Apple’s monopoly and its implications on developers and consumers

A market monopoly can be more insidious than just the simple lack of competition — usually it’s because the monopoly is not announced in plain sight, and is created through a gradual acceptance of circumstances. But ultimately, the pains and costs of a monopoly are usually born by the players which uphold the monopolist.

In this instance, Apple and its app store are the monopoly, and those bearing the brunt of their monopoly power are app developers and programmers on one hand, and end users and consumers on the other.

With the Digital Markets Act (DMA) coming into full force in the European Union on 7 March 2024, the tech giant’s determination to control the sale of apps via their own app store has created a spotlight on the implications of their app store monopoly.

WHAT THIS WILL MEAN FOR APP DEVELOPERS AND PUBLISHERS

For almost any product, its marketplace has a very big role to play in their success. That is no different with apps, especially with those sold at the Apple App Store.

Crowded market visibility

The Apple App Store has global popularity and brand identification, thus offering significant market visibility. On the flip side, however, this would mean that the App Store can become a crowded space impeding visibility. Additional investment into marketing and strategies to stand out would become necessary.

Higher costs with commission and other hidden fees

Prior to the DMA, the standard commission fee was a steep 15 to 30% on all app sales and in-app purchases, where app developers who made less than $1 million in revenue paid a 15% commission and those who made more than $1 million paid 30%. Subscription were required to pay a 30% commission for the first year and subsequently, 15% for the second year and beyond. For smaller developers, this cost would make their profit margins even smaller.

Now, with the DMA, Apple has created an addendum with Alternative Terms for apps distributed in the EU. New terms has created a drop in commission from 30% to 17% for more than $1 million and 15% to 10% for less than $1 million.

However, there is now an additional fee for using Apple’s payment system, which is an additional 3%. This gives developers the opportunity to use alternative payment systems. But it’s not that simple as Apple has made it more tedious for external payment gateways for developers to save that 3%. For context, other payment processors charge just a little bit less than 3% (as noted in this NerdWallet comparative list for payment processors in the US).

On top of that, developers offering external purchasing alternatives are still required to offer standard in-app purchases through Apple’s payment gateway as developers “may not discourage end-users from making in-app purchases.”

The introduction of the Core Technology Fee (CTF) for freemium app developers

To create a tiered fee payment with developers of varying sizes, Apple has also introduced a Core Technology Fee (CTF) after the app has reached a significant scale. Namely €0.50 for each annual install over 1 million first annual installs, the developer would not have to pay a commission fee, but this CTF instead.

This model could potentially bankrupt many free or freemium apps that have the tendency to go viral bringing them to high downloads, but would not have the business model to sustain.

Most freemium apps have thousands of installs with many non-paying users, and to be able to pay the CTF would have to start charging up front, which would drive away the users or reduce downloads. It’s putting freemium app developers between a rock and a hard place: to keep their app free with lots of downloads or to charge upfront and keep downloads low?

Limitations on creativity and innovation

As it is known that Apple upholds a level of quality control on their products, it’s not surprising that there are strict guidelines for app developers to adhere to. Though Apple’s rationale are for security purposes, this creates barriers for creativity and innovation for most developers. While they are required to adhere to app functionality and design, they are also expected to follow certain content and monetization methods. These may impact the vision, objective and target audience of the developer, ultimately affecting their app and their success.

DOES THE BUCK FINALLY STOP WITH END USERS?

Are end users always expected to eat the costs? If developers are not swallowing the costs, then it inevitably falls onto the consumers to make the call. One where they will make either parting with their hard-earned money for the product, or forgoing the product altogether. The latter choice is a lose-lose situation for all involved, including Apple.

Lack of Flexibility and Freedom of Choice

With Apple’s iOS and all of their products that are exclusive to their devices, Apple’s notorious for keeping a tight grip over their app distribution and device functionalities. What may have started as quality control for security and user-friendliness has evolved into a space where consumers are presented with limited options as opposed to other devices with other mobile operating systems.

Ultimately, one large monopoly store would limit accessibility — apps would need to rely on advertising and paid visibility. With everything battling our attention for our dollars these days (especially on social media), this approach and business model might ultimately hinder a user’s inclination to download it. Other than a place to download the app, the app store does not serve any other purpose to promote the app, nor meet the customers’ needs.

Privacy and Data Concerns

Apple’s tight lid on its accessibility has come with the promised security for users’ data and privacy. It remains a card Apple loves to play whenever their monopoly is questioned — that their tight control is justified. However, this has meant that users are required to use their products for payment gateway. As this strongarms the users into keeping their online universe within Apple, this would mean that Apple would have access to all their data.

As the DMA has been in effect for less than 6 months, only developers and publishers are feeling their way through this new environment. Consumers would see the changes a bit later, but it’s not too early to think of the implications of what this would mean. What would alternative marketplaces other than the App Store mean for consumers?