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As Apple Cuts App Store Commission In Half - Will A Little Go A Long Way?

by Nitesh Patel | Nov 18, 2020

Today, Apple announced the launch of a small business program, targeting new developers and existing publishers that have earned less than $1M via the app store during the previous calendar year. The program will begin on 1st January 2021. Notably, developers that qualify for the program will benefit from paying just 15% of revenue in commission to Apple from paid downloads and in-app purchases on their first $1M of earnings. Apple will apply the standard 30% commission to developers on earning above the $1 M threshold.

Why has Apple lowered App Store commission, albeit for new, small and independent developers? Apple claims it wants to reduce the barrier for developers and independents to innovate and try its app distribution platform, particularly given the COVID-19 pandemic accelerates the shift to mobile and digital distribution for small businesses.

Strategy Analytics’ Take

The announcement to halve commission rate to 15% for small developers has certainly helped Apple to capture headlines, and is a positive move towards lowering a significant barrier to entry for independent developers and small businesses. Apple has indicated it will provide further detail about the small business program in December, and it will be interesting to see what other incentives and features Apple is likely to offer, and whether it will address other key challenges facing small and independent developers. For example, will Apple provide tools to enable members of its small business program to better promote their apps among the millions available through its store, or in some way enhance their discoverability? Will it waive the fees for enrollment ($99 p/a for individuals, $299 p/a for businesses) in the developer program? Will these fledgling developers be entitled to the same, if not greater, support than is available to larger developers given the lower revenue share?

Overall, the reduction in commission is unlikely to hit the growth of App Store revenue, which is set to increase by around 15% in 2020, despite the CV19 pandemic. I expect the bulk (circa 90%) of paid App Store revenue (which we estimate will exceed $66 B by the end of this year) will come from the top 10% of its developers, who will pay the current (30%) commission anyway. Therefore, Apple has little to lose, but potentially more to gain if regulators in different countries and regions perceive that Apple is prepared to adapt its rules to assist smaller businesses. Without regulatory action Apple is unlikely to budge on its 30% revenue share, which it has steadfastly defended. However, it remains to be seen whether this small concession is enough to create a win-win for it and regulators. However, I expect Google and other stores will be forced to replicate Apple’s move and lower its 30% commission. For smaller developers, this is ultimately likely to benefit them across all app distribution platforms.

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