Apple may lower its Apple Store commission rate to say competitive, Bloomberg’s Mark Gurman says in his latest “Power On” newsletter.
Apple makes roughly US$20 billion annually (its estimated slice of the $100 billion generated) from the App Store. However, Gurman says that the business model has changed drastically. Paid app downloads now make up a small fraction of the money. Around 99% of the App Store’s revenue comes from in-app purchases, with the majority of that coming from games.
“With billions of dollars at stake, increasingly powerful developers, new competing platforms, wider availability of Apple products and the market power of the iPhone, the idea of taking such a large slice of revenue is — to many developers, regulators and industry watchers — both outdated and unreasonable,” Gurman notes.
That’s why a number of companies and developers have fought Apple hard to change its App Store business model. The most prominent example is Epic Games Inc., the maker of Fortnite, which recently persuaded a judge to force a major shift in Apple’s approach. Apps in the US can now direct users to the web to complete purchases, bypassing the in-app payment system.
The tech giant needs to make some changes to say competition . Gurman says that Apple has two decent options:
° Double down on privacy and security, to encourage developers to stick around;
° Change its commission rate
In regards to changing the commission rate, Gurman adds that he expects Apple will “need to do” it before too long. From his report: To stay competitive, Apple will need to double down on its strengths: ease of use, privacy and security. But the biggest lever it can pull is changing its commission rate, something I expect it will need to do before too long. A cut of 15% to 30% is simply too high when platforms like Stripe, Square and PayPal charge around 3% (Apple’s slice covers more than just payment processing but the other features, in many cases, aren’t worth the additional 12 to 27%).
For now, the App Store will continue to operate as usual. But within a year, the tightly controlled ecosystem that Apple built may look very different — and the company will have to evolve alongside the industry it helped create.
This info from Gurman is from the free edition of “Power On”. If you like it, consider subscribing to Bloomberg.com—you’ll receive the newsletter earlier and get exclusive access to a Q&A section.
