EU Accuses Apple's App Store Steering Rules of Violating DMA and Opens Investigation into Developer Fees

[surferfb]

I agree on that. The yearly developer subscription is a charge for the tools and services - and no one seems to take issue with that.

I suspect lots of people defending the DMA will start to take issue if the CTF is found to be out of compliance and Apple raises the price and terms of the developer subscription. If that does occur, I would personally recommend Apple take a look at Epic's developer agreement for inspiration.

Wait a moment… do you mean Apple’s anti-steering provisions that they were fined for?

No, I mean the charges listed in the article we are commenting on. To quote the article:

The European Commission has formally announced its preliminary view that Apple's App Store policies are in breach of the Digital Markets Act (DMA), specifically in relation to anti-steering rules.

My point was: if the CTF was such an open and shut case as prohibited, why isn't the EC announcing its view that the CTF is in breach? Why are they only opening an investigation now? Again - I am sure the EC will find them in breach, because I suspect their issue is actually Apple making money off of developers who sell their app outside of the App Store, despite the DMA not saying that is prohibited, but the person I was quoting was saying the DMA was crystal clear and no interpretation was needed.

 

[Damian83]

Once again, plenty of pricier (well over 300 euros) desktop and laptop computers are still being sold with 256GB SSD. Apple is hardly the only one. Your comment that "only apple still sells computers with 256gb ssd" is incorrect.

Sorry you're right i was incorrect. i forgot to add "...for that price"

 

[Damian83]

I've seen plenty of "noob" pcs and helped them clean up the device and change a few habits so that their machine magically is good enough again. They don't need higher specs, they need a little education.

So you confirm what i just said, thanks

 

[webkit]

Sorry you're right i was incorrect. i forgot to add "...for that price"

Ok. What is "that price"? Dell offers a 256GB SSD mobile workstation computer in Germany, for example, starting at nearly 2,000 euros (excluding VAT) which is even higher than Apple prices for 256GB SSD machines.

 

[Beautyspin]

Uh, no:
Apple provides conditions where many developers do not pay the CTF. Developers whose apps do not surpass one million first annual installs per year and nonprofits, educational institutions, and government entities with an Apple Developer Program fee waiver do not pay the CTF. The CTF is also not required for developers with a no revenue business that offer free apps without monetization. Additionally, small developers (earning less than €10 million in global business revenue) are provided with a 3-year free on-ramp to the CTF and won't pay the CTF for first annual installs that exceed the threshold within a 3-year period.
So Apple would not need to charge the CTF for its free apps and be no different fro any other developer.

What do you mean by Uh, no. It is correct.

Free apps will be affected only if they are in alternate app stores. So, an app that is free in the Appstore will be free irrespective of the number of installs. Whereas, as the example in the MacRumors article quotes, if you have 2 million installs, the developer will have to pay half a million dollars in fees to Apple annually. This disincentivizes developers from going to the alt stores. This is not acceptable. Apple providing 3-year hiatus etc is also not going to fly. It should be unconditional. Period.

Apple's EU Core Technology Fee Could Bankrupt Freemium App Developers

App developers in the European Union who choose to opt in to Apple's new business terms must pay an €0.50 "Core Technology Fee" or CTF...

www.macrumors.com

And it can, based on size. Nothing says one size must fit all, so distinguishing between develops, an industry standard practice, should be fine.

I am not even sure we are even talking about the same thing. It is not about distinguishing between developers. It is about the difference between alt stores and Appstore.
According to the DMA, Apple cannot have a separate set of rules developers on the alt store that are different from the rules for developers on the Appstore.

A spun off wholly owned sub sends all the money back to the mothership, so Apple will be simply paying Apple, just appearing on a different P&L. Even so, the CTF for 121 million users is an amount Apple could pay out of petty cash.
Let's assume each new iPhone sale in the EU also pays the CTF; that .5cents is nothing and easily paid from each sale.

It is not a per iPhone fee. It is per Appstore install. Every time the Appstore is updated, the Appstore owner pays Apple. While it is a subsidiary of Apple, it still will lose money and become bankrupt. But that is not the end. All the free apps in the Appstore also will start paying CTF. So, Netflix, which has around 6 million installs, will have to pull out of the store or pay $300,000 per month to Apple. They will all pull out of Appstore as well as Alt stores. Who will buy iPads.

In any case, by spinning it off, Apple will make it easy to force it to sell off the Appstore to 3rd parties.

 

[jlc1978]

From your own link, if you actually read the definition of what qualifies you would find that free apps are not subject to the CTF only in specific cases:

• Non-profit organizations, governments and education institutions with an Apple Developer Program fee waiver.
• Non-commercial developers with a no revenue business offering a free app without any monetization.
• Small developers (earning less than €10 million global business revenue) that have not previously exceeded one million first annual installs receive a 3-year free on-ramp to the CTF.

None of these describe Apple.

Thus any of Apple's free apps with exceed the annual install threshold (which would likely be all of them) would need to be charged the CTF with all of the associated accounting and tax implications.

That's only if Apple would distribute on alt app stores, something they are not likely to do and so remain under the current scheme. As long as Apple stays under the old rules thee are no CTF fees; and any developer cab chose to stay there as well.

Frankly, I think Apple should revisit that if a developer has a free app and a paid app and exempt the free app if it meets the free criteria and not charge for those installs.

The thing with the CTF is that Apple would have to pay it per app, and each payment from the subsidiary to Apple would be subject to tax burden. So Apple would also have to pay additional tax on this. This wouldn't be trivial from either a monetary perspective or a documentation and bureaucracy perspective.

Any payment would result in a deductible expense for the and thus the tax burden simply shifts; all it does is change how the revenue is accounted for, not the total taxable revenue. In the end, all they are doing is rolling up the books back into the mothership.

 

[bcortens]

That's only if Apple would distribute on alt app stores, something they are not likely to do and so remain under the current scheme. As long as Apple stays under the old rules thee are no CTF fees; and any developer cab chose to stay there as well.

Apple keeping the old terms around is likely to get them into trouble because it acts as a preference mechanism for its own store.

Frankly, I think Apple should revisit that if a developer has a free app and a paid app and exempt the free app if it meets the free criteria and not charge for those installs.

Agreed.

Any payment would result in a deductible expense for the and thus the tax burden simply shifts; all it does is change how the revenue is accounted for, not the total taxable revenue. In the end, all they are doing is rolling up the books back into the mothership.

That's true, they still have to deal with that paperwork and that will cost money they wouldn't otherwise have to spend. They'd also have to pay for work required to ensure they pay themselves for the costs for each app download.

 

[jlc1978]

What do you mean by Uh, no. It is correct.

Free apps will be affected only if they are in alternate app stores. So, an app that is free in the Appstore will be free irrespective of the number of installs.

I was replying to the comment:

CTF applies to free apps too. So, unless Apple charges those same apps the same CTF in the Appstore, it will be considered self-preferencing, I guess.

that the CTF does not always apply to free apps. personally, I think Apple should revise the T&Cs to exempt free apps entirely, as long as the are truly free.

Whereas, as the example in the MacRumors article quotes, if you have 2 million installs, the developer will have to pay half a million dollars in fees to Apple annually. This disincentivizes developers from going to the alt stores. This is not acceptable. Apple providing 3-year hiatus etc is also not going to fly. It should be unconditional. Period.

Given most developers never make any significant profit I think Apple could easily exempt any small developer or simply cap the fee at the lesser of 50 cents or some percentage of revenue, like EPIC does. That would lessen the impact.

I am not even sure we are even talking about the same thing. It is not about distinguishing between developers. It is about the difference between alt stores and Appstore.
According to the DMA, Apple cannot have a separate set of rules developers on the alt store that are different from the rules for developers on the Appstore.

However, they can charge developers and the DMA only says it needs to be similar to what others do; which is why I say Apple should adopt the EPIC scheme if the CTF doesn't fly.

It is not a per iPhone fee. It is per Appstore install. Every time the Appstore is updated, the Appstore owner pays Apple.

Per the T&Cs:

B. A “First Annual Install” is the first time in a twelve-month period that an Apple account (Apple ID or Managed Apple ID) installs Your Application on iOS and/or iPadOS in the EU. This installation may occur after a download, redownload, or update of an Application distributed through the App Store, TestFlight, an Alternative App Marketplace (EU), as a Custom Application, or through Your Website (EU). If You have multiple bundle IDs for the same Application, Apple will combine them for the purpose of calculating the First Annual Install.

Per the press release:

Since a first annual install is only counted once per account, developers can deliver unlimited feature updates, bug fixes, and security patches to users for 12 months with no additional fee, regardless of how many devices the user has. And when users upgrade or replace their devices, developers aren’t charged when users reinstall their apps through an iCloud transfer.

So they would only pay once very 12 months, and selling the phone could count as the first, and then every year later pay again. If a user keeps the iPhone 10 years, that's 5 Euros for the CTF for the app store. Any user installed app would be the same and I would include all of Apple's preinstalled apps that are not integral to how the phone functions, such as the phone app and messaging app. Apple could easily jack up the price a bit in the EU to cover most of the costs; although since it would likely be through their store tehre is no real cost even if they apply the CTF.

While it is a subsidiary of Apple, it still will lose money and become bankrupt.

That's like saying if you get paid 10 Euros to do X the first time, and have to write a partner, who has a joint account with you, a check for 1 Euro every time you do X, even if you do not get paid you will go bankrupt after 10 times; even though your partner is simply redepositing your check each time in the joint bank account. In the end, the original 10 Euros is still there, only that changes is who records teh expense and who books the revenue.

It's simply an accounting loss, since all the revenue ultimately winds up with Apple; there is no actual loss except on paper.

But that is not the end. All the free apps in the Appstore also will start paying CTF.

Apple could clarify what free app owe, and should simply not charge any truly free app.

So, Netflix, which has around 6 million installs, will have to pull out of the store or pay $300,000 per month to Apple. They will all pull out of Appstore as well as Alt stores.

Netflix is not a free app, but a way to sell subscriptions. As long as the revenue from the subscriptions they get exceeds the CTF they will continue to have an app. They probably should see if the total costs from CTF is cheaper than paying Apple 15% on each subscription and change to the CTF model.

Who will buy iPads.

Netflix isn't the be all end all for iPad purchases, and web access would still exist.

In any case, by spinning it off, Apple will make it easy to force it to sell off the Appstore to 3rd parties.

Maybe, but any company that can likely afford it will need to assess what it means to suddenly be gatekeeper and how will that impact other businesses they are in.

Edit: Typo and clarification

 

[jlc1978]

They’re self-preferencing their own store over other stores.

They are offering the same terms, however to all developers. It will be interesting to see how it all shakes out.

Most developers are meaningless. They only account for a small fraction of sales.

Which is my point - this is a fight between a few large developers who make a lot off money of of Apple and who want more of the pie and Apple wanting to keep their share.

I believe the same is true for internet access providers providing internet access between Apple and their customers.

The EU wanted to enable ISPs charging Large Traffic Generators (like Apple, I suppose, too) for internet traffic through EU regulation, you know?

I’m sure it’s not unreasonable for Apple to pay a 30% cut on their software revenue, given how much traffic that produces, is it?

No, as long as:

ISPs provide the same T&Cs across the board to all traffic they carry
Don't self preference there own traffic
Apple is free to chose between ISPs to get the best deal
Apple can create its own ISP and not pay them anything

But it is out of line with payment processing.

When a customer subscribes to a music streaming service or buy some „coins“ or weapons for their digital avatar within an app, that transaction does not happen on or from a marketplace. It happens on the app developer‘s turf - not Apple‘s.

The only thing Apple is providing at this point is transaction processing. Payment processing, that can be had for less than 3 and little else (that developers want or need anyway).

Well, EPIC charges fees based on total regardless of how you process the payment so it's not out of line overall. So those same transactions in EPIC's case are treated as revenue just like a sale of the game. Why shouldn't Apple be allowed to do the same?

Apple keeping the old terms around is likely to get them into trouble because it acts as a preference mechanism for its own store.

It will be interesting to see how this all plays out. In the end, I suspect Apple will be able to charge some sort of fee, whether is is a CTF or some new higher developer fee based on revenue.

That's true, they still have to deal with that paperwork and that will cost money they wouldn't otherwise have to spend. They'd also have to pay for work required to ensure they pay themselves for the costs for each app download.

True, but that is likely to have no material impact on total expenses; given what they already do for tax compliance, billing and paying developers, tracking revenue, etc.

Edit:Typos

 

[chmania]

The DMA in EU is about the rights of the consumer, and not about privileges of business entities. This fact is hard to fathom for people, who live in a country (ies), where the privileges of business entities are put before the consumer's.

 

[jlc1978]

The DMA in EU is about the rights of the consumer, and not about privileges of business entities. This fact is hard to fathom for people, who live in a country (ies), where the privileges of business entities are put before the consumer's.

Which is why the ultimate question is "How will the consumer benefit?"

Will prices be lower for apps and subscriptions now that developers have choices?

Or will a few big developers be able to lower their costs and make more profit while the smaller ones now face a fragmented market and potentially higher costs or fewer sales?

Only time will tell.

 

[chmania]

Which is why the ultimate question is "How will the consumer benefit?"

So, if the privileges of business entities are put before the rights of the consumer, the business entity decides, whether to give a guarantee for their products and how long it should be. Whether to allow the consumer to use his device whatever the way he wants, not the way the business entity wants. And so on...

 

[I7guy]

So, if the privileges of business entities are put before the rights of the consumer, the business entity decides, whether to give a guarantee for their products and how long it should be. Whether to allow the consumer to use his device whatever the way he wants, not the way the business entity wants. And so on...

There are many cases when the consumer buys a device (or product) and wants to use it the way they want. The manufacturer doesn’t have to help them and the consumerist of luck. Here the government is forcing it.

 

[surferfb]

The DMA in EU is about the rights of the consumer, and not about privileges of business entities. This fact is hard to fathom for people, who live in a country (ies), where the privileges of business entities are put before the consumer's.

Again this is 100% incorrect. It is ABSOLUTELY bout the privileges of business entities. From Chapter 1 of the DMA (emphasis mine).

Subject matter and scope
1. The purpose of this Regulation is to contribute to the proper functioning of the internal market by laying down harmonised rules ensuring for all businesses, contestable and fair markets in the digital sector across the Union where gatekeepers are present, to the benefit of business users and end users.
2. This Regulation shall apply to core platform services provided or offered by gatekeepers to business users established in the Union or end users established or located in the Union, irrespective of the place of establishment or residence of the gatekeepers and irrespective of the law otherwise applicable to the provision of service.

The thought process is that by opening up access to business users consumers will benefit. But if it were primarily consumer focused, a lot of the regulations would be significantly different. Again, implementing to follow the law has ALREADY made products worse for European users (and businesses).

 

[chmania]

There are many cases when the consumer buys a device (or product) and wants to use it the way they want. The manufacturer doesn’t have to help them and the consumerist of luck.

I know it is hard to fathom.

Here the government is forcing it.

The UE is not a government.

 

[chmania]

Again, implementing to follow the law has ALREADY made products worse for European users (and businesses).

Thank you for worrying about us, but we'd vote for the DMA.

 

[surferfb]

Thank you for worrying about us, but we'd vote for the DMA.

I have no doubt you'd vote for it, if everyone in Europe understood what it actually meant, I am less confident the majority of your fellow EU citizens would. But maybe you're right and I'm wrong - doesn't matter regardless - the EU is going to do what the EU is going to do.

 

[jlc1978]

So, if the privileges of business entities are put before the rights of the consumer, the business entity decides, whether to give a guarantee for their products and how long it should be. Whether to allow the consumer to use his device whatever the way he wants, not the way the business entity wants. And so on...

I think you misunderstand my position. It's not a question of who has priority but rather what is the actual impact of the law?

Consumer protection laws certainly are important and justifiable; but they need to be looked at in terms of how do they actually benefit consumers, at what cost, and is it an acceptable cost?

Warranty laws, for example, make up for asymmetric information by ensuring consumers a product will be fit for purpose for a specified minimum period of time; and the added costs are worth the assurance. Manufacturers re also free to have longer warranties to signal their product's higher quality.

Laws that are supposed to protect consumers can also wind up benefiting companies by creating barriers to entry that reduce competition and can result in higher prices.

 

[jlc1978]

So you confirm what i just said, thanks

I'm glad you agree they don't need higher specs just a little more knowledge of good computing practices.

 

[I7guy]

I know it is hard to fathom.

It is.

The UE is not a government.

A regulatory body.

 

[Beautyspin]

I was replying to the comment:

CTF applies to free apps too. So, unless Apple charges those same apps the same CTF in the Appstore, it will be considered self-preferencing, I guess.

that the CTF does not always apply to free apps. personally, I think Apple should revise the T&Cs to exempt free apps entirely, as long as the are truly free.

I think you have misconstrued the true purpose of CTF. The only reason CTF exists is to ensure free apps do not go to Alt Stores. Imagine Netflix, Facebook, etc, go to alternate stores? Imagine Facebook opens its own store. It will pull its free apps from Appstore and put it on Altstore, if Apple allows free apps to be exempt from CTF. That is the main and only reason for CTF. That is why Apple wants CTF and hence the EU does not want it.

Given most developers never make any significant profit I think Apple could easily exempt any small developer or simply cap the fee at the lesser of 50 cents or some percentage of revenue, like EPIC does. That would lessen the impact.


However, they can charge developers and the DMA only says it needs to be similar to what others do; which is why I say Apple should adopt the EPIC scheme if the CTF doesn't fly.

The reason that I have given above shows the problem with CTF. Any rule that Apple brings for the Altstore, the EU must make Apple apply to apps in its store also. That is the only way to force Apple to bring fair laws. Everything else will result in such malicious compliance.

Per the T&Cs:

B. A “First Annual Install” is the first time in a twelve-month period that an Apple account (Apple ID or Managed Apple ID) installs Your Application on iOS and/or iPadOS in the EU. This installation may occur after a download, redownload, or update of an Application distributed through the App Store, TestFlight, an Alternative App Marketplace (EU), as a Custom Application, or through Your Website (EU). If You have multiple bundle IDs for the same Application, Apple will combine them for the purpose of calculating the First Annual Install.

Per the press release:

Since a first annual install is only counted once per account, developers can deliver unlimited feature updates, bug fixes, and security patches to users for 12 months with no additional fee, regardless of how many devices the user has. And when users upgrade or replace their devices, developers aren’t charged when users reinstall their apps through an iCloud transfer.

So they would only pay once very 12 months, and selling the phone could count as the first, and then every year later pay again. If a user keeps the iPhone 10 years, that's 5 Euros for the CTF for the app store. Any user installed app would be the same and I would include all of Apple's preinstalled apps that are not integral to how the phone functions, such as the phone app and messaging app. Apple could easily jack up the price a bit in the EU to cover most of the costs; although since it would likely be through their store tehre is no real cost even if they apply the CTF.


That's like saying if you get paid 10 Euros to do X the first time, and have to write a partner, who has a joint account with you, a check for 1 Euro every time you do X, even if you do not get paid you will go bankrupt after 10 times; even though your partner is simply redepositing your check each time in the joint bank account. In the end, the original 10 Euros is still there, only that changes is who records teh expense and who books the revenue.

It's simply an accounting loss, since all the revenue ultimately winds up with Apple; there is no actual loss except on paper.


Apple could clarify what free app owe, and should simply not charge any truly free app.



Netflix is not a free app, but a way to sell subscriptions. As long as the revenue from the subscriptions they get exceeds the CTF they will continue to have an app. They probably should see if the total costs from CTF is cheaper than paying Apple 15% on each subscription and change to the CTF model.



Netflix isn't the be all end all for iPad purchases, and web access would still exist.



Maybe, but any company that can likely afford it will need to assess what it means to suddenly be gatekeeper and how will that impact other businesses they are in.

Edit: Typo and clarification

Yeah. Best to make Apple sell the subsidiary to a third-party.

 

[jlc1978]

I think you have misconstrued the true purpose of CTF. The only reason CTF exists is to ensure free apps do not go to Alt Stores. Imagine Netflix, Facebook, etc, go to alternate stores? Imagine Facebook opens its own store. It will pull its free apps from Appstore and put it on Altstore, if Apple allows free apps to be exempt from CTF. That is the main and only reason for CTF. That is why Apple wants CTF and hence the EU does not want it.

Except those are not "free" per Apple's definition of free:

free Applications without monetization or services related to revenue of any kind (e.g., advertising, sales, or marketing of digital or physical goods or services)

since they monetize their apps. I would say the CTF exists to protect Apple's revenue stream from the big developers if they would go on a competing App Store or roll their own.

At any rate, it will be interesting to see this whole thing play out. It is interesting tehy mentioned steering violations but are just investigating the CTF. Who knows what the end state will be?

The reason that I have given above shows the problem with CTF. Any rule that Apple brings for the Altstore, the EU must make Apple apply to apps in its store also. That is the only way to force Apple to bring fair laws. Everything else will result in such malicious compliance.

As I pointed out they could easily charge the CTF but give credit for any fees paid to Apple on the APP Store, or outside of the App Store, and make truly free apps not subject to any CTF. They could also cap the CTF to the lesser of the percentage commission or the CTF, much like EPIC does for their fees.

Alternatively, they could change the fee structure on the App Store so that any company with annual revenues above X, in order to be on the App Store, have to pay hosting, per d/l or other fees and Apple doesn't take a cut of sales. Then it becomes a question of how lucrative is the App Store for us and can we afford to lose the revenue it generates if our customers do not follow us and new iPhone users have to find us on an alternative store.

Ultimately, just implement sideloading much like it is on the Mac and let developers decide what model to use. I suspect some will bolt just to stick it the man, but many, even the big ones, would stick with the App Store simply because that is where the lucrative user base will be and alternative stores won't have the same type of user base.

In the end, it's all about what is most profitable.

I also doubt most app stores will be cheaper in the long run for most developers. I suspect many will simply

Yeah. Best to make Apple sell the subsidiary to a third-party.

The problem is Apple would still be free to charge for access to its services but be free of the App Store gatekeeper status; which would likely give them a lot more leeway in what they can charge.

In addition, any buyer is likely to look at who makes them money and how much and kill off all the ones that cost money or don't make enough money to increase their margin. If their annual revenue doesn't meet the gatekeeper requirements, they are now just another store and free of gatekeeper status.

What happens when alt stores don't want to host free apps? Will the EU and member governments now be willing to pay for apps that are critical to operations but are no longer free?

Or when a paid app suddenly loses its alt store slot that shuts down and no longer can update it or users can no longer d/l it even though they paid for it? That will be a real challenge for alternative stores - how do we stay in business long term? Will there be enough people using our store to make a profit or will they get one or two apps or some free one and not generate much revenue?

Then again, there is the question of will Apple open another App Store or will the EU forbid it?

 

[chmania]

A regulatory body.

Consists of 27 sovereign governments...

 

[jlc1978]

Consists of 27 sovereign governments...

And the US is composed of sovereign states and territories as well; but has a strong federal government. The EU member states have much more power as a confederation, but the EU acts as a government by passing laws, negotiating treaties, etc.

If it couldn’t laws such as the DMA would not be able to be made and enforced.

 

[chmania]

And the US is composed of sovereign states and territories as well

How sovereign are they?

Clause 1. No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Clause 2. No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Control of the Congress.

Clause 3. No State shall, without the Consent of Congress, lay any Duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay.