In the European Union, Apple is finally letting third-party app shops work with the iPhone. This could be the start of a new era for its app ecosystem that is busy, hard to manage, and full of different kinds of apps. At least, it might, based on how developers deal with a €0.50 fee that is both small and big of a problem.
Apple is changing the way apps that want to work on these third-party shops are charged. So far, so good: if an app is sold through a third-party shop, Apple doesn’t get a cut of the sales. This means that if a developer still wants to sell their app on Apple’s App Store, they will only have to pay 17% instead of the usual 30%. The fee for qualified “small business” apps is now only 10%, down from 15%. This is a much better deal so far.
Apple will hate this new tax :
The real warning won’t show up until apps are widely used. If an app gets more than a million installs a year, it has to pay Apple 50 euros, which is about 54 cents USD, for each new download after the first million. This fee is charged once a year for each user. Crucially, app updates count as downloads, too. Since no major app goes more than a year without an update, that essentially means any sufficiently popular app is going to be indefinitely paying Apple 50 euro cents per user per year, above that initial 1 million. It’s not just apps, either. Third-party app shops must also pay Apple 50 euro cents per user per year, and they do not receive the 1 million install grace that apps do.
This all makes for a possibly expensive proposition. Developers can play it safe, staying inside Apple’s App Store and sticking with the old 30 percent cut and no installation fee if they choose. Or they can free themselves from Apple’s steep revenue cut and restrictive App Store rules, but they must pay a heavy fee ahead in exchange.
Here’s some extremely back-of-the-napkin math: Facebook has 408 million monthly users in Europe across all devices — web, Android, iOS, etc. iPhones make up about one-third of the cell phone market in Europe. If one-third of those Facebook users have the iPhone app installed, Meta would be paying Apple €67.5 million (around $73.4 million) per year, just for Facebook. And there’d be another fee for WhatsApp, another for Instagram, another for Messenger, and so on. That number is also just for current users. Meta would also have to pay for people who installed the app years ago and never open it up but still get automatic changes.
For a big company, the price could be worth it. Spotify has been waiting to get out from under the thumb of Apple’s 30 percent cut for years and, as such, has offered no way to subscribe in its iOS app or make in-app purchases of goods like audiobooks. If Spotify were to convert a free user to a paying one via a third-party store with no income sharing, it would more than make up that 50 euro cents each year. But it’s a gamble: a lot of people still won’t pay a dime, and Spotify will have to pay for them anyway. The company will need to size up whether tens of millions of dollars in download fees can be offset by the gains it would make from new subscriptions and sales.
The fee is also particularly tough on smaller apps. An app that’s gone popular can easily surpass 1 million installs, and since a great many apps don’t charge users upfront (or ever), they could quickly burn a lot of cash. That could be a devastating situation for short explosive social apps like Clubhouse or BeReal. They would have paid millions for their skyrocketing fame — and then continue to pay millions as they sit on people’s phones unused.
There are two more complications in all of this: a company has to start a third-party app store, and developers then have to migrate their users over to that store. And Apple does not make it easy for apps to shift users from one shop to another. A user must first run the new app store, then uninstall the old version of the app that was downloaded through Apple’s App Store, and finally, reinstall the app through the new app store.
Developers that care enough to escape Apple’s fees will have to find a way to compel users to put in this work. If the only way to download the Amazon app is through the Amazon Appstore (currently Android only), then users will eventually find their way to Amazon’s website and figure it out — Amazon is a big enough draw to make it worth the time. But if Amazon stays available through Apple’s store, too, it’s hard to imagine that anyone would bother.
Apple’s fee might stop competition from emerging altogether. Amazon currently gives no cut to Apple for purchases through its app because it only offers physical goods. Opening an app store would mean subjecting itself to tens of millions of dollars in fees, with only the imagined success of its new store on the other side. It should be no surprise that the first big app store news comes from Epic, a company with its biggest title — Fortnite — missing altogether from Apple’s App Store. That means no entrenched install base to move.
Critics of Apple’s practices have already started complaining about the 50 euro cent fee. Epic CEO Tim Sweeney indirectly referred to them as “junk fees.” Spotify CEO Daniel Ek seemed to be teasing out whether it was worth dealing with the new scheme in a post on X (formerly Twitter). “Imagine you have an active base of hundred million users,” he asked, leaving the results of the thought experiment hanging.
Hey and Basecamp exec David Heinemeier Hansson called the fee as “clearly one of the poison pills” in Apple’s plan. But he thought for a company at Spotify’s size, it would be worth it. “It’s still far more advantageous than the insane 30% cut,” he wrote.
Apple’s justification for this 50 euro cent fee is that the company spends a lot of time and effort building developer tools to make all of this possible, and those big apps are the ones that make the most use of its tools. In an earlier age of technology — with Windows and macOS — platform operators gave these tools for free because they recognized that it was third-party developers and their apps that made their platforms worth using. Today, Apple seems to have understood something else: that developers need its platform more than it needs any one developer. And so, even with the Digital Markets Act (DMA) cracking Apple’s platform open, we’re still stuck in a world of fees that feed back to Apple.
The conversation isn’t necessarily over. The European Commission will review Apple’s new rules once enforcement of the DMA goes into effect in March. If authorities feel that something in Apple’s plan violates the law, they could push back. This fee already seems to be among the bigger problems that critics will point to.
Still, this is the structure that Apple is giving for now, and the possibilities for iOS developers and the ecosystem at large are huge. But first, one of them has to make the jump — and push through Apple’s multimillion cent fee system in the process.