The Epic v. Apple could seriously dent Apple’s $ 19 billion App Store business

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The App Store may never be the same again.

Today’s ruling by Judge Yvonne Gonzalez Rogers in the Epic v. Apple requires Apple to allow all developers to point directly to other payment systems, in addition to Apple’s in-app purchase (IAP) system. It’s a decision that cuts straight to the heart of the roughly $ 19 billion a year the App Store brings to Apple, because at the end of the day, the App Store earns most of its money from in-app purchases to internal free-to-download games.

It’s not a total sledgehammer in the heart of the walled apple garden; the ruling still keeps the App Store as the only place users can go to buy or download new apps and doesn’t challenge Apple’s 30% cut on those purchases. And the ruling only has a technical impact on U.S.-based companies for now, which according to Bloomberg only account for about $ 6.3 billion (or about a third) of Apple’s App Store global revenue.

But for businesses that create free apps with in-app purchases, subscription apps, and pretty much any kind of app or service that doesn’t require a prepayment to purchase the app itself, it’s a whole new game.

The App Store is an extraordinarily heavy undertaking

An often overlooked fact about the App Store is that it is an extraordinarily heavy undertaking. It would take just a few developers to make a huge impact on Apple’s business of around $ 19 billion annually.

SensorTower reports cited by the New York Times in 2020 stated that over 95% of total App Store revenue comes from the top 2% of developers, with the remaining 98% of developers earning less than $ 1 million annually ( which, in turn, qualifies them for reduced rates through the Apple App Store’s Small Business program).

And, as the injunction reveals, the vast majority of App Store bills come from games. Games account for approximately 70% of the entire App Store revenue and 98% of in-app purchase revenue. The App Store is a game store, and more specifically, it’s a game store for huge free games that make almost all of their money from in-app items.

The App Store is a game store; 98 percent of all IAPs are games

A quick glance at the lists of the most profitable apps on the App Store seems to confirm these numbers: almost every single game on the list is a free app that relies solely on in-app purchases to make money (with the exception of Minecraft, which is a paid app with in-app purchases).

An excerpt from Judge Yvonne Gonzalez Rogers’ ruling detailing the App Store revenue breakdown.

It won’t even take many customers changing their minds to make big waves of how much money Apple makes. As the ruling explains, 70% of App Store revenue from games comes from only 10% of all App Store users; over 80% of customer accounts generate virtually no income for Apple or developers.

This assumes, of course, that the developers are willing to adopt the soon-to-be-added option for alternative payment methods when the court-appointed date of December 9 arrives. And this is pending any appeals that put this ruling on hold Epic has already announced its intention to appeal.

There are many details that will need to be worked out. Will developers be able to offer a PayPal or Stripe button or will they have to link to external sites? Will Apple be able to require developers to charge the same price for third-party payments, or will the developers offer discounted prices so they don’t have to pay for the apple cut?

Some developers immediately announced plans to offer a payment alternative. Hey, who had his controversial battle with Apple last year over in-app payments, said less than an hour after the news broke that he would be rolling out a version of his app that allows users to pay for the first one directly. possible. Hey, presumably it won’t be the only main app making the switch either.

But there will likely be plenty of developers who won’t offer an alternative payment Apple’s payment systems offer some perks, developer Halide Sebastiaan de With told The Verge. We were honestly quite pleased with the smoothness of Apple’s offering for payments from worldwide tax management to refunds, Apple Pay and more, so it was unlikely to change the way we do business at the moment. Smaller developers may simply not have the resources (or the desire) to implement their own payment systems.

The new change could mean that more money could flow through iOS apps than ever. In theory, there’s nothing stopping Netflix from putting a full registration queue into its app now, instead of the simple login button it currently offers for new accounts or allowing Spotify to offer its Premium subscriptions directly to customers without Apple taking a cut.

The ruling is based on a small App Store change made last week. Apple had previously allowed reading apps like Spotify and Netflix to link to a payment page in an agreement with the Japan Fair Trade Commission, but that was true for apps that still didn’t make money for Apple. Today’s court order, on the other hand, applies to all apps, including those that have contributed the most to App Store profits.

Under the new rules, Apple will no longer see its full cut of many big app payments. If developers and customers take the opportunity to pay for their in-game items and dating apps in a different way, Apple may not have just lost a big chunk of control over the App Store; it could permanently lose a large chunk of its service business.

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