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By Stephanie Stamm and Sarah E. Needleman
A number of companies, including Facebook Inc., Spotify Technology SA, and “Fortnite” maker Epic Games Inc., are challenging the way Apple Inc. manages its App Store.
The App Store generates at least $ 15 billion in annual sales for the tech giant, according to analyst estimates. Critics say that Apple takes too large a share of app maker sales and exercises monopoly power over the gateway that connects hundreds of millions of users to mobile apps.
Apple disputes that characterization, saying that it only collects a portion of sales from a small percentage of the nearly 2 million apps available on the App Store and that its practices are in line with competing app markets. Here’s an overview of recent challenges to the App Store model and what they mean for consumers and the business.
Tariff skirmishes
Apple cuts sales of paid applications and digital products sold within applications by 30%. Numerous companies have complained that the fee is excessive and are pressuring Apple to allow alternative payment systems to process digital transactions. Apple’s fee is in line with those charged at Google’s Google Play store and Samsung Electronics Co.’s Samsung Galaxy store. Apple said the fee helps cover overhead costs such as security and privacy.
Last month, Epic Games tried to circumvent Apple’s commission by adding its own payment system to the version of “Fortnite” that is played on iPhones and iPads. Apple quickly removed the survival shooter game from the App Store, saying Epic violated its rules. The two companies are now suing each other over the matter, with Epic claiming that “Fortnite” should be able to return to the App Store with its payment system intact and Apple saying that Epic should be restricted from engaging in what it calls unfair business practices. .
A judge ruled last month that Apple can keep “Fortnite” out of the App Store for now, but the company cannot block Epic’s access to developer tools used to update software. A court hearing in the case is scheduled for Monday. A trial is likely to take place next year.
Who pays
Apple’s 30% commission on digital goods and services means that a customer’s payments to Epic for “Fortnite” weapons are subject to the fee, but Starbucks Corp.’s mobile app coffee purchases are not. For subscriptions purchased through the App Store, Apple’s cut drops to 15% after the first year. Apple also charges an annual fee to developers who submit software for distribution through the App Store, with exceptions for nonprofits and government entities.
To circumvent Apple’s cut, Netflix Inc., Spotify, and other companies have switched to selling subscriptions and downloads through their websites instead of their apps. Apple prohibits companies from mentioning in their applications where consumers can subscribe, and does not allow companies to say that they are offering higher prices on the purchase of applications to offset Apple’s fee.
Companies that switched from selling real-world products to digital products amid the pandemic, such as Airbnb Inc., which now sells virtual experiences to travelers, such as cooking classes, have complained that Apple wanted a piece of those sales. .
Competition
Some app developers say Apple limits competition and ranks its own products ahead of rivals’ products in App Store search results. Spotify filed an antitrust lawsuit in Europe last year alleging that Apple, whose Apple Music service competes with Spotify, made it difficult for rival services to promote themselves on the App Store.
The music streaming company this month accused Apple in public statements of unfairly harming competitors after the tech giant introduced a new package that gives users access to multiple Apple services, including Music, at a discounted price. . A Spotify spokeswoman said the company is concerned that Apple is using its market power and the app market to leverage its own products.
Apple defended its new package, saying it would recommend a plan to customers “that will save you the most money based on the subscriptions you already have.”
Microsoft Corp., Facebook, Match Group Inc., owner of Tinder, and Audiobooks.com have also publicly complained about Apple’s practices or described the company as a monopolist. Apple has repeatedly said that it does not give any advantage to its own products.
Congress, the Justice Department, the European Union and the Federal Trade Commission are investigating Apple and other tech companies on antitrust grounds. The US Supreme Court ruled last year that consumers can sue Apple for forcing them to buy apps exclusively from the tech giant. The ruling did not address plaintiffs’ claims that the apps would be cheaper if software developers could sell them outright and bypass Apple. A lawsuit filed last year by developers over the practices of the App Store is ongoing in federal court in California.
Does anyone win against Apple?
It helps to be a big name when you take on one of the biggest companies in the world. In 2015, Taylor Swift complained that three-month trial subscriptions to Apple Music meant that artists were not paid when users streamed their music through the service. Apple then changed the policy and pays artists for music streamed through trial memberships.
Amazon.com Inc. successfully rejected the App Store commission, in 2016 it reached an agreement establishing a 15% commission on Amazon Prime Video subscription sales and not the 30% fee that all other apps owe. pay the first year. digital subscription sales. In April, Amazon began using its own payment system to fulfill Prime Video purchases through its app with Apple’s blessing. Apple has said it is because Amazon is in a program for “premium subscription video entertainment providers,” which allows members to use the payment method tied to customers’ existing video subscriptions.
In August, a trade body representing the New York Times, the Washington Post, The Wall Street Journal and other publishers said the media wants better terms of treatment from Apple on its digital subscription sales.
Apple said Friday that it is cutting its commission on some paid events and experiences sold through mobile apps until the end of 2020. A company spokesperson said the move is an acknowledgment that some companies have had to switch to online experiences. when the pandemic stopped many at -reunions and events of people.
Apple’s next moves
Apple has faced many disputes since its inception in a Los Altos, California garage 44 years ago, and it rarely gives ground to its opponents. But where adversaries in years past have complained about things like Apple’s iTunes music service and e-book prices, today’s businesses are pointing to a revenue stream that CEO Tim Cook has put at heart. of the future of the tech giant. Some software developers formed a non-profit organization to push for changes in the application markets. It’s unclear whether court decisions or regulators will prompt Apple to adjust its rules, or whether the company will try to hold its own against the pushback.
Write to Stephanie Stamm at [email protected] and Sarah E. Needleman at [email protected]
(END) Dow Jones Newswires
September 26, 2020 10:31 ET (14:31 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
