Apple Makes First Major Concession to In-App Vig

Posted on April 2, 2020 by Paul Thurrott in Amazon, Apple, Cloud, iOS, iPadOS, Mobile, Music + Videos, Spotify with 26 Comments

Faced with antitrust scrutiny, Apple has taken its first step back from its controversial 30 percent fee on in-app purchases. It will no longer demand the unfair vig from video-streaming apps that offer their own payment systems.

“Apple has an established program for premium subscription video entertainment providers to offer a variety of customer benefits,” an Apple statement blandly notes. “Customers [now] have the option to buy or rent movies and TV shows using the payment method tied to their existing video subscription,” and not be forced to issue the payment through Apple’s system, as was required before. Payments made through an app using Apple’s payment system trigger the 30 percent fee.

A vig, or vigorish, is a term used by illegal bookmakers to describe the percentage of the amount bet that they take as profit. It’s applied to Apple’s in-app fees for obvious reasons: Taking a fee on transactions that other companies make with their own customers is illegal when you have a monopoly on those interactions, which Apple does on iOS.

Lawmakers and antitrust regulators looked the other way on this behavior for years. But now that Apple controls about 50 percent of the U.S. smartphone market and is expanding into services that compete unfairly with the offerings from its victims, that’s starting to change. Helping matters, those companies—Amazon, Sonos, Spotify, Tile, and many others—finally feel they have the antitrust backing to go public and describe how Apple’s illegal business practices and bullying have harmed them.

To understand why Apple’s policy has been unfair, and still is for in-app purchases not covered under this new premium video exception, consider a simple example.

If a Microsoft customer subscribes to Office 365 Home on the web, Microsoft collects about $100. If that same customer randomly chooses to subscribe to the same service using a Microsoft app that was distributed by the Apple App Store on iOS—the only way that iPhone and iPod touch customers can get those apps, thanks to Apple’s restrictions—Microsoft gets only $70. And Apple, for doing absolutely nothing, gets $30. And if that subscription is renewed in subsequent years, Apple continues getting a cut. (Some of Apple’s vigs decline over time.)

These fees are attached to all kinds of in-app purchases across apps and games, and they are the reason that Amazon, another good example, does not allow customers of its Amazon shopping, Kindle e-book, or Audible audiobook apps to make any purchases on iOS or even see its full online stores. The result is a compromised user experience, which harms customers. And Amazon isn’t even allowed by Apple to tell its own customers through its own apps on iOS, that such stores and purchasing options are even available. If Amazon were to try to sneak that information into its app, Apple would simply not allow those app updates to reach its store.

For some services-based companies like Spotify that rely on both subscription fees and Apple’s distribution, the app store and its vig are a double-edge sword because Apple is likewise competing against them, in this case with Apple Music. Apple Music, unlike Spotify, is subsidized by Apple’s hardware sales—the business would lose money if it were a standalone offering—and as a result, Spotify in effect must charge its own customers an additional 30 percent—actually, it simply loses 30 percent per customer on iOS—just to stay even with a competitor that never needs to establish itself as financially viable. This explains Spotify’s antitrust complaints against Apple in Europe and the U.S.

Today’s change won’t help Spotify. But it’s the first time in over a decade that Apple has stepped back at all from its 30 percent vig, and it’s possible that the firm’s new policy will expand to include other premium entertainment experiences, like Spotify and other music services. We can only hope.

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