Apple Attracts Small App Developers With Concession

Apple has a number of ways to quell developer class action lawsuits. (photo: unsplash)

JAKARTA - Apple made waves this week by announcing a $100 million settlement with a small app developer suing the company. But despite the changes announced yesterday, nothing has really changed for the developers. The App Store is too big and too dependent on the cost of in-app purchases for that to happen.

Apple's settlement includes several new policies that it says "clarify" App Store rules. Developers can now contact customers about alternative payment methods using data collected from their apps, which was previously prohibited.

Apple pledged to keep the App Store Small Business Program, which reduces Apple's revenue by 15 percent for developers earning less than $1 million a year, in its current state for three years.

The same goes for organizing its search results by "objective characteristics" such as downloads, star ratings, and text relevance. Developers can set new price points for apps, and Apple promises to provide them with more information about how appeals work. It also plans to publish an annual transparency report on the App Store review process.

But none of this will make much of a difference in the long run to how the App Store actually works, or how the developers who make most of its money work with it.

This settlement grants concessions to small businesses on the App Store, but a handful of large companies make most of the money on the App Store itself.

While Apple doesn't provide any number of developers who fall into the "small app" category with earnings of less than $1 million, a SensorTower report from late last year claims that about 98 percent of all App Store developers qualify for the program. The report also notes that these developers – whom Apple calls the “majority” of iOS app developers, only account for 5 percent of the App Store's total revenue so far.

The App Store economy in 2021 is a rule set by one trillion-dollar company to earn revenue from in-app transactions at the 2 percent of developers who account for 95 percent of trading on Apple's platform. All these rules and regulations and settlements and clarifications are to appease most of the developers.

So what does Apple care if it has to hand over $100 million here (payments from the latest class-action lawsuit) or $59 million there as the estimated annual costs for Apple's Small App Business program?

As long as it can maintain a 30 percent discount on purchases flowing through its store from larger developers and apps, then they can make whatever concessions it needs for things like search rankings or new price points for apps to settle class-action lawsuits.

Apple's biggest change, the option to discuss alternative payment methods, also has a hidden advantage. Developers are now allowed to discuss alternative payment methods for subscriptions or services outside of their app using contact information obtained within the app. For example, they can now offer a form to submit an email address to sign up for an offer to be sent to your inbox.

But if you want to actually sell something in your app, you'll still have to use Apple's payment method and pay the discount set by Apple. This is something that is still a major debate for many developers.

As last year's dramatic fight between Apple and Hey shows, it's not always easy to get past Apple's payments even if you're willing to skip Apple's hoops and only sign up users outside of the app.

The simple fact is that the App Store is big business for Apple at this point. In 2021, the App Store business will be in-app purchases and subscriptions.

The biggest money earners on the platform and the biggest money earners for Apple so far, are all free games, streaming services, and subscription-based apps that rely on customers buying and subscribing through Apple's payment processors.

With the amount of money at stake here, Apple will never allow or even make it easier for developers to warn users about alternative payment methods in their apps.

The App Store is expected to generate sales of around $64 billion in 2020. Taking into account the company's 30 percent cut, it generates about $19 billion in revenue for Apple. Although the actual number is likely to be slightly lower, given that Apple offers a 15 percent discount on things like the App Store Small Business Program and for subscriptions after one year.

But in the end, Apple will never budge. The App Store is too big and too important for the company, and how the App Store will work in 2021, unless a court decides otherwise, as Epic, Spotify, and others actively do. But nothing will really change for a core part of the app economy.