National Post (National Edition)
APPLE,GOOGLE FACE REVOLT OVER APP STORE ‘TAX’
COMPANIES TAKE UP TO 30% OF SUBSCRIPTION DOLLARS
“They’re very aggressive about making sure companies aren’t trying to work around their billing,” said Alex Austin, co-founder of mobile company Branch. “They have whole teams reviewing these flows to ensure theygettheirtax.”
Last week, Schachter co-authored a report arguing current app store fees were unsustainable. Apple and Google take 30 per cent of subscription dollars and in-app purchases made on iphones and Android phones using Google’s app store (effectively all those outside China). About two years ago, the companies lowered that cut to 15 per cent in some cases.
If app store commissions fell to a blended rate of 5 per cent to 15 per cent, that would knock up to 21 per cent off Apple’s earnings by fiscal 2020, Macquarie estimated. Google could lose up to 20 per cent by the same measure, according to the brokerage firm. The technology giants are expected to earn more than US$50 billion each, before interest and tax, in 2020, according to analyst forecast data compiled by Bloomberg.
This is particularly worrying for Apple investors, who are expecting the App Store to support the growth of the company’s services business.
Alphabet Inc.’s Google is susceptible given its legal problems. A recent European Union antitrust ruling requires the company to stop automatically installing its app store on Android phones in Europe. (Google is fighting the charges.) That may compel more app makers to circumvent Google, luring in customers through the web or through partnerships with other companies. “Around the world, everyone is looking for ways to push back against American tech,” Schachter said. “This feels like a natural way to go about it.”
Complaints about app store taxes became louder in 2015 as Apple and Google waded deeper into the digital content business, making them rivals not just digital distribution partners. In 2015, music streaming company Spotify Technology SA began emailing customers that they should cancel subscriptions purchased through Apple’s app store.
On Tuesday, video streaming company Netflix said it’s testing a way to bypass Apple in-app subscriptions by sending users to its own website. Currently, Netflix users on ipads and iphones can subscribe via the App Store’s inapp-purchasing system. This makes subscribing simpler, but also gives Apple a 15 per cent cut of those subscriptions. And as of May, Google Play billing for Netflix was unavailable to new or rejoining customers, according to Netflix’s website.
On iphones in the U.S., Netflix was the No. 1 entertainment app by consumer spend and the most downloaded entertainment app on the Google Play store over the last 90 days, according to App Annie, which tracks the industry.
The video game industry has also worked to avoid app store taxes this year. Valve’s Steam, the largest distributor of video games for PCS, planned to release a free iphone app that let gamers keep playing while away from their computers. Apple blocked the app. Soon after, the tech giant updated its app review guidelines to ban anything that looks like an app store within an app or gives users the ability to “browse, select, or purchase software not already owned or licensed by the user,” according to Reuters.
More recently, Epic Games, themakerofhitvideogame Fortnite, opted to ditch Google’s app store. Epic executive Timsweeneysaidthe30per cent app store fee is a “high cost” in a world where publishers must bare the expense of developing, operating and supporting their games.
“Middlemen distributors are no longer required,” he added.
Fortnite has grossed US$200 million on the Apple App Store since its release there in March, according to Sensor Tower, which tracks app purchases. Apple could make as much as US$135 million in fees from the title, Sensor Tower estimates, while Google misses out on at least US$50 million.
A Google spokeswoman declined to comment. In defence of the app store model, Apple and Google have highlighted their ability to filter out fake apps and malicious software, and to distribute apps widely. The companies handle identity and payment details, taking friction out of the sign-up process. Promotion inside their app stores can transform a company’s fortunes overnight.
Only the most-popular online services can risk not being in Apple and Google’s app stores. Skipping these powerful distribution channels is a “fool’s errand” for most publishers, according to Danielle Levitas, a senior vice president at App Annie. And few other game developers are joining Epic. Electronic Arts Inc. and Glu Mobile Inc. are sticking with their current distribution system, which includes app stores.
According to Branch cofounder Austin, this just shows how broken the system is. Most developers want to use the app stores, but some are reluctant to pay Apple and Google, so they have to take their chances on the web, he said. His firm offers software tools that let companies identify paying subscribers before directing them to their apps.
THE DOLLARS ARE JUST GETTING SO BIG.