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Apple halves commission on in-app purchases to 15% for small businesses

Apple has halved the commission it takes from for smaller app developers on its App Store to 15%, the company announced in a blog post on Wednesday. A small business that makes less than $1 million in revenue in a calendar year from all its apps will be eligible for the reduced commission structure.

The policy change is part of Apple’s “App Store Small Business Programme”, which will launch on January 1, 2021. “Developers can qualify for the programme and a reduced, 15 percent commission if they earned up to $1 million in proceeds during the previous calendar year.”

  • Hence, existing developers who made up to $1 million in 2020 from all their apps can qualify for the reduced commission.
  • If a developer surpasses the $1 million threshold, the standard commission rate of 30% would apply to them for the remainder of the year.
  • If a developer’s revenue drops below $1 million in a future calendar year can re-qualify for the scheme only in the year after.

Apple claims the programme will benefit a “vast majority” of developers who sell digital goods and services on the store. A detailed set of rules and requirements will be unveiled in early December, the company said.

What does this mean, and why now?

The development comes just months after its infamous, ongoing spat with Epic Games. Apple, along with Google, had kicked the video game Fortnite off their respective app stores for allowing players to purchase in-game items directly, thereby circumventing the mandated in-app purchase system. This allowed the game’s developer Epic Games to not pay either companies any cut on the purchases. Although, it should be noted that Apple’s new programme will not really help companies like Epic Games, which are not small businesses.

Apple has many more critics, who have dubbed the 30% commission the “App Tax”. Several companies such as Spotify, Basecamp and even Epic Games have banded to form the Coalition for App Fairness. The group has claimed that the “app tax cuts deeply into consumer purchasing power and stifles developer revenue.”

That Apple doesn’t allow its users to download and sideload apps on its devices — something Android users can do — only bolsters these critics’ arguments. They argue that either a developer can choose to go with Apple’s commission rate, or disagree and be entirely absent from the Apple ecosystem, which is against companies’ business interests.

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It is also significant that Apple has always been against reducing the commission, and is a volte-face of a position it took as recently as last month. The company told in an annual filing with the US Securities Exchange Commission (SEC) that reducing the commission would affect its financial condition “adversely”. “If the rate of the commission that the Company retains on such sales is reduced, or if it is otherwise narrowed in scope or eliminated, the Company’s financial condition and operating results could be materially adversely affected.”

Google faces similar criticism in India:  Google, which operates Play store, the dominant app market in India, is currently facing pushback from Indian companies for the very same reason as Apple does. The company recently said that it will enforce a 30% cut system on all in-app purchases from September 30, 2021. Upset with this development, several Indian startups banded together and presented their grievances to the Ministry of Electronics and Information Technology (MEITY). They complained of Google’s dominance in India, focusing on the 30% commission. Soon enough, Google deferred the enforcement to March 2022.

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