App fairness crucial for small businesses
Alist The Financial Times published of companies that are thriving during the coronavirus pandemic is dominated by technology companies whose business models make them “fit for purpose” during the economic lockdown, which restricts human mobility.
Companies whose businesses enable us to transcend physical and geographical borders have become the great enabler of some forms of economic and social activity. The ability to leverage technology to remain operational has become the distinguishing feature of business in the past nine months.
For example, restaurants that had previously seen an online presence as an optional extra have had to quickly form partnerships with delivery companies. To reach the widest range of clients, participation in a mass platform like Mr Delivery or UberEats became a business necessity.
However, access to the platform comes with a cost. For food to be delivered to customers who were not allowed to visit their favourite restaurants, pricing became an issue. If the restaurant tried to absorb the cost its model may no longer be economically viable. This is particularly the case when the cost of access is regarded as prohibitive.
Twelve years ago, when
Steve Jobs was at the prime of his innovation, Apple introduced its AppStore, with a 30% fee for developers who wanted their products to be available on the platform. This fee was set at 30% based on the fact that Apple had charged a similar fee for its iTunes platform. Over the years, the number of apps moved from 500 to 1.8-million, and with the rise in the number of apps came a rise in number of users, if sales of the iPhone are used as a proxy.
The 30% model — known as the Apple tax — has therefore been extremely profitable for Apple. In 2020, Apple made $19bn from the sale of digital goods and services related to apps. Its competitor Google made $10bn from apps. So the
two companies, with a combined market share of $3-trillion, owe a lot of their value to the apps business.
As more companies have been forced to migrate to online platforms as a survival tool, the question of the fairness of the 30% cut has again resurfaced.
For smaller businesses in a competitive market the 30% fee may be prohibitive. The only option is to pass on the cost to end users. But as individuals and businesses struggle through the pandemic and its adverse economic effects, the capacity for shifting this tax between the customer, the company and Apple is going to be a point of contention.
Last week, the Coalition for App Fairness, an alliance of prominent names in the app world, took on Apple to challenge the fairness of its business model. This comes soon after Apple was forced into an extraordinary concession, agreeing to waive the 30% fee for the remainder of the year in relation to some online-only events.
This will benefit businesses that have been forced to operate only through the power of online platforms but whose target audiences are reached primarily through devices that have the Google and App stores.
For some businesses this may be the difference between surviving and going under during the pandemic. Apple and Google’s market power is large enough for them to be able to ignore the coalition and remain in business. The variable that eventually gets them to reconsider their position may be whether the customers they ultimately need for the entire ecosystem to be viable are able to survive the economic effects of the pandemic.