Untangling the Apple App Store ruling at what it means to small businesses
The law can’t force lower rates – for now – but defends merchant rights to transact how they want
Most of us don’t think think too much about what happens after we pay for a game, e-book or an app through the Apple store or on Google Play. We get our product, the merchant gets our money, and we don’t pay it any mind again until our credit card statement comes in. But the tech companies and the merchants they serve think about it a lot. Here’s what happening as developers take the fight for more financial freedom to court.
How the update will affect you as an advertiser.
Apple and its peers have traditionally charged their merchants a 30% commission on app sales charged through their stores, and ergo through their own payment processors. The 30/70 split, while it had never been written in stone, was the standard as defined by the tech corporations. Last month, a federal judge ruling on case argued by Epic Games (developers of the wildly popular game Fortnite, among many others) forced Apple’s hand to allow their vendors the option to steer clients towards other methods of payment.
What it means
This substantially impacts Apple’s historic clout in terms of taking their piece of the video game market pie, valued annually at approximately 100 billion dollars. Whereas the judge stopped short of forcing the company to reduce its 30% rate altogether, stating that an enterprise has the right to charge whatever it wishes for its services. Apple can no longer stop developers from processing their business elsewhere for a lower, more profitable rate. While the smart phone giants have given some wiggle room in the last two years, notably dropping their rate to 15% for businesses taking in less than $1 000 000 in sales annually, they have continued to insist on a 30% rate for merchants signing up for their first year on a 12-month subscription basis.
How it touches SMBs
While big developers are understandably ready to take on Apple’s lawyers in the name of their own bottom line, the incentive for the little guy is virtually non-existent. Mom-and-pop app developers in the startup sector are faced with a tough decision: is the visibility potentially afforded by Apple worth the cost of doing business for developers who aren’t even sure if they can break $100 000 in sales, let alone a cool million? Handing over 15K is a painful prospect for any small business, let alone one that’s banking on limited resources for potential research and development, should their product be met with even a minimum amount of success. Google Play, meanwhile, in their effort to get ahead of negative fallout in the press, announced this week that not only will it lower its service fees from 30% to 15% for subscribers starting on day one, but that for apps reselling content such as music or e-books, Google’s cut will drop to 10%.
Both companies are under regulatory scrutiny and smaller businesses become savvier with their own marketing and processing intel, safe to say the fight is far from over. However, the ruling opens the door to competitive bidding for smaller businesses, particularly for processors designed to handle larger volumes of smaller ticket digital products. Which translates, at least potentially, to a big break for the little guy on the verge of discovery.