Don Jones®

Tech | Career | Musings

There’ve recently been a couple of lawsuits against Apple for the App Store policies, specifically their 30% cut of all sales (which lowers after one year for subscriptions). I’m curious as to your thoughts on the matter, but wanted to lay out some of my own first.

First, let’s please not make this a Google vs. Apple fight; I’ll delete comments along those lines. I just want to look at Apple for what it is. If you hate Apple, cool, go in peace.

A 30% cut of profits is not unusual in, say, the book business. Amazon’s agency model, available for books priced under $14.99 I believe, is a 70/30 split. Otherwise, Amazon takes a whopping 55% discount off cover price as their wholesale, meaning the author and publisher get only 45%, not 70%.

It is easy to argue that the total dollars (and other currencies) brought in by that 30% far exceeds the cost of operating the App Store. No question. But, that 30% fee also has to fund other activities inside Apple, which do not in and of themselves generate revenue to cover their costs. All the Software Development Kits (SKDs) Apple has to produce in order to enable developers, for example. Location Services, UIKit, MapKit, StoreKit, ARKit, HealthKit, and every other damn Kit sit inside every application devs write, and those developers’ apps wouldn’t be nearly as compelling without all that underlying support. Apple doesn’t necessarily have to do all that work for their own bundled apps; the code you write to enable your own stuff doesn’t have to be as clean, documented, or idiot-proof as the code you open up to other people.

Apple eats the payment processing, returns management, card dispute, and other payment-related aspects of the App Store. We can reasonably assume that those consist of very roughly 3% of each transaction, since that’s very roughly what companies like Square or PayPal charge to do the same tasks. So on a $5 app, processing might be as much as $0.30. In fact, you kind of get killed on the smaller per-transaction amounts, because card companies usually charge a percentage plus a fixed per-transaction fee. I’m sure Apple’s negotiated those down based on their enormous volume, but it’s still a thing. So if Apple’s 30% of a $5 transaction is $1.50, and $0.30 of that was processing fees, then 20% of Apple’s take is processing fees.

Unlike PayPal or Square, Apple also manages the entire software distribution system for you. Anyone in IT Operations knows that software distribution on a global scale is an enormous, delicate PITA, yet Apple manages it fairly adroitly almost all the time. A developer who wanted to do that on their own to sell a $5 app would, I feel, spend a lot more than $1.50 per sale maintaining their distribution network. Remember, the developer only writes the app once. If it sells 1,000 copies, they’d be keeping $3,500. But Apple has to distribute that app 1,000 times, and potentially more when you think about re-installs, family-shared purchases, updates, and so on. To produce a single version of a single app is a one-time effort for the developer, but it’s an ongoing expense for Apple.

IT Operations people know how expensive cloud infrastructure is. I don’t know precisely how many data centers Apple maintains, or who they might buy compute, network, and storage from other than themselves, but maintaining a network capable of selling and distributing literally billions of app sales across an entire planet is nontrivial.

I’d fully accept the argument that, in their current position, Apple is the gatekeeper for one of the best-selling device ecosystems on the market. Apple’s decision to stop reporting iPhone unit sales comes largely from the fact that a huge percentage of adult human beings already own one, which tends to slow your device sales growth. So it’s a huge market, and they’re the only way in. I can comprehend the argument for allowing users to choose “alternative” app stores, and perhaps creating some competition. Maybe Digital River wants to set up an App Store where they charge only 20%, right?

But I also comprehend Apple’s reticence, setting aside the legal issue of antitrust and monopolistic practices. Apple may not be the best App Store curator, but the Android world suggests that they’re one of the better ones. Apple commands a high price for their products largely through cultivated consumer perception; start allowing crap all over a phone and consumers will start perceiving the phone as crap. You cannot explain to my Mother than the reason her phone is all junked up is because she signed up for that “other App Store.” She will have no clue what I’m talking about. And Apple knows that.

Anyway – those’er my thoughts. What’re yours?

Categories: Tech

One thought on “Your Thoughts? The Apple App Store Lawsuits

  1. Qasim says:

    Spot on, they built the platform, the infrastructure, the APIs, and built the market, the premium they charge is reasonable. The fact that they sell products and services in the ecosystem they built which compete with their customers is immaterial. They are not blocking anyone from the market and implement a consistent fee structure that is not punitive to competing services.

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