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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Comments (31)

31 responses to “Apple Makes First Major Concession to In-App Vig”

  1. thejoefin

    This is a good outcome and hopefully will make buying things in apps more natural and less clunky (like Audible where you need to go through the browser). Reading about how this works makes me wonder what the agreements are on Android and Windows with in-app purchasing; using the native API or using payment already set up in the account.

  2. BrianEricFord

    In reply to Andi:

    At leas you’ve wisely moved on from pretending to be able to offer a definitive legal analysis about complex legal issues.

    I’ll give you that.

    With that said, you’re now arguing that a two company duopoly somehow counts as a monopoly. That customers choosing between two fairly equal OS options isn’t good enough.

  3. nbplopes

    If it is not, It should be Illegal for any retailer to charge for anything they don't sell and or distribute! Any other reasoning over this worst than selling bottles of air!!!

    In particular, the App Store distributes and sells, software applications world wide in iOS. It's a app retail service. I does not sell Or distribute digital music, not digital video, noR digital books, not anything else but apps! It's an amazing store, but that is what it actually does. That is the service they provide in this context, nothing more!

    What Apple is doing is very very abnormal. The equivalent would be for any iPhone device seller and or distributor to then charge 30% for any digital goods sold through that device. This even though the actual thing they distributed and sold was the the device itself. Why stop in an iPhone? Do it with any computer device! This of course would be insane. In the end, an app is a digital device! Can you imagine any major retailer to do that regarding any Apple devices by Apple? Heck imagine any ISP doing that on top, as in the end they own the connection thorough which other companies digital apps and services go through! Yeah, imagine all ISPs doing that to Apple.

    It would be crazy. Abusive, and Apple should be penalised by such practice as an sofyware retailer ... right now!

    The Office 365 is not a good example. It's an App Bundle. These (Apps) are being distributed and sold through the App Store. The model being one of subscription or one of sell is irrelevant. The goods are apps! So yes, any app distributor should for Office 365 when sold on their stores.

    The requirement for the iOS to support multiple app stores is not of relevance to conclude that there is a Monopoly. Heck, being a monopoly or not its totally irrelevant. They charge the customer for things they don’t deliver or distribute, period. On top of this they require the producers not to sell anywhere else at a lower price that they do on their retail store. This includes the things that the store does not distribute or sell, but get a percentage out due to this abusive model.

    EDIT: It understandable they did this when they started to simplify the entire process. Very few have done that before, unknown territory. But they are a big boy, now, full of resources. The problem domain is well understood by now. Time to correct this ... and it is late already.

  4. skolvikings

    In reply to slerched:

    I would agree if the only smartphone option in town was Apple and iOS. However, you can get some really high quality Android phones which makes the point moot. The argument that it's a monopoly within the iOS ecosystem is sketchy since most all of the same apps and features are available on Android and the Google Play store.

  5. IanYates82

    In reply to slerched:

    And Apple then threatening to remove apps if they dare add 30% to the subscription fee to cover the Apple vig...

    Apple can't have it both ways. You can insert yourself in the payments and let the companies set the rate, or let them take payments.

    However this doesn't fix Spotify. Either they take 30% less revenue than Apple for the same service, or they have to have their fee increased and then can't compete

  6. skolvikings

    they are the reason that Amazon, another good example, does not allow customers of its Amazon shopping ...make any purchases on iOS or even see its full online stores

    Huh? I buy things from Amazon on my iPhone using the Amazon shopping app all the time. It's the main way I shop from Amazon. Are we talking about different apps?

  7. Saarek

    I'm not sure I fully understand the anger at the 30% fee.

    For a 30% cut the developer gets access to the most popular and profitable Application Store on the planet. It's secure, all payment fees and bandwidth is included within the price and every single Apple customer uses it.

    If you were to publish a game in the traditional manner there would be all kinds of middle men in the way taking their cut, from transportation to publishing through to the retail store itself and you can bet all those fees equal more than 30%.

    By comparison the App Store is an absolute bargain for developers.

    • Andi

      In reply to Saarek:

      No one is angry at the fee. Makes perfect sense to pay 30% of the app price. Even Google does it. The issue is another one. If you are Spotify, a content distributor with your own CDNs and payment services, why not make use of your own infrastructure and avoid Apple's. Google allows them that. Also this is not just a single 30% tax. Spotify is charged the same amount every month and only after a year drops to half but keeps taxing month after month in perpetuity. If Apple for example charged 30% the first month and 5% every consecutive month I assure you none of this would have happened. Not only that, Spotify would charge 10$(not 13$) and eat the loss on the first month and not even bother for their own payment service for 5% ever after.

      On legalities. In the US, when you are half the market, Apple, and control 70+% of the total app market revenues, again Apple, that counts as a dominant position. From that dominant position you introduce a competing service, Apple Music, and give yourself an unfair home platform advantage. If Apple was starting out that would be fine, not when you are the 600lbs gorilla.

      On principle. No one "discovers" Spotify on App Store. No one "discovers" Amazon prime, Netflix or cloud gaming services. From the perspective of a content distributor the iphone is equal to your computer or your TV and that is a "dumb pipe". To me is unreasonable for this "dumb pipe" alone to ask 30%. Between you and Spotify, Apple is a 3rd party not the other way around.

      • BrianEricFord

        In reply to Andi:

        I’d never say never but I’ll leave the assessments as to what counts as a monopoly when an an actual attorney with expertise in that area weighs in, and even then I’d probably wait to hear more opinions because I promise you there are conflicting legal arguments that can be made, here. Any layperson claiming to have a handle on it is lying or deluded.

        it is funny to me, though, when people complain about Apple getting things first or some company going exclusive with Apple because “most of the users are on Android and how can devs turn their back on the majority of the market” but as soon as Apple does something they don’t like, Apple suddenly has an unstoppable monopoly.

        At any rate, given that almost no one who argues that Apple is a monopoly ever gets the basic fundamentals of how Apple’s agreements work correct, their “apple is an illegal monopoly” arguments usually aren’t very persuasive.

  8. shameermulji

    "A vig, or vigorish, is a term used by illegal bookmakers to describe the percentage of the amount bet that they take as profit."

    In other circles, this is known as rent seeking

  9. sglewis

    One can argue whether 30% is excessive or fair, but certainly not that "Apple, for doing nothing, get $33.33". Microsoft does not make $100 selling Office 365 subscriptions in a retail Best Buy location either, nor when a subscription is sold via Amazon. They have created an ecosystem where people have the ability (and desire) to run Microsoft products, and a system that makes it easy to click and pay from within that ecosystem. 30% is probably high, to be fair, but 0% is incredible low, also to be fair.

    Amazon has thousands upon thousands of third party sellers, and trust me, if you spend $100 with them, they are not collecting $100. Yes, slightly different model, as there are fees to warehouse the products when they are shipping from Amazon, but they also let people sell things they ship from their own warehouses, and sell digital goods online, and trust me, there's still a "vig".

  10. Chris_Kez

    This is not the "first step back" from this 30 percent fee. Back in 2016 Apple changed the revenue split for subscription-based apps. After the first year, when the subscription renews, the fee is reduced to 15% going forward. Google updated their store with a similar policy in 2017.

  11. RobertJasiek

    If a contents creator creates contents for an in app purchase, Apple earns roughly the same as the contents creator and as the app programmer for doing roughly 1/1000 of the amount of work. Therefore, quite a few contents creators need to offer their contents elsewhere to earn roughly twice as much as they would under i(Pad)OS. Such contents does not find its way to exclusive users of Apple devices. For Amazon / Kindle, the situation is similar. An oligopoly.

    • lvthunder

      In reply to RobertJasiek:

      Since when is 30% half? Are you using common core math? I also think your 1/1000 is way off. Most of that money if you are a successful developer goes towards bandwidth to get your product to customers. Traditional retail is worse then Apple. They actually do take half.

  12. reformedctrlz

    Apple either needs to ease back on their store restrictions, allow third party app stores, and/or stop directly competing on services

  13. JacobTheDev

    While I agree that this 30% cut is too much, I don't think it's fair to say "Apple, for doing absolutely nothing..." -- they do provide the distribution network and payment processing for these apps. Granted, there's no viable way to do these things on iOS other than Apple's official methods, but still, there is infrastructure and cost associated with running those services.

    Additionally, by controlling the payment system entirely, Apple can more closely control apps on their platform. For example, if an app is trying to scam people in with in-app purchases, Apple could easily refund anyone affected, rather than having to tell customers "sorry, they used their own payment system, you're out of luck!"

    I'm not saying that Apple's policies are flawless, or even good, I just think you're oversimplifying this. There's certainly a lot of room for improvement, and this is a step in the right direction, but to say that Apple deserves nothing is just disingenuous. There's real cost in the process of reviewing apps, distributing apps, running payments, providing support, etc. and there are benefits to consumers too (protection from scams, easy of use, consistency).

    • Paul Thurrott

      Except that they don't have to. They required it. Amazon, Microsoft, all these other companies can and want to do that.
      • lvthunder

        In reply to paul-thurrott:

        By that logic Apple doesn't need to make a phone at all. Also using that logic Amazon, Microsoft, and all these other companies don't have to have an iOS app.

        Also, a lot of these companies update their app every two weeks. Do you even know how much that costs Apple to push out all those updates? Word and Excel are pretty big.

        • IanYates82

          In reply to lvthunder:

          It doesn't cost Apple $30/user/yr to handle maybe 12 office updates of 300MB each - even 26 of them following the fortnightly approach if you like. If it did then they wouldn't have such fantastic profits.

        • slerched

          In reply to lvthunder:

          The cost to deploy an update is irrelevant.

          Developers pay a fee to be part of the Apple Dev Program.

          I assume socialism is at play and Apple charges what they do to cover the costs of the things they do without forcing anyone to overpay and they know the costs of their business and distribution and pool that amongst the millions of developers on the service.

          What Paul is saying, and it is entirely the truth, is that Apple absolutely does NOT deserve money from SUBSCRIPTION fees UNLESS a user CHOOSES to use their payment processors. Subscription fees are in place so companies like Spotify and Netflix can pay their bills and their CDNs. NONE of the actual content Spotify or Netflix sends goes through Apple's servers - why would Apple REQUIRE devs to use their payment processor other than to cut into the competition?

          Apple has a right to in app purchases to protect users from nefarious crap and help pay for keeping the lights on. If they aren't part of content distribution outside of offering the app, which again, they charge developer fees on top of a percentage of an app or in app sale, then they don't really deserve anything or if they do, the argument for a low, super low, flat fee makes sense.

          Paul is not saying Apple shouldn't own in app purchases to protect from BS. He is saying that Apple doesn't deserve to take money from companies like Spotify or Netflix for bits/content that doesn't pass through their servers or services.

          • skolvikings

            In reply to slerched:

            I disagree almost entirely. While we can all have any opinion we want about Apple's policies and their 30% cut, they do not have a monopoly. 50% of the market does not equal a monopoly. Sorry Paul, it just doesn't. And honestly, the government should just stay out of this and let the free market decide. People can vote with their wallets.

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