Apple Plans To Cut Down its App Store Commissions for Small Developers

Apple on Wednesday announced it is starting a program to cut down its App Store commissions for software developers who make $1 million or less in proceeds each year from the store.

According to its policy, the company takes a 30% cut of most purchases made on the App Store, although the commission drops to 15% for subscriptions that remain active for more than a year.

According to Reuters, Apple said developers will automatically get the lower 15% rate if they generate $1 million or less in proceeds – defined as the portion of store purchases that the developer keeps – in a calendar year.

Apple’s App Store fees and rules have come under fire from large firms such as Microsoft Corp MSFT.O, Spotify Technology SA SPOT.N, Match Group Inc MTCH.O, and Epic Games as well as startups and smaller companies that allege the fees deprive consumers of choices and push up the price of apps.

 Epic Games Chief Executive Officer Tim Sweeney said, “This would be something to celebrate were it not a calculated move by Apple to divide app creators and preserve their monopoly on stores and payments, again breaking the promise of treating all developers equally.”

In response to its critics, Apple stated that the rules apply equally to developers and that the App Store makes it easy to reach its massive team of users without the need to set up payment systems in the 175 countries where it operates.

The gesture will affect a broad swath of developers, but it was unclear how big the financial impact would be for Apple.

Raj Moody, Apple’s senior credit officer surmises that lower commissions will impact less than 1% of Apple’s revenue and operating profit and it will benefit from the goodwill from thousands of small developers.

Moody said, “Apple’s announcement that it cuts its commissions in half for software developers earning less than $1 million annually from its App Store is credit positive.”

Analytics firm Sensor Tower said 97.5% of iOS developers generated less than $1 million per year in gross consumer spending. But those same developers contributed only 4.9% of the App Store’s 2019 revenue.

The App Association, a group sponsored by Apple, said in a statement the “reduced commission for small businesses will allow them to put additional resources towards scaling up and innovating new products and services.”

Match Group said Apple’s rules still forced developers to use its payment system even when Apple competes against those developers.

The company said, “And if you manage to grow your revenue over $1 million, they then double their cut – arbitrarily – making it even harder for the startup to continue to grow.”

Spotify  said it hopes “regulators will ignore Apple’s ‘window dressing’ and act with urgency to protect consumer choice, ensure fair competition, and create a level playing field for all.”

Apple said the new program will kick off on Jan. 1 and it will give more information on the developers that qualify in December.