitting here that 3% is the actual cost.

That last line should be changed to "create new threats to our bottom line".

3% may be the actual cost to a payment processor (including their profit), but you are conveniently ignoring the costs of creating, maintaining, and developing the platform, which are undoubtedly higher than 3%.

 

[bsolar]

Who are these vendors who are lowering their rates?

Apple and Google introduced lower commissions for small developers in the last few years.

Microsoft introduced a 12% rate for PC games last year.

I think Apple also introduced some special rate for news publishers recently but I might be remembering wrong.

 

[Nuno Lopes]

Apple can just return the money to the customer and charging the developer (the legal entity who entered into an agreement with Apple) for the same amount.

Apple won't get involved with physical delivery and transactions for non-digital goods, but if they did, they can just return the money and say it's up to the developer to handle the physical stuff.

Also, when Apple returns money to customers, they are still keeping their cut, so the developers will have a negative sale they do. In effect devs are App Store suppliers.

I think we all know the op. What is being discussed is the business practice not the legal validity of the agreement. That ship has sailed.

PS: Or maybe we don’t. Apple is not a comissionaire in formal terms. Devs don’t pay Apple a commission of the sale. Apple Pay’s devs for their supplies at 70% of the listed price - taxes. Devs are in this model formally App Store suppliers and referral generators considering it’s the sole distributor of software programs on 50% of smartphones circulating in the US.

But the Store does not follow a business practice of the kind suggested by the agreement. In effect the practice with its IAP policies work like a billing Broker / Middleman smartphone users and Businesses of any kind enforced by the power of controlling the distribution of software programs to 50% of Americans pockets.

In practice comparisons with any standard retail business are nonsense.

 

[MacBH928]

No, that is not the actual cost. That's just payment processing. Apple needs about 8 billion to run the App Store, that needs to come from somewhere. Are the authorities going to outlaw profit?

*Laughs in F-Droid*

 

[AppliedMicro]

If it's apples' fault then they will pay. But nowhere on the face of this earth does a government tell a consumer oriented for profit organization: "you are going to provide your services for free". (and I'm not discussing warranty services, free learning classes, etc)

Apple is voluntarily providing its Apple App Store download service (almost) for free.

And yes, governments, law and regulators are telling for profit organisations: Once a product has been sold (or given away for free) your rights are strictly limited. It's called the exhaustion or first sale doctrine.

I'm not saying that mobile app downloads are exactly covered by that - yet it is an example that there are legal limitations to how companies are allowed to control the aftermarket to their products. Even if they invented the underlying IP.

 

[draugminaion]

I don't know anyone who bought an iphone because "its a closed system and I like it that way". Mostly because an iphone has the image of the most premium device available and everyone else has one so I want one too. Allowing for sideloading of apps isn't going to hurt you in any way if you never actually use that feature. No reason to hate on other people who want that option if you never plan on using it and it doesn't change the way you use your device.

I remember the bad old days with anti-virus software borking my computer and still not preventing all the nasty stuff. I definitely chose the iPhone because it is a "closed" system.

(And also because Android means running a virtual machine on a battery, which I think is ridiculous.)

 

[AppliedMicro]

Without the amazing internet access, nothing would move in today's economy...it's not like Apple is the only company offering products and services benefiting from good, amazing, internet connections.

Exactly.

And entire industries are depending on mobile apps as a way of selling and/or delivering their services (think: ride-hailing, public transport, banking, online dating, music and video streaming).

Yet there aren't more than two or three competing giant mobile download platforms (Apple, Google) acting that are controlling the market for mobile apps.

Are mobile apps as essential as electricity to businesses and industries? No, certainly not. But they're far from "Oh yeah, I can just conduct my business elsewhere if I don't like the terms" anymore. Not having a mobile app today severely limits companies' ability to compete with their own products and services today. Even being on only one platform (Android or iOS, or the Play Store vs. the App Store) does.

Again, IAP's are there because the ability to play the game is free. So, is it fair that Apple can essentially give away a free game while the dev makes 100% off the IAP? Once that becomes the case, ALL apps on the AppStore will be free with IAP to actually do anything.

They don't have to. After all, Apple could easily charge a 0.50$ flat fee for every download or something.
That would be fairly charging for services they actually provide - rather than charging for something only because they can get away with it.

 

[TracerAnalog]

Lol that's ridiculous.

At least they're kinda admitting here that 3% is the actual cost.

That last line should be changed to "create new threats to our bottom line".

The actual cost of the financial processing, not the cost of the App store itself. Mind you, the remaining cost of the App store could be 1% for all I know?.

 

[draugminaion]

Around 30 million now

Not all of those are paying the $99 however. A developer account is for a team that can have many registered developers.

 

[draugminaion]

Ah okay, that helps me understand better. Thanks. I know that Apple collects 30% normally for IAP, which makes sense since that's their own system.

The title of the article made me think they were somehow collecting 27% from each purchase made via a third-party payment system, which was weird to me because ... at which point does that money flow through Apple's systems? That's where I was confused.

Let's see if I understand this now... so, if a developer uses a third-party payment system, then Apple doesn't get a percent of each sale (and they also wouldn't know what the user is purchasing). So instead, they charge the developer 27% of... what?

That depends on what is meant by "normally". The vast majority of developers pay 15%. Only the ones making more than a million a year pay 30%, these represent less than 10% of developers but more than 90% of the money.

 

[draugminaion]

Stop the fear-mongering, this is one article. Android is no less secure than macOS.

And are they going to charge the free apps as well? Currently the paid apps seem to subsidise the free apps. That needs to change.

85% of apps being free is what makes the App Store appealing to customers, and therefore appealing to developers. Many apps could not exist if they needed to pay more than $99 a year.

 

[draugminaion]

The actual cost of the financial processing, not the cost of the App store itself. Mind you, the remaining cost of the App store could be 1% for all I know?.

My guesstimate has Apple needing about 10% for break-even.

 

[AppliedMicro]

My napkin math made a few years ago suggested that Apple needs to charge around 20% to break even.

https://forums.macrumors.com/thread...s-in-app-purchase-rules.2286379/post-29644575
Granted, it's totally my own estimates, so make of it what you will.

Their financial filings tell a different story. At a gross margin percentage of 70% for "services", I guess you're quite off the mark there.

But if had to do my own estimate, based on a couple of assumptions:

1. App Store sales/commissions are lumped together with other services:

"Services net sales include sales from the Company’s advertising, AppleCare, cloud, digital content, payment and other services. Services net sales also include amortization of the deferred value of services bundled in the sales price of certain products."

For a rough estimate and simplifying things, I am assuming that all of their services sales are from App Store downloads and In-App purchases. I assume that App Store revenue is the biggest chunk (by far) of services sales and also that other services have similar cost/margin structure, i.e. that we can just "lump them together" for purposes of a rough estimate.

2. "For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product. For third-party applications sold through the App Store and certain digital content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in Services net sales only the commission it retains."

Sales of their own applications are, again, assumed to be negligible compared to third-party apps

3. Apple's commission rate: 25%

I am assuming a blended commission rate of 25% to account for their 15% small business program and 2nd-year subscription 15% rate (the biggest subscription viewer apps currently don't offer new in-app subscriptions)


So, from their latest annual filing:

68,425 mil USD net sales of services:
- 20,715 mil USD cost of sales (services)
= 47,710 mil USD gross margin (services)

That's a gross margin percentage of 70%.

Of course there are other operating expenses for operating such a store. Operating expenses are 12% of total net sales (including other products). I assume they're the same for services, which strikes me as not overestimating (R&D will certainly be much lower on the Services business itself). 68,425 * 12% = 8,211

47,710 mil USD gross margin
- 8,211 mil USD operating expenses
= 39,499 mil USD operating margin (services)

That's still a 58% operating margin percentage.

Assuming costs are the same under reduced commission rates, how much services revenue would they need to break even?
68,425 mil USD
- 39.499 mil USD
= 28,926 mil USD

68,427 / 25% = 28,926 / x%
x= 10.6

? An estimated break-even at a 10.6% commission rate.

Since I suspect that Apple Music and Apple TV+ are actually loss leaders that aren't profitable (yet), it may even be somewhat lower. Note that at a uniform 15% commission rate, that would still be 29% margin for Apple that they'd be pocketing (instead of 70% today).

My guesstimate has Apple needing about 10% for break-even.

Agree.

 

[draugminaion]

Their financial filings tell a different story. At a gross margin percentage of 70% for "services", I guess you're quite off the mark there.

But if had to do my own estimate, based on a couple of assumptions:

1. App Store sales/commissions are lumped together with other services:

"Services net sales include sales from the Company’s advertising, AppleCare, cloud, digital content, payment and other services. Services net sales also include amortization of the deferred value of services bundled in the sales price of certain products."

For a rough estimate and simplifying things, I am assuming that all of their services sales are from App Store downloads and In-App purchases. I assume that App Store revenue is the biggest chunk (by far) of services sales and also that other services have similar cost/margin structure, i.e. that we can just "lump them together" for purposes of a rough estimate.

2. "For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product. For third-party applications sold through the App Store and certain digital content sold through the Company’s other digital content stores, the Company does not obtain control of the product before transferring it to the customer. Therefore, the Company accounts for such sales on a net basis by recognizing in Services net sales only the commission it retains."

Sales of their own applications are, again, assumed to be negligible compared to third-party apps

3. Apple's commission rate: 25%

I am assuming a blended commission rate of 25% to account for their 15% small business program and 2nd-year subscription 15% rate (the biggest subscription viewer apps currently don't offer new in-app subscriptions)


So, from their latest annual filing:

68,425 mil USD net sales of services:
- 20,715 mil USD cost of sales (services)
= 47,710 mil USD gross margin (services)

That's a gross margin percentage of 70%.

Of course there are other operating expenses for operating such a store. Operating expenses are 12% of total net sales (including other products). I assume they're the same for services, which strikes me as not overestimating (R&D will certainly be much lower on the Services business itself). 68,425 * 12% = 8,211

47,710 mil USD gross margin
- 8,211 mil USD operating expenses
= 39,499 mil USD operating margin (services)

That's still a 58% operating margin percentage.

Assuming costs are the same under reduced commission rates, how much services revenue would they need to break even?
68,425 mil USD
- 39.499 mil USD
= 28,926 mil USD

68,427 / 25% = 28,926 / x%
x= 10.6%

? An estimated break-even at a 10.6% commission rate.

Since I suspect that Apple Music and Apple TV+ are actually loss leaders that aren't profitable (yet), it may even be somewhat lower.


Agree.

One thing messing up the guesses is that Google’s payments to Apple for "traffic acquisition costs" are part of services, are pure profit and could be as much as 10 billion.

This would make the break-even number higher.

 

[Maximara]

This is mostly all Apple's fault

You misspelled "Epic" there. How many people were complaining until Epic pulled its Trumpish große Lüge BS and wound up a bunch of people up who based on what I have read here have no idea on how real world markets work, know what "monopoly" really means, and think a balance sheet refers to diagram of a teeter totter? /s

 

[AppliedMicro]

One thing messing up the guesses is that Google’s payments to Apple for "traffic acquisition costs" are part of services, are pure profit and could be as much as 10 billion.

Good point. Operating expenses attributable to services would then be vastly overestimated as well though (which I believe even the original, already simplified estimate is, since we’re talking digital downloads and not physical distribution, and R&D will be comparably small for the App Store. as opposed to hardware and OS).

In any case, I firmly believe that even their 15% commission rate for small businesses is healthily profitable.

 

[Maximara]

Stop the fear-mongering, this is one article. Android is no less secure than macOS.

But the debate isn't between MacOS and Android but iOS and Android and here is what a Court said about that:

"On Android, which allows some third-party app stores, the main Google Play app store is secure, but a variety of third-party stores allow blacklisted apps to operate. 526 A Nokia report attributes higher malware rates on Android to Trojan apps on third-party app stores. (...) Thus, even though the OS is formally making decisions, the user ultimately determines access. The evidence shows, however, that this may not be enough to protect security because users often grant permissions by mistake. (...) The evidence shows that social engineering attacks act as a dominant vector of malware distribution. A 2020 Nokia report indicates that “in the smartphone sector, the main venue for distributing malware is represented by Trojanized applications,” which trick users into downloading by posing as a popular app. (...) Decentralized distribution thus increases the risk of infection by giving malware more opportunities to break through." (...) "Apple currently prevents direct distribution from the web using technical measures. If those measures were lifted, users could download—and thus could be tricked into downloading—directly from the open web." (...) Thus, the Court finds that centralized distribution through the App Store increases security in the “narrow” sense, primarily by thwarting social engineering attacks" Case 4:20-cv-05640-YGR Document 812 Filed 09/10/21

Never mind that Mr. Federighi couldn't prove that MacOS's malware infection rate was worse than iOS "he did not have any data on the relative rates of malware on notarized Mac apps compared to iOS apps" (...) In any case, even if notarization is less secure on Mac, that only shows the limits of malware scanning. If Apple implemented a more fulsome review, similar to the type done on the App Store, there is no reason why the results would be different."

You can claim otherwise but these were the findings of fact in a court case.

I think David Kusche' Parrot applies to everyone claiming Apple is a monopoly: "Say I claim that a parrot has been kidnapped to teach aliens human language and I challenge you to prove that is not true. You can even use Einstein's Theory of Relativity if you like. There is simply no way to prove such a claim untrue. The burden of proof should be on the people who make these statements, to show where they got their information from, to see if their conclusions and interpretations are valid and if they have left anything out."

 

[Maximara]

Refrain from making uneducated comments and do your research before you make silly comments about (Dutch) politicians.
Start your research here. (ACM)

I love Yahtzee's comment about the United States - "a giant diseased ape (...) that eats money and suffers from life threatening obesity and constant diarrhea but viciously savages you every time you try to give it free healthcare.”