After your business has successfully developed an app, what do you do next? You need a channel with low barrier entry to bring in more customers to your app. The App Store is Apple’s digital distribution platform made for this very purpose. It was initially developed for their mobile apps. Now, there are different versions of the App Store for macOS, tvOS, and watchOS as well. Users can browse and download apps on the App Store. However, the App Store can only host apps developed with Apple’s software development kit. Developers that make applications for the App Store can monetize their applications in various ways. Applications can range from free, paid, and free with in-app purchases. In the mind of the customer, AppStore is known for its security features and flawless user experience. Since the App Store is part of the Apple ecosystem, it offers the same benefits to developers and users as it does to its own line of products.
When you create a developer account with Apple, you are charged an annual app store fee of $99. New developers also assume that they will get 100% of the income from app sales, but this is not true. If you sell an app priced at $0.99, your share will be about $69.3. The rest of the money goes to the App Store. The store’s cut is based on a percentage that differs based on types of apps. This could sometimes lead to the question- Why so high?
Apple receives a percentage of the profits an app makes through in-app purchases. These are usually small value transactions that happen within digital apps. The payments are usually less than $10 and involve the sale of in-game digital content. With such payments, Apple gets 30% of the revenue. For regular subscription-based payments though, Apple’s cut can reduce to 15%. Apple initially decreased the percentage for subscription apps to appeal to the likes of Netflix and Spotify. In 2018, Netflix earned $853 million through the App Store, of which $127 million went to Apple. These were getting a significant amount of Netflix’s profits. Later, Netflix decided to discontinue iTunes as a method of payment in 2019 and saved the 30% fees. So how does this work?
Businesses whose apps do not have in-app purchases are not charged by Apple. For example, the Amazon app is solely an interface to display product information. The products you are purchasing on Amazon are not in-app purchases. Amazon directly bills you using the details you provided. Apple or your iTunes account is in no way affiliated with your purchase. Companies that bill you directly are not charged any fees by Apple. Despite the fee per transaction being waived off, of course you still have to pay an annual $99 developer account fee.
Apple can only tax payments made through the iOS app. The easiest way to avoid fees is not to offer subscription services through the app. This is exactly what Netflix has done since 2019. It redirects users from the app to the company’s website. Users are required to sign up and pay for the service through the site before logging in on the app. Netflix is not the only developer that has attempted to cut Apple off. Spotify, Valve, and Financial Times have been trying to do the same.
But is the strategy as effective as it seems? Of course not, otherwise everybody would just be doing the same.
You just can’t do away with the Apple App Store Transaction fees method. Apple has guidelines laid out that define whether you can opt-out of in-app purchases or not. If you just use alternate methods for a Netflix-like app, the app may get rejected. So make sure that you abide by Apple guidelines and choose the right payment method. The guidelines can be read here
Not offering subscription services in-app can have an impact on your App Store Optimization (ASO). Say an app is marketed as a subscription service, but users are unable to purchase it directly- This can lead to dissatisfaction among the users. Users may abandon the sales process which in turn could lower your sales.
Letting Apple have 30% of your profits might not be so bad. They are not taking the money for no reason. There are numerous benefits that developers enjoy by letting Apple host their apps. In addition to the high traffic that the App Store brings to your app, it also brings in credibility and a seamless payment experience.
Apple is not the only company that levies taxes on developers. Since most app stores get their income from in-app purchase fees, they take their share before passing it on. The industry standard for the app store’s share is around 30%. In that context, Apple’s tax is not too high. Of course, there are stores that pay a higher share to the developer, but the advantage may not be that direct as it seems. Higher percentages do not necessarily translate to more money for the developer. Getting the most out of a sale is great, but more important is to get more sales. Most of the stores that pay more do not have high traffic. With the App Store, your app can generate better traffic than most other resources. Higher traffic translates to more sales, and more sales mean more money.
Rather than pulling their apps out of the App Store, businesses should shift their focus. They should increase their user base with proper ASO. Optimizing apps can improve rankings and visibility, potentially resulting in more users. The profits made working within the App Store is significantly more than any other store. Paying Apple app store fees, their share of the profits seems like a fair deal given the value that Apple ecosystem creates by providing a legit buyer base. Money spent to bring in more customers is money well spent.