The App Store Debate is About Billion Dollar Balance Sheets — Not Pocketbooks, Jobs, or Small Developers
Top 3 App Store Opponents Have Combined Value of $122 Billion; Top Beneficiaries of Commission Limits Are Leading U.S. Firms That Earn $900 Billion Annually
When you purchase an app or subscription through Apple’s App Store or Google’s Play Store, Apple or Google receive a standard 15 to 30 percent of that sale, to fund management and security of the store. Xbox and PlayStation have digital stores that work the same way.
Leading app developers who would prefer not to pay Apple and Google’s commission have worked over the past few years to change this — by writing state bills that would ban or bypass these commissions; by filing lawsuits (one of which goes to trial next month); and by prompting a hearing this week in the Senate Judiciary Committee.
At a time when there are several significant tech policy questions that directly impact consumers — how to manage online content moderation; how to reduce disinformation and hate speech online; and how to connect all Americans to online opportunity — the app store debate is an outlier.
That’s because, as you’ll see below, it’s essentially a wealth-transfer dispute among billion-dollar companies. It’s not about consumer pocketbooks (app prices won’t be affected), jobs (despite cynical claims otherwise), or small developers (who are largely unaffected).
Our organization, the Chamber of Progress, supports online marketplaces that benefit everyone — the consumer, the marketplace owner, and marketplace sellers. But while app commission rates are a matter for business negotiations, it’s hard to see how the general public benefits from policymakers intervening in this dispute. People just want their apps to work.
It’s Not About Consumer Pocketbooks
App store opponents — led by Epic Games, Match Group, and Spotify — have written state bills to ban Apple and Google from requiring apps to use their app stores and in-app purchasing systems. These stores decrease transaction friction, which lead to more in-app purchases benefiting developers.
The curated and controlled app store model is light years simpler for consumers than downloading and installing a program on a Windows PC. For the novice user, it’s a safer and more reliable way to purchase and install apps. And if something goes wrong, the consumer can easily seek a refund from Apple or Google.
If new laws allowed app developers to bypass the app store, it would have no impact on the price consumers pay per app or subscription. Minecraft would still cost the consumer $6.99 to install and Disney+ would still cost $7.99 monthly. The only difference is that all of that money would go to the app developer, instead of a portion going to Apple or Google.
These bills could worsen the customer experience, due to the friction and unreliability introduced by app store alternatives. But this debate has no bearing on what consumers pay for apps and subscriptions.
It’s Not About Jobs
App store opponents’ state bills would exempt in-state developers from app store mandates. This has allowed those companies to tease the prospect of moving their companies, and jobs, to those states.
As the North Dakota legislature considered the bill he helped co-wrote, Basecamp co-founder David Heinemeier Hansson said that:
“if the bill passed, he was prepared to set up offices in North Dakota.”
Just two weeks later, he announced as the Arizona House passed a similar bill that he would:
“start the conversation with lawyers on what it’ll take to relocate Basecamp to Arizona.”
You get the point. App store opponents will continue to cynically dangle the prospect of jobs or relocation to get a perk from the government. This obscures the millions of jobs that the app ecosystem already supports.
It’s Not About Small Developers
App developers pay a small annual store fee, but more than 93 percent of all apps are free to download, and only a small percentage of those include in-app purchases — meaning most developers pay app stores no commission at all.
On top of that, last year Apple lowered its commission from 30% to 15% for developers with under $1 million in annual sales. And Google recently cut its commission to 15% for all developers’ first $1 million in sales. Analysts estimated that these changes would reduce fees for 98% of Apple’s developers and 99% of Google’s.
In other words, only the top 1–2% most successful apps are paying a 30% commission (which itself is an industry standard).
The Arizona bill sponsors said they wanted to “help small business and bring new revenue to the state.” But small businesses aren’t the companies paying the 30% commission; this isn’t a David vs. Goliath dispute.
What It Is About: Billion-Dollar Balance Sheets
Why should policymakers intervene in what is essentially a fee dispute between companies worth billions of dollars? After all, as analyst Benedict Evans said of Epic Games:
“there’s no structural reason why it can’t pay Apple (or indeed Google). It just doesn’t want to, or wants to pay less than 30%. Indeed, one could point out that the real issue is that Epic just doesn’t ’like’ Apple’s model.”
While I can’t begrudge Epic Games wanting to decrease their payments to Apple, it’s worth noting that Epic just raised $1 billion, its CEO is North Carolina’s richest person, and mobile game developers have seen record sales during the pandemic:
Tinder, the #1 grossing dating app globally, earned $84 million in monthly subscription revenue last year, or $1 billion annually. I can understand why its parent company Match Group prefers not to share 30% of that revenue with Apple and Google, but it’s not clear why policymakers should care.
Of course, Apple and Google are big, successful companies. But the three leading members of the Coalition for App Fairness aren’t exactly small mom-and-pop shops. Combined, they’re worth $122 billion. And their “costs of revenue” — which include the fees they pay to Apple and Google — are in millions and billions of dollars:
In fact, the top-revenue generating apps — the apps paying the full 30% commission, with the highest volume of subscriptions — are run by some of America’s wealthiest companies. The biggest beneficiaries of a ban on app store commissions would be these companies, who altogether earned more than $900 billion in revenue in 2020:
For all these reasons, it’s strange that tech critics like Matt Stoller would seize on this particular cause. Sure, they hate Big Tech — but the beneficiaries of this campaign aren’t consumers at all, but…smaller billion-dollar companies.
We Face Bigger Challenges
Benedict Evans noted that:
“the sandboxed app store model is not some curious, incidental feature of modern smartphones — rather, this is an essential and hugely important part of why they have such a strong software ecosystem.”
Smooth-functioning app stores are a feature of smartphones that benefit both consumers and app developers, and no consumer is angling for iPhones and Androids to work more like Windows PCs.
While it’s understandable that a few leading app developers would spend tens of millions of dollars on lobbying and litigation to reduce their business costs by hundreds of millions, that doesn’t mean policymakers need to be their accomplices. There are bigger tech challenges facing our country.
But if policymakers choose to intervene, they should at least be clear why they’re doing it: not to help consumer pocketbooks, jobs, or the little guy — but to move money from the balance sheet of some billion-dollar companies to the balance sheet of some other billion-dollar companies. ¯\_(ツ)_/¯
The Chamber of Progress (progresschamber.org) is a new center-left tech industry policy coalition promoting technology’s progressive future. We work to ensure that all Americans benefit from technological leaps, and that the tech industry operates responsibly and fairly.
Our corporate partners do not have a vote, veto, or total agreement with our positions, and we remain true to our stated principles even when our partners disagree.