It’s Time for Apple to Change the App Store Sales Model

You’ve been hearing about it for months now. Developers — and governments — are fed up with Apple’s App Store sales model. It started with Hey, and now bigger players like Epic and Facebook are joining in like hyenas sensing a wounded beast. It feels like we have passed a tipping point, and you will be hard pressed to find anyone outside Apple who still thinks the 30% tax is the right approach in 2020.

I see plenty of disgruntled tweets pass by, but most conclude with something like “I don’t know what Apple should do, but it can’t stay like this”. I was in the same boat, until now. Having given it some thought, I feel like I am starting to see why it doesn’t feel right anymore, and what Apple could change to mitigate it. And I am going to be so obnoxious as to present my thoughts here, if only to start the discussion about where we would like to go, rather than just where we have been.

Let’s start by going back to the 30% that Apple takes from every sale. Why does that now feel unfair? I called it a tax earlier, and that was not accidental — it really works like a tax. Apple wants to get 30% of any income you make as a result of your app being in the App Store.

This was straightforward when the App Store launched, because nearly all income arose from direct sales. But over the years, other sales models have arisen, from advertising to In-App Purchase and service subscriptions, and Apple have had to make ad hoc changes to the App Store guidelines to try to collect “the tax” from these many and varied sales models. This has led to bizarre rules, such as the exceptions made for so-called ‘reader apps’, all of which points to a system that is creaking, and has become resented by most.

Apple wants to collect taxes, like a government or overlord, and that is exactly how they have framed the deal from the very beginning. The deal in short: we will take care of the infrastructure, which you will benefit from, but in exchange we will levy an income tax of 30%.

And this all worked fine in the feudal app world of 2009, where Apple had complete control over every transaction in its realm. People valued living in Apple’s little fiefdom. Outside the city walls was just the World Wide Web — a scary place — and giving up 30% of your salary to live in civility felt like a fair deal. The city prospered, developers prospered, and Apple prospered.

But that is not the app world of 2020. It has become a huge, multifaceted market, with multiple platforms, crossover with the web, and a multitude ways to make money. Very few companies now live solely within Apple’s city walls; they are more like multinationals, with offices in many cities, trading across borders in a global marketplace. Apple’s simplistic feudal system, taxing income alone, feels dated.

Compare the App Store model to how things are sold in the real world today. If I have a great idea for a new restaurant, I can find a great location, pay rent determined by the desirability of said location, and get started. The rent paid is not based in any way on the success of my restaurant. If it is very successful, that is down to me, and I benefit from that, not the landlord. This feels fair: the landlord’s success is based on bringing value to the property itself, and my success derives from how well I execute on my business, the restaurant. It would feel wrong if the landlord demanded a cut of the restaurant profits, something they have had no part in.

Now think about the App Store in this light, and you start to realize why it feels unfair for Apple to take 30% of all income. In the beginning, it might have been true that Apple featuring your app could contribute to its success to the point where it was justified that they should take a cut of sales. It was more like a partnership, where you needed Apple to get the sales, and it was fair for them to take something for that ‘service’.

But the App Store has not been like that for many years. Getting featured is still most welcome, but nobody is building a business on that. No app can rely entirely on getting featured as a business model. To make it in today’s app world, you have to find your own users. A company like Netflix will have benefited very little from being featured by Apple, and that is no doubt why they feel miffed at Apple taking 30% of income they have worked hard for. It feels like the landlord turning up and demanding a cut of your profits.

So what is the way forward? Thinking of Apple as the landlord is helpful for this. Apple provide infrastructure, and that deserves to be rewarded with income. Developers should pay to use that infrastructure. At the same time, good tenants raise the desirability of the neighborhood, which also helps the landlord (in Apple’s case, it helps sell iPhones).

In my view, Apple should simply charge a fee to developers for every app they have in the store. Think of it as rent. The fee should be based on download tiers. Think of the number of downloads as the desirability of the neighborhood. A bigger company, with many downloads, will pay more than a small one, but this will not be directly tied to the income they generate.

Taking this approach immediately frees Apple from all the intricate rules needed to tap into the multitude of sales models in existence today. An app developer can use any model it likes to generate income, from direct sales to advertising. Developers can also charge users and process sales with any system they like. No more ad hoc “reader app” rules.

Apple wouldn’t need to get out of the payment processing business entirely. That should simply be an option that developers have in the App Store. Using Apple’s payments is an easy option for them, and the fee should be inline with other payment processors, something like 5–10%.

And I think there should still be room for apps that are completely free, and pay no fees to be in the App Store. Think of these apps as social housing in the Apple-as-landlord picture. My vision would be that an app can be registered as ‘monetized’ or ‘altruistic’, and this would be checked in app review. Altruistic apps would pay no fees, and monetized apps would pay a tiered fee based on download numbers.

The obvious objection to all of this is that Apple would never earn as much posing as a landlord collecting rent, as it does as an overload collecting tax. Maybe, maybe not. Apple would presumably still collect a lot of income from payment processing, and it would also start to collect income from apps that previously worked around the rules. It would no longer be a case of Netflix, Amazon, and Facebook — companies with deep pockets — working around the rules to avoid paying, while small enterprises end up footing the bill. Like an insurance scheme, the fact that everybody pays keeps premiums down.