In its latest 10-K annual report, detailing its 2020 financial reports, Apple warns investors that if it’s made to reduce the commission it charges in the App Store, this could have a “materially adverse” affect on Apple’s bottom line.
Apple includes the clause, which seemingly hasn’t been in previous 10-K reports, at a time when Apple’s commission is being challenged. A number of developers and politicians have suggested that Apple’s control of the App Store in unfair, and that it charges too much.
Apple’s document notes that:
“For the vast majority of applications, developers keep all of the revenue they generate on the App Store. The Company only retains a commission from sales of applications through its platforms and in situations where a developer offers purchases for digital features, services, or goods within an application. If developers reduce their use of the Company’s platforms, including in-app purchases, then the volume of sales, and the commission that the Company earns on those sales, would decrease. If the rate of the commission that the Company retains on such sales is reduced, or if it is otherwise narrowed in scope or eliminated, the Company’s financial condition and operating results could be materially adversely affected.”
In a sense, this news is not really news at all. Apple is pointing out that reducing one of its revenue streams would reduce revenue. That much is obvious.
But the fact that Apple is making this admission suggests the debate about App Store commission has reached a certain level of visibility. You can see Apple’s 10-K reports here.
Impact of the App Store on the bottom line
Apple charges 30 percent commission on in-app purchases of digital goods. Apple doesn’t charge for physical products. In the case of recurring subscriptions, Apple’s commission shrinks to 15 percent after one year. This arrangement has existed since Apple launched the App Store in 2008. Apple once considered setting prices at 40 percent, but it never pulled the trigger on this.
It’s not totally clear how much of a profit driver the App Store commission fees are for Apple. Some of the rhetoric around this makes it sound like Apple is growing wealthy off developer fees. Others, like Above Avalon analyst Neil Cybart, suggest Apple is more or less breaking even.
If the App Store had ~40% gross margin, Apple would blush. It's no where close to that when looking at total App Store revenue. It's much lower. I went over my math in the daily update from June 17th. Did you request archive access? If not, search "Apple vs. Hey" in your inbox.
— Neil Cybart (@neilcybart) August 20, 2020
Whether it’s forced to change its App Store policies remains to be seen. One talking point is that Apple should let users side-load apps. This means that they could install apps on iPhone without necessarily having to go through the App Store.
Where do you stand on the App Store pricing debate? Let us know your thoughts in the comments below.
Via: Apple Insider
