Apple’s technique to defend itself in opposition to the antitrust authorities: Repair the App Retailer one rule at a time

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Tim Cook, chief executive officer of Apple Inc., Center, arrives in the U.S. District Court in Oakland, California on Friday, May 21, 2021.

Nina Riggio | Bloomberg | Getty Images

In the past few weeks, Apple has made several changes to its App Store rules that will allow a larger number of companies to access a lower commission rate or completely bypass Apple’s mandatory 15 to 30 percent cut.

But while the concessions may seem like a change in Apple’s approach to app store policy, it’s a clear continuation in app store history of the strategy that dates back to 2008.

Apple has made small changes in the past to its “Guidelines,” a 13,000-word document that says what iPhone apps can and cannot do while defending its core concern that Apple has the right to determine what software Running on iPhones and can be set to its own financial terms for these developers.

Apple also hasn’t changed its policy of taking over 30% of in-app gaming purchases, which make up the largest category of App Store revenue. According to an analysis based on Apple data, Apple’s App Store had total sales of $ 64 billion or more in 2020.

JPMorgan analyst Samik Chatterjee said in a recent statement that the financial impact on the company of an email change would be “modest” and other optimizations that would reduce Apple’s cut for some apps to 15% would be “minimal.”

Regulators and developers criticizing Apple’s App Store have filed a multitude of complaints over the past decade: the 30% cut is too high, the manual app review process is arbitrary and powerful, the App Store is pushing prices for software and teaches consumers that updates are free.

As a result, Apple has made categorical exemptions from the 30% fee, given software manufacturers the ability to appeal or challenge their rules, and changed individual rules in response to lawsuits or media attention.

Events in the coming months could force Apple to refine its policies. A decision in a process with Epic Games is expected in the coming weeks. The European Union is investigating penalties and appeals after discovering that Apple violated antitrust laws following a Spotify complaint. South Korea recently passed law that could force customers to use alternative billing systems.

However, if you look at the history of the App Store, it’s likely that Apple will continue to push for private negotiation and public lobbying for minor, non-structural changes to the App Store that will fix some complaints but keep its control over iPhone software do not change.

Controversial from the start

Apple’s App Store has been controversial since it was launched in 2008. A year later, the FCC investigated the company for its refusal to approve the Google Voice app.

Now there is more regulatory pressure from countries and developers around the world and this is leading to more rule changes. Apple made some of the most recent concessions based on settlements in a developer class action lawsuit in the US and an agreement with the Japanese Fair Trade Commission, despite Apple applying the changes worldwide.

These tweaks essentially allow companies like Spotify and Tinder’s parent company Match Group to bypass Apple’s sometimes 30% cut in gross sales and handle a persistent complaint dating back at least five years. Apple also cut its share of news apps that participate in Apple News, its own news app, to 15%.

Apple officials say these are significant changes that address top concerns from software makers.

Some of Apple’s opponents, even those who requested these changes, say they don’t go far enough and are part of a pattern that divides its critics by appeasing some of them with one-time rule changes.

“Our goal is to restore competition once and for all, not one arbitrary, selfish step at a time,” tweeted Spotify CEO Daniel Ek this week in response to Apple’s change in in-app linking rules.

“Apple’s strategy is Divide and Conquer: cutting off special offers for various developer segments,” Epic Games CEO Tim Sweeney said last month in a statement to CNBC in response to Apple’s news app concession.

Epic Games is suing Apple for being able to install its own app store on iPhones – that’s the big change Apple wants to combat.

A story where Apple changed the rules of the App Store

2009: Apple does not approve Google Voice, FCC investigates. A year after the App Store went live, the FCC began investigating it for its refusal to allow the Google Voice app that acted as the second phone number.

Apple responded to the FCC by providing many details about its app review process for the first time, arguing that it has the right to reject entire categories of apps.

In his letter, Apple also described its Executive Review Board for the first time, a body led by Apple CEO Phil Schiller that makes final decisions on “new and complex issues”.

The Google Voice app was finally approved in late 2010.

2011: Apple demands in-app payments for digital goods, creates the “reader rule”. In-app purchases with a 30% fee were introduced in early 2009. But in February 2011, Apple significantly tightened its control over the App Store by announcing that it would force companies to use Apple’s in-app purchase system when offering digital subscriptions.

Initially, Apple offered exceptions for products like Kindle or the New York Times where users might have purchased e-books or digital subscriptions outside of the app. But companies still had to implement in-app purchases with Apple’s cut for the same price as their off-app subscriptions.

This did not work for many publishers who wanted to maintain their direct customer relationship. By June, Apple had rolled back some of its more draconian policies that allowed companies to pass the 30% fee on to customers or, if they wanted to, not offer Apple in-app purchases at all.

Shortly thereafter, Apple’s marketing director Phil Schiller began questioning Apple’s 30% fee, suggesting a lower revenue share, say 20%, according to an email released as part of the Epic Games study.

It was at this point that Apple began putting its first restrictions on redirecting users in the app to the publisher’s website, which have been lifted in the past few weeks.

2016: Apple reduces the cut for the 2nd year of subscriptions to 15%. By 2015, Spotify had publicly challenged Apple’s restrictions on subscriptions by first emailing customers to let them know it was cheaper to subscribe directly rather than through the App Store. This violated Apple’s guidelines and one of the rules that was officially resolved last month as part of Apple’s concessions.

Shortly thereafter, Spotify completely removed Apple’s in-app purchases and started a process to challenge Apple’s rules with state regulators.

In 2016, Apple announced that it would change its revenue sharing agreement, particularly for subscription apps. Apple still charged 30% for the first year of a subscription, but subscribers who lasted more than 12 months would cost the app at 15% of gross sales. Apple also opened up subscription billing for all App Store apps and introduced search ads that allow developers to pay for better placement on an App Store search page.

The announcement also came months after Schiller publicly took over the supervision of the App Store and replaced the service manager Eddy Cue, although Schiller was involved in the App Store politics from the beginning.

Although Schiller is no longer a senior vice president at Apple, he remains an Apple employee with the title “Colleague” and continues to lead the App Store policies.

2019: Apple declines in parental control apps and introduces objection procedures. By the time Apple’s annual developer conference began in 2020, the App Store had received considerable antitrust attention, particularly for its ability to reject apps, especially apps that competed with Apple features, such as time limit for kids.

In 2019, following negative media attention, Apple rolled back some of its parental control app policies, added some of them to the store, and developed software tools to help them build their apps.

But the skirmish revealed that Apple’s app review process was arbitrary, sometimes delaying app updates because of minor details or, worse, because the app didn’t comply with in-app buying rules.

Developer protests against App Review continued to mount through 2020, and at Apple’s annual developer conference, Apple said it would put in place a developer appeal system to challenge Apple’s rules, though many app makers say it ignores their complaints solved the approval process.

2020: Apple cuts the cut for small businesses to 15%. Last November, Apple unveiled the Small Business Program, a high-profile olive branch for lawmakers and app developers.

It reduced revenue from 30% to 15% for any business making less than $ 1 million a year through the App Store. But since apps are a top-winners business, it didn’t hurt Apple’s finances too much – one estimate at the time was that the top 1% of app publishers generate 93% of app store revenue. But it has cut fees for the majority of individual app developers.

Documents from a settlement in 2021 state that the creation of the small business program was down to a class action lawsuit.

2021: Apple reduces the cut for news apps that participate in Apple News to 15% and allows developers to refer users to alternative payment systems. In 2021, antitrust attention in the App Store heated up. Earlier this year, Apple CEO Tim Cook testified in a lawsuit over App Store practices against Epic Games. Several states and the US Congress saw bills proposed that could force Apple to allow alternative app stores.

In August, Apple reduced its subscription cut for all publishers from 30% to 15%, targeting a segment of developers who had opposed the changes in the App Store in 2011. There was a catch, however – these news apps had to compete in Apple’s news aggregator (news apps aren’t the top winner on the App Store).

Apple also settled a class action lawsuit with smaller U.S. developers, paid $ 100 million, and cleared guidelines for apps that send email to their own customers.

In September, Apple reached an agreement with the Japanese FTC, saying that “reader” apps could link to allow customers to sign up for subscriptions to their own websites. All three of these changes addressed concerns that first emerged in 2011 when Apple created the Readers’ Rule.

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