Oh, Apple (Premium)

Apple has posted a website promoting how fair its App Store is. But all it proves is that it’s an unjustifiable monopoly that needs to be regulated to be fairer for both users and app makers.

The new App Store website was posted as a passive-aggressive response to an EU investigation of Apple and its business practices in the wake of a Spotify complaint that neatly highlights Apple’s abuses. As I noted in March, the resulting EU investigation, which will absolutely result in charges and behavioral changes for Apple, could drive real change where it’s needed. Apple simply takes too much from app makers and service providers that have no other way to deliver apps to iPhone and iPad users. It’s not just a monopoly, it’s an abusive monopoly.

And on a number of levels. But while the Spotify complaint and EU investigation both deal with some other issues, too, there are two primary focuses: The App Store monopoly, by which Apple controls which apps that users can even choose from, all while it competes with the most popular apps by releasing alternatives of its own, some of which literally come with iOS. And Apple’s “commission,” that 30 percent money grab that it makes, not just for paid apps, but for online services that those apps may offer, and on an ongoing basis: If you pay a monthly or annual subscription fee to some other company, and you signed up for that through an iOS app, Apple gets a commission every single time you pay that monthly or annual fee. And it gets that fee commission forever.

Here’s how Apple describes these two conditions.

“The App Store is the best place to discover new apps that let you pursue your passions in ways you never thought possible,” Apple notes. “Today, the App Store is more vibrant and innovative than ever, offering equal opportunities to developers to deliver their apps.”

Actually, the App Store is the only place to discover new apps for iOS. And as the Spotify complaint neatly details, the App Store does not provide “equal opportunities to developers.” Apple’s own apps and services are not beholden to the Apple commission, and thus they have an unfair advantage over third-party apps and services that, gasp, might come with a fee.

Apple Music and Spotify, for example, both cost $15 per month for an individual subscription. But Apple takes 30 percent of that fee every month if you’re a Spotify subscriber during your first year, and then 15 percent a month for every single month after that. It’s not possible for Spotify to compare evenly with Apple Music given these fees, and its cost of doing business will always, and unnaturally, be 15 to 30 percent higher than Apple’s as a result.

“It’s our store,” the App Store website explains in an almost threatening fashion. “And we take responsibility for it.”

Yes. But Apple also doesn’t allow its 1 billion iOS device users obtain apps from other sources either. And as Apple goes on to describe the scope of its monopoly— 20 million developers forced to use and pay for its Apple Developer Program because there is no other option, a 40 percent app rejection rate, 1.4 million apps removed from the Store over time, and so on—it’s unclear how Apple thought that this would be celebrated by anyone. The Apple system, which has its merits for sure, is really just based on lock-in. It’s not about reliability, integrity, or privacy. It’s about keeping Apple’s coffers full—absolutely fine for a business—by literally restricting what app developers and app customers can do. Which is not fine, when you have a monopoly. Which Apple does.

Regarding Apple’s commission, the site is even more forthcoming in describing the exact conditions of its commissions while not explaining why they’re necessary. Consider the following:

Apple receives no commission from apps with in-app advertising. Nice, right? But those kinds of apps are annoying to users, and app developers on iOS, especially, have veered away from this model in favor of paid apps.

Paid apps. Apple takes a 30 percent commission on all paid apps.

Free with in-app purchase. Apple takes a 30 percent commission on all in-app purchases, regardless of the timing.

Free with subscription. This is the most onerous requirement, in my eyes. Apple takes “a 30% commission on subscription sales for the first subscription year. After the first year, Apple collects a 15% commission for all successive years that the user remains a subscriber.” In other words, Apple never stops taking a piece of ongoing subscription fees. This is patently unfair: An Office 365 Home subscriber, for example, is unknowingly handing Apple an undeserved $30 when they sign up for that subscription and then another $15 per year for the life of that subscription. For … what?

Reader. This is the grossest app category because Apple made it up after the fact. Because so many app makers—Amazon, Audible, Netflix, Spotify—are refusing to hand over hundreds of millions of dollars per year in unfair commission charges, they have declined to offer their subscriptions and paid services through their iOS apps. But because of Apple’s onerous App Store policies, these apps are banned from even communicating to their own users that these offerings, through online stores or subscriptions or whatever, are even available. So when you visit the Kindle app on iOS, for example, there’s no Kindle book store, nor is there any mention of it. You, as a user, have to know that it exists and know how to otherwise find it somewhere else. “These are apps where users exclusively purchase or subscribe to content outside the app, but enjoy access to that content inside the app on their Apple devices,” Apple explains. “Apple receives no commission from supporting, hosting, and distributing these apps.”

The App Store, Apple claims, is “a store that welcomes competition.”

That’s hilarious on a number of levels, given that Apple allows no competition for the App Store at all. But that marketing nonsense deals with my second main issue with Apple, iOS, and the App Store: Apple, alone among all the major platform makers, does not allow users of iOS to choose non-Apple apps as defaults. So, if you want to use Chrome as your web browser, you can, of course, install the app and use it. But because you cannot set it as the default web browser, you will still use Apple’s Safari, which is bundled with iOS and thus forced on users, when you tap a URL anywhere in the system, in apps, and so on.

Apple then takes the unbelievable step of explaining the app categories in which it competes, almost exclusively by bundling apps that are the permanent default for their category, and then listing the third-party apps that users prefer, but can never be made the default. These include calendar, camera, cloud storage, mail, maps, messaging, music, notes, podcasts, TV/video, video chat, and web browsing.

This list, like Apple’s clear communications on commissions, neatly make Spotify’s case, the EU’s arguments, and my own personal issues with Apple crystal clear and largely non-debatable. Apple has a monopoly which it is abusing to the detriment of both developers and users. And it needs to be stopped.

How it should be stopped is a matter of opinion. How it will be stopped is a matter of conjecture.

But both boil down largely to the two issues I raise here. Developers should not be forced to hand Apple commission fees for purchases or subscriptions that users make within their own apps, not for individual purchases (like books from Kindle or goods from Amazon) and not for ongoing subscription fees (Office 365, Netflix, Spotify); this is especially true when you consider that Apple’s competing apps and services are unfairly advantaged by not having to pay these commissions. And users should have the freedom to choose the default apps that they prefer.

Simple, right? But there’s more.

There is a debate to be had, too, about the size of Apple’s commission. As a new service in 2008, Apple was free to charge whatever it wanted, and it could argue, effectively, that there was a cost to ramping up the infrastructure needed to maintain and service its Store. Today, however, Apple commands a market of one billion active devices, maintains margins that are incommensurate with other hardware makers, and has hundreds of billions of dollars in cash. It is also a monopoly. And there is now a discussion that should be had, not just about its commission terms, but about its commission rates.

Put simply, they should be lower. Microsoft, for example, recently changed its app store commission rate to just 5 percent for app purchases and in-app purchases. It also takes 15 percent, once, if a customer is obtained for an app through Microsoft’s app store. These fees apply across the Microsoft ecosystem, including both Windows and Xbox.

5 percent is perhaps too low, and I’m sure that Apple can strike a compromise there. But the most important issue is the ongoing subscription fee commissions and in-app commissions on third-party stores/services like Kindle, Netflix, Spotify, and the like. Those needed to be eliminated entirely.

Finally, there is the uncomfortable matter of Apple being forced to allow users to acquire apps from competing stores. I’m of the opinion that the firm will fight to prevent this above all else, and that it will make reasonable concessions for the issues noted above to prevent this from happening. But I’m sure this is a topic the EU will raise.