After 15 years of dictating how iPhone apps are distributed, Apple has been forced to take marching orders from European regulators. A new law to boost tech competition requires Apple to open up its devices to competing app stores and payment alternatives.
But app makers say Apple’s response to the law, which is meant to give consumers and developers more choice, is a wrong choice. In the plan, they argue, there are new fees and rules that make it prohibitively expensive and dangerous to make the changes the law was intended to bring about.
The backlash is the latest chapter in a long-running battle between Apple and app makers. Apple says it needs to keep a tight grip on the App Store to ensure quality and security, while many developers say the company is ruling with an iron fist and abusing its power to pressure them for fees and stifle competition on its own services such as Apple Music and Apple Pay.
European regulators largely sided with developers in writing the Digital Markets Act, a 2022 law that requires Apple to provide app makers with alternatives to sell to iPhone and iPad users. In response to the March deadline for compliance, Apple told developers last week that they essentially had three options in the European Union, home to about 450 million people.
They could stick with the status quo App Store system and continue to pay Apple up to a 30 percent commission on all sales. Alternatively, they could drop their commission to 17 percent, while incurring a new 50-cent fee on every download over a million a year. Or they could avoid Apple’s commission by distributing through a competing app store, while paying Apple’s download fee.
After doing the math, many developers said Apple offered a worse alternative. Several pointed out that a maker of a free app with 10 million downloads a year that chose to distribute through a competing app store would owe Apple about $400,000 a month because of the new 50-minute fee, according to a fee calculator that Apple released. This essentially guaranteed that they would stick to the existing App Store model, where they could distribute for free, rather than sell through alternative marketplaces.
Spotify, the music streaming app that filed a complaint against Apple in Europe, said it may abandon plans to add credit card payments for audiobooks and subscriptions because of the fees.
Epic Games, the maker of Fortnite, which sued Apple in 2020, said it had significant questions about its plans to launch a new game store because Apple’s plan would give it the power to review and approve competitively app stores. And Hey.com, an email and calendar service, said the proposal had upended its plan to distribute software directly to users, something Apple does not make possible.
“This cannot be what the European Commission meant because it does not change the fundamental dynamics,” said David Heinemeier Hansson, one of the founders of Hey.com. “Apple has made the provisions so poisonous and the bar so high that it’s clear no one should ever use it.”
Growing criticism will test how aggressively the European Union will enforce its new landmark digital policy. Executives at dozens of app companies have already called on EU regulators to reject Apple’s proposal.
Apple said the policies were in line with EU law, limiting potential risks to users. “Apple’s focus remains on creating the most secure system in accordance with DMA requirements,” the company said in a statement.
Andreas Schwab, a member of the European Parliament who helped write the digital markets law, said the Commission would have to weigh Apple’s proposal after March 7, when the rules come into force. If the European Commission launches a formal investigation, it could set up a lengthy legal battle between EU regulators and one of the world’s biggest tech companies.
“It’s all about the money,” Mr. Schwab said. “Those who complain would like to make more money, and Apple wants to make money with its own App Store.”
The backlash comes at an important time for Apple. The US Justice Department is considering antitrust charges against Apple over anti-competitive business practices, a case that could force the company to make more policy changes. Apple is also facing a slowdown in iPhone, iPad and Mac sales. Wall Street analysts believe that trend will continue when Apple reports quarterly results on Thursday for the three months ended in December. This week, the company is also releasing its first new product in nearly a decade, an augmented reality device called the Vision Pro.
The Digital Markets Act aims to create more competition in a digital economy dominated by the biggest tech companies. These big platforms, which include Amazon, Apple, Google, Meta, Microsoft and TikTok owner ByteDance, will now face new limits in using their dominance in a field like smartphones, social media networking or e-commerce to attract users and undercut rival services.
A spokesman for the European Commission, the executive arm of the 27-nation bloc, said it would not comment on Apple’s policy changes before the March deadline. He noted, however, that Apple and other major tech platforms were asked to review the changes they planned to make to comply with the DMA with the businesses most likely to be affected, to ensure the changes did not create new anti-competitive problems.
Apple said it had spoken with several developers before releasing its plan, but Apple did not extend its outreach to some of its fiercest critics, such as the Coalition for App Fairness, a Washington trade group that has nearly 80 members including Spotify and Match Group, the maker of Tinder.
“If they were serious about complying with the law, they would have done it and tried to get people on their side about their announcement,” said Rick VanMeter, executive director of the Coalition for App Fairness.
Apple said it contacted more than 1,000 developers after the new policy was released last week and will hold sessions to answer their questions. The company said 99 percent of developers in the European Union would “reduce or maintain” the fees they were owed and pointed to support from the likes of Justin Kan, one of the founders of video game streaming service Twitch. “Apple is making big concessions and game developers have more freedom now than ever before,” he said X.
Others disagreed. Andy Yen, chief executive of Proton, a Swiss company that provides encrypted email and internet services, said Apple was offering a false alternative to the existing App Store fee structure. He said the new option is so cost-prohibitive, especially the 50-cent technology fee, that “nobody in their right mind is going to choose it.”
Mr Yen said the switch would cost Proton millions of dollars, partly because many of its users use its free services. While it wants to test alternative app stores and payment methods, the company would have no choice but to stick with Apple’s current terms, he said.
Apple’s new system could upend the business models of many developers. More than 260,000 apps use a so-called freemium model where users pay nothing to download an app but have options to buy premium features, according to Data.ai, an app economics research firm.
Because only a fraction of subscribers pay for content or goods, developers say they couldn’t afford to pay a 50-cent fee for each download.
Apple also included terms in its new policy that prevent developers from reversing their decisions. Once a company like Spotify or Proton decides to switch to Apple’s new fee structure, there is no going back.
“It’s designed so that choosing the new system is a huge risk for your business,” Mr Yen said. “It’s a huge deterrent.”
