Apple – Another R(h)ino

Another reprieve-in-name-only.

• Apple has given some more ground on its hotly-contested App Store fees, but this move is an attempt to split its opposition and save some face while ensuring that the flow of cream remains virtually uninterrupted.
• Apple has announced a cut in its revenue share from 30% to 15% for any developer making less than $1m per year in what it claims is to help small businesses prosper on the app store.
• At a high level, this appears a move to help smaller developers, but the reality is that this move is designed to benefit Apple far more than anyone else.
• This is for several reasons:
  • First, App economy: Data from sensor tower reveals that the revenue generation on the app store is massively skewed towards the larger developers.
  • While 98% of all developers on the App Store will benefit from the new rate cut, they account for less than 5% of all the revenues generated.
  • This means that 95% of all revenues generated will still attract the full 30% tax meaning that the maximum hit to Apple’s App Store revenue is a paltry 2.5%.
  • This amounts to a rounding error in Apple’s books meaning that the financial impact to Apple from this move is insignificant.
  • Second, partisans: Apple has pretty much the entire developer base aligned against it as no one is going to say no to a tax cut.
  • Hence, smaller developers have had very little to lose by adding their many voices to the debate over app store fees.
  • This cut by Apple is an attempt to take a large number of voices out of the fight at virtually zero cost.
  • This is why Epic Games (the epicentre of this struggle) and Basecamp were acerbic in their response to this move.
  • Third, consumers: Consumers get virtually no benefit from this move.
  • As almost all the spending is made with larger developers and their prices will be staying higher to cover the “Apple tax” meaning no relief for the vast majority of users.
• The net result is that this makes a good headline for Apple to tout its own good corporate citizenship, but the reality is quite different.
• I suspect the real aim is to split its opposition through buying off 98% of its opponents while hardly costing it anything.
• In that regard, this is a very clever move which will make the grassroots movement led by Epic Games & Co. harder to sustain.
• However, it does represent another chink in the armour of the previously bullet-proof 70/30 split that has ruled the app industry for 12 years.
• I still think that eventually, Apple is going to have to cave-in and cut the fees because this would be a very good way to head off potential draconian regulation that could do it far more damage.
• Both sides of the aisle seem to be keen on increasing regulation on big tech meaning that whoever is in charge this remains a very real risk long-term.
• Apple is a great company but there is still too much built into the valuation meaning that I continue to have no interest in taking a position in it.