Apple, Google face revolt over app store ‘tax’
The technology giants are taking too big a share, some critics say
SAN FRANCISCO— A backlash against the app stores of Apple and Google is gaining steam, with a growing number of companies saying the tech giants are collecting too high a “tax” for connecting consumers to developers’ wares.
Netflix and video game makers Epic Games and Valve Corp. are among companies that have recently tried to usurp the app stores or complained about the cost of the tolls Apple and Google charge.
Grumbling about app store economics isn’t new. But the number of complaints, combined with new ways of reaching users, regulatory scrutiny and competitive pressure are threatening to undermine what have become digital gold mines for Apple and Google.
“It feels like something bubbling up here,” said Ben Schachter, an analyst at Macquarie. “They just don’t want to be paying Apple and Google billions.”
Apple and Google launched their app stores in 2008, and they soon grew into powerful marketplaces that matched the creations of millions of independent developers with billions of smartphone users. In exchange, the companies take up to 30 per cent of the money that consumers pay developers.
For most of the decade, the companies won praise for helping to build an app economy that’s projected to grow to $157 billion in 2022, from $82 billion last year. But more recently, smartphones and apps have become so important for reaching customers that these app stores have been criticized for taking too big a share of the spoils.
“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 they get their tax.”
Last week, Schachter co-authored a report arguing that 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 their app stores (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, before interest and tax, 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 $50 billion each, before interest and tax, in 2020, according to data compiled by Bloomberg.
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.
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. And as of May, Google Play billing for Netflix was unavailable to new or rejoining customers, according to Netflix’s website.
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.
Epic Games, the maker of hit video game Fortnite, opted to ditch Google’s app store. Epic executive Tim Sweeney said the 30 per cent app store fee is a “high cost” in a world where publishers must bear the expense of developing, operating and supporting their games.
Fortnite has grossed $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 $135 million in fees from the title, Sensor Tower estimates, while Google misses out on at least $50 million.
A Google spokesperson 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. 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.
“If you’re a small up-and-coming company, you can’t really sell subscriptions on the mobile web,” he said. “By killing off the app store tax, it’d effectively reduce the last barrier for a large fraction of companies.”