Apple's fighting for the golden goose

Apple's App Store is the company’s golden goose. It has made billions of dollars for Apple since 2008. When it opened its doors to developers and customers there were 500 applications. Today it has close to 2 million apps and games.

That massive growth has happened despite Apple’s very strict process for allowing apps into the store. You have to establish an identity for your company, create accounts for all the developers and digitally sign the code. Next, your application has to go through a stringent approval process.

It is a big part of Apple’s brand promise. In return for enforcing quality, security, privacy and access to a billing system, Apple takes 30% of every dollar the developer has received for the app itself or for any purchases made within the app.

At the beginning, there were not many apps. That was because there just were not that many iPhones. The popularity of iPhones grew and the money floating through the App store grew to billions. However, unhappy developers started complaining. They argued two things, for the most part:

• 30% is too much
• Apple has an unfair monopoly

Developers on several occasions have tried to bypass the Apple App store - the term used for that is 'jailbreaking.’ This was met quickly with strong counter measures from Apple. Some of the countermeasures resulted in 'bricking' the phones.

There were naturally some who were jealous of Apple’s multi-billion dollar cash cow. Others wanted a slice of that pie and were looking to lower the fees. Some, like Spotify, Netflix or Airbnb, complained.

One company took more direct action. Epic Games started suing Apple for monopolistic behaviour. As a result, Epic Games’ popular game Fortnite was removed from the App store.

However, Apple knew that the writing was on the wall and proactively wanted to show how much it was listening to the criticism. Apple lowered the fees from 30% to 15% for any developer making less than $1 million dollars.

Around the same time, the European Union enacted the Digital Markets Act(DMA) to minimize the influence of 'gatekeepers' in eight sectors labeled Core Platform Services (CPS). The CPS are listed as follows:

• online search engines (e.g. Google Search);
• online intermediation services (e.g. Google Play Store, Apple's App Store);
• social networks (e.g. Facebook);
• video sharing platforms (e.g. YouTube);
• communication platforms (e.g. WhatsApp, Gmail);
• advertising services (e.g. Google Ads);
• operating systems (e.g. Android, iOS);
• cloud services (e.g. Amazon Web Services).

As a side note, Microsoft, the company which just recently broke the $3 trillion cap mark, didn't qualify with its search engine and browser - ouch.

Next, Apple went on full scale charming offensive to explain the value of its App Store and the justification of all the fees. The press release 'App Store developers generated $1.1 trillion in total billings and sales in the App Store ecosystem in 2022' goes into the completely nebulous details obfuscating how much money Apple actually makes from the App Store.

Now that the DMA is in place, Apple has reluctantly adjusted to the changed circumstances. It had to make changes to the iPhone operating system (iOS), Safari browser and the App Store. The developers can now choose which part of the ecosystem of the App Store they want to use. Apple also provided a calculator to let developers see how much more or less money they can make.

What will happen next? All the companies with a large footprint on the App Store (that is, mainly gaming companies) will build their own store. They will try to lure other developers with lower fees to move to their stores. You can bet that Apple will make it as difficult as possible for them to succeed.

One of the arguments from Apple was that the App Store was the guarantee of the highest level of security. Apple, rightly so, pointed at Google which allowed applications for the Android phones to be downloaded from other places outside of the Google App Store. The occurrences of malware, viruses or security breaches are significantly higher there. The first time something like this happens with an application downloaded from a store other than the Apple App Store, Apple will say 'You see, we told you so' and will launch a large scale PR campaign.

Epic Games is not going to be able to deliver on giving developers more options and opportunities to make more money with less fees. That is an illusion. The idea that Epic Games will provide a great benefit (in choice and lower costs) to others won’t work because they’re a game company, not an app store for others. The complexity of building this thing will soon become a major distraction for them.

Epic Games is trying to create a new pattern, to disrupt the current pattern of Apple’s dominance. It’s highly unlikely that will happen.