Apple’s app fee cut is smart – but not enough

Apple (US:AAPL) will give up some of its power in the app space, as it plans to cut its App Store fee rate from 30 to 15 per cent for developers that earn less than $1m (£0.75m) in revenue a year. 

The rule, which Apple is pedalling as a ‘small business’ programme, might help the iPhone maker build its case amid growing regulatory scrutiny in Washington - the head of the antitrust committee, Representative David Cicilline has described the App Store’s current way of operating as “highway robbery”.

But regulation could be the least of the company's problems. There is growing disquiet among customers of the App store, who oppose the 30 per cent fee. Music streaming service Spotify (US:SPOT) and Tinder-owner MatchGroup (US:MTCH) have been the leaders in the crusade against the so-called ‘Apple Tax’: even joining forces in the ‘Coalition for App Fairness’, which is also led by Fortnite-maker Epic Games. These larger companies will not benefit from Apple's proposed new fee structure, which will come into effect next year. 

Until now, Apple had mostly resisted giving up its share of one of its most cash generative businesses. According to its annual report last year, it believed that a reduction in the commission it generates off the back of developers could have a material impact on its financial condition.

This is perhaps unsurprising, given that App Store income makes up a key part of Apple's high-margin services division. The segment, which accounted for around a quarter of net sales in 2020, has become a strategic focus for the company - especially as its smartphone business faces tougher competition from the likes of Huawei and Samsung Electronics (KR:00530), on top of the longer lifespans of its devices. The App Store was a bright spot for reliable cash, and while the company does not disclose the revenue breakdown of the services division, it was also likely a big driver for growth. 

But this is not the first time Apple has discounted the app fee: an antitrust investigation this year revealed that Amazon (US:AMZN) had secured a special 15 per cent rate for in-app charges within its Prime Video service. So although it seems that Apple will make concessions at the top of the food chain as well as the bottom, it has left those in the middle like Spotify and MatchGroup high and dry. 

While the new rules have succeeded in placating smaller, independent developers, we have not heard the end of App Store complaints from big companies that are not massive enough to negotiate special treatment. Apple is already facing an antitrust investigation into the App Store by the European Commission and a growing wave of antitrust discourse in Washington this year has shown no signs of abating. The fee cut was a smart move, but it is not endgame.