From my experience as a product manager and business consultant, a lot of people who are thinking of creating their own mobile app startup usually have little clue of how Apple and Google Store fees work and their potential impact on the startup business model.
Apple and Google take a 30% developer fee from all the transactions made within the mobile app.
For example, if John paid $10.00 for a subscription in the ABC app, $7.00 will go to ABC and $3.00 to Apple/Google.
Every entrepreneur and mobile developer must be informed about it.
BUT: there are few exceptions and ways to get around a 30% cut that I will further explain in this article.
For many businesses and online startups, paying 30% fees from their revenue to Apple is a huge loss and can be a determinator of a startup’s success or failure.
As an entrepreneur, you must be aware of the regulations of the App Store and Play Market and their impacts on your business model.
As an app developer, it is important to know the basic rules to understand what can go wrong during the App Store approval process of their app.
So how can you create a sustainable mobile app business at the same time complying with App Store policies?
1. Apple and Google get a 30% revenue share for all In-App Purchases.
In exchange for providing the infrastructure, distribution channels, and support, Apple and Google ask for a commission from app creators.
Simply said, they allow developers to easily publish their apps in front of millions of people, and declare that the price for it is 30% of their revenue.
For some business owners, it appears reasonable, since it does not require an upfront investment for app publishing and distribution which allows small mobile app startups to bootstrap their way to the market. And for others, it doesn’t seem fair at all, mainly because their business cannot sustain itself competitively by paying such fees.
Nonetheless, if you sell your subscription inside a mobile application using Apple’s in-built In-App Purchases (IAP) technology (purchase with Apple ID) or Google Play’s billing system, Apple and Google get a 30% revenue cut in all instances.
BUT, of course, as with all complex systems, there is a catch. Apple and Google can only take 30% fees if a transaction is made using their in-built billing systems (IAP or Google Play). If the transaction is made directly to the app developer using one of the other billing systems, Apple/Google don’t have a technical opportunity to take a 30% cut.
However, do you think Apple and Google would allow it?
2. Implementing your own billing system inside the app is not allowed.
If you decide to ignore Apple/Google policies for in-app purchases and decide to integrate your own payment system inside the mobile app (for example make a user add their credit card details directly in your app), your mobile application will not pass the internal App Store review and won’t be published.
According to App Store policies, developers are not allowed to implement their own payment systems to accept payments inside mobile apps.
BUT, as always, there are certain exceptions for certain types of apps that are explained further in the article.
3. Links to external websites where purchases can be made are not allowed.
Well, you may think: “If I can’t accept payments through my own billing system inside the app, why wouldn’t I just redirect my users to pay through my website?”.
Apple and Google also monitor that during the internal review process. If there are any external links to the web pages or other systems accepting payments — the app will not be allowed in the App Store.
4. Any hint that your product can be bought out of the app is not allowed.
You may also think: “If I can’t put the direct URL’s to my website in the app, why won’t I just indicate somewhere inside my app that you can pay through the website?”
You would have guessed right — Apple also monitors that and during the internal review process will check your app for all the hints for external payment services.
There is an exception, however:
5. You can, though, mention within your app that external subscription is available, as long as you offer Apple IAP as well
If inside your app you managed to implement Apple’s in-app purchases system to allow them to accept payments and take 30% fees, you are free to hint that users are able to make purchases through another source.
Apple basically says: “As long as you share a part of your revenue with us, you can let your users know that they can pay elsewhere”.
6. If a user uses a mobile app to sign up and create an account, the payments from this user are subject to Apple 30% cut.
It is not a 100% confirmed fact, however, there are stories that if a user registered an account using an iOS mobile app, Apple has the right to take 30% of all the payments made by this user in that mobile app. On the opposite, if a user uses an app to log in to an account that was already created elsewhere, the rule doesn’t apply.
That’s why for some time in Netflix mobile and tablet apps users didn’t have a Sign-Up button, only a Log In.
7. The rules don’t apply to physical products or services.
If you’re shipping physical goods (such as DVDs, food products, clothes), you can bill users through alternative payment systems.
8. In the first year, Apple and Google take 30%. The second and thereafter, they take 15%.
After a subscriber accumulates one year of paid service, App Store cut reduces from 30% to 15%. Basically, the fees are halved after 1 year of a subscription of a specific user.
- Auto-renewable subscriptions on all Apple platforms are eligible.
- Includes paid introductory periods (pay as you go, pay upfront)
9. Apple and Google do not disclose information about the users who paid for the services through IAP.
One of the drawbacks of the Apple App store as a publisher is that you don’t know who is subscribing to your content. Whilst there are a few convoluted ways to obtain this information it is not as forthcoming as it should be. And whilst subscription revenue is good, knowing who your subscribers are and having a direct communication channel to them is even better. Also, when a subscriber purchases your content on a particular device they are generally locked into reading on that device.
How to Avoid 30% Apple and Google Fees
One of the easiest ways to bypass paying any commission at all is to sell the subscription directly to your subscribers. In this scenario, a subscriber creates an account with you instead of the publisher and purchases a subscription from your website. This has a number of benefits for both you and the subscriber:
- You keep all the revenue.
- The subscriber can logon anywhere on any device and read their content.
- You know who your subscribers are and you build your subscriber database.
- To implement this, you simply need the ability for a subscriber to login to read your publication instead of having to purchase ‘in-app’.
There are some restrictions, however: but understandably you cannot just have a big button in your app that says ‘click here to subscribe’ which takes you to an external subscription page. You can, though, mention within your app that an external subscription is available, as long as you offer in-app purchases as well. You will get a percentage of people going outside the app to subscribe if the benefits are worthwhile (such as access online as well as an app, print subscriptions, free gifts, etc).
So there are ways to avoid paying any commission or at least reducing the amount you pay, by offering free content and by offering an external method of subscribing outside of your app.
Generally, there are 5 types of models for your SaaS you can follow to avoid In-App Purchases:
1. “Reader” Apps
A “Reader” app is basically an app that allows a user to log in to view the content previously purchased. They do not allow users to create new accounts.
Examples of “Reader” Apps
- Audible — you cannot buy things like audiobooks through the Audible app and have to do it on their website. You can still buy a subscription (or credits for books) inside the App, but they cost more expensive
Apple Developer Guidelines 3.1.3(a) “Reader” Apps: Apps may allow a user to access previously purchased content or content subscriptions (specifically: magazines, newspapers, books, audio, music, and video). Reader apps may offer account creation for free tiers, and account management functionality for existing customers.
If you use the “Reader” app model and simply do not provide an option for a user to sign-up for your app, the app distribution will take a big hit. Apple takes 30% of the revenue to provide developers access to the whole ecosystem, including the multi-million user audience and distribution channels such as App Store.
If the app is not going to have a Sign-up button, the users who find it in the App Store will simply be confused, and most certainly, will not convert to paying customers.
2. Multiplatform Services
A concept similar to “Reader” apps, although includes not only the viewable content (books, audio, videos, etc.), but also other features like consumable items, achievements, etc., that can be acquired in your app on other platforms or the website.
This type of apps MUST offer In-App Purchases in their system, otherwise will most certainly be rejected by the App Store.
Examples of Multiplatform Apps
- Online Games (Minecraft, Fortnite, PUBG, etc.)
Apple Developer Guidelines 3.1.3(b) Multiplatform Services: Apps that operate across multiple platforms may allow users to access content, subscriptions, or features they have acquired in your app on other platforms or your web site, including consumable items in multi-platform games, provided those items are also available as in-app purchases within the app.
3. Person-to-Person Experiences
Apple Developer Guidelines 3.1.3(d) Person-to-Person Experiences: If your app enables the purchase of realtime person-to-person experiences between two individuals (for example tutoring students, medical consultations, real estate tours, or fitness training), you may use purchase methods other than in-app purchase to collect those payments. One-to-few and one-to-many realtime experiences must use in-app purchase.
Examples of Person-to-Person Experience Apps:
- 1-to-1 Fitness Coaching
- 1-to-1 Medical Visits
- 1-to-1 English Lessons
4. Real-world Goods and Services
The apps that offer distribution of physical products and offline services can freely utilize different payment systems.
Examples of Real-world Goods/Services Apps:
Apple Developer Guidelines 3.1.3(e) Goods and Services Outside of the App: If your app enables people to purchase physical goods or services that will be consumed outside of the app, you must use purchase methods other than in-app purchase to collect those payments, such as Apple Pay or traditional credit card entry.
5. Banking and Cryptocurrency Apps
If your app offers to deposit, withdraw, and exchange financial assets, you are allowed to implement your own payment systems in mobile apps and don’t need to pay 30% to Apple/Google from the transactions.
Examples of Banking and Cryptocurrency Apps:
- Online Banking Apps (Revolut, PayPal for Business)
- Cryptocurrency Wallets (Blockchain, Coinbase)
- Cryptocurrency Exchanges (Binance, Kraken)
- Stock and ETF trading apps (Robinhood, eToro)
Apple Developer Guidelines 3.1.5 Cryptocurrencies:
- (i) Wallets: Apps may facilitate virtual currency storage, provided they are offered by developers enrolled as an organization.
- (ii) Mining: Apps may not mine for cryptocurrencies unless the processing is performed off device (e.g. cloud-based mining).
- (iii) Exchanges: Apps may facilitate transactions or transmissions of cryptocurrency on an approved exchange, provided they are offered by the exchange itself.
- (iv) Initial Coin Offerings: Apps facilitating Initial Coin Offerings (“ICOs”), cryptocurrency futures trading, and other crypto-securities or quasi-securities trading must come from established banks, securities firms, futures commission merchants (“FCM”), or other approved financial institutions and must comply with all applicable law.
- (v) Cryptocurrency apps may not offer currency for completing tasks, such as downloading other apps, encouraging other users to download, posting to social networks, etc.
Mobile apps are getting more and more popular and became an essential instrument in the day-to-day life of almost every person.
As a mobile app developer or entrepreneur, you must know about Apple and Google policies about the app publishers and the 30% fees related to the in-app purchases.
If your mobile app doesn’t belong to a few of the exempted categories (like p2p experiences, real-life goods, or banking apps), you are subject to pay 30% fees from all the in-app transactions.
However, there are few smart approaches to mobile apps you can use to minimize the 30% tax (e.g. “Reader” apps, multi-platform apps) and make your startup more profitable.