App Store controversy threatens to overshadow Apple's WWDC event

Key Points
  • As Apple gears up for WWDC, software developers are questioning why Apple needs to take a 30% commission on in-app purchases.
  • The European Commission announced an antitrust probe into Apple's App Store last week after Spotify and Kobo filed formal complaints. 

In this article

Apple announces major new software and hardware upgrades for iPhones and computers
Apple announces major new software and hardware upgrades for iPhones and computers

Apple is facing an unprecedented backlash from software developers as it prepares to host its annual its Worldwide Developer Conference.

Developers have spoken out to say they are upset with Apple's App Store policies, particularly the revenue cut that Apple takes and the requirement that users complete their purchases within the app.

"The App Store 30% tax is a massive pain and severely limits our profitability and long-term viability as a business," said one start-up executive who spoke on condition of anonymity out of concern about repercussions from Apple.

"We have data that proves that customers don't particularly like using in-app purchases to buy subscriptions (they prefer PayPal/credit card) and the 30% fee that Apple takes is insane when you compare it to the standard 2-4% charge that literally any other payment provider takes. "

The person added that Apple's in-app purchase platform has poor analytics, technical documentation and functionality.

Tim Cook, chief executive officer of Apple Inc., speaks during the Apple Worldwide Developers Conference (WWDC) in San Jose, California, U.S., on Monday, June 4, 2018. 
David Paul Morris | Bloomberg | Getty Images

"We have almost always been limited by Apple and IAP in what type of discounts, subscription types we can offer, because the developer time it takes to implement anything for IAP is at least 5x that of implementing features for a modern payment solution like Stripe or Braintree," the person said.

Apple declined to comment when contacted by CNBC on Monday.

The App Store is the only way for most users to install software on the iPhone and iPad.

Some developers have also criticized Apple's app review process, saying it lacks transparency. In order for developers to update apps that run on Apple's products, an Apple employee must review them first.

The App Store is one of Apple's most important platforms. The fast-growing unit brought in over $46 billion in 2019, making up nearly 18% of the company's revenue.

Apple charges companies 30% from in-app purchases and 30% on subscriptions for the first year, then 15% thereafter. The Google Play store also charges 30% on in-app purchases.

Another co-founder, who spoke on condition of anonymity to avoid upsetting Apple, said the App Store "feels like a necessary evil because Google Play does the same."

The person added: "What doesn't feel fair is Apple curates the App Store, so if you're trending and charting you still may not be visible unless they want you to."

EU investigation

The European Commission, the executive arm of the EU, announced last week an antitrust investigation into Apple's App Store practices.

The investigation comes after music streaming rival Spotify and e-reader firm Kobo filed formal complaints. Tinder and Fortnite have also raised concerns.

"Apple's anticompetitive behavior has intentionally disadvantaged competitors, created an unlevel playing field, and deprived consumers of meaningful choice for far too long," said Horacio Gutierrez, Spotify's head of global affairs and chief legal officer. "We welcome the European Commission's decision to formally investigate Apple, and hope they'll act with urgency to ensure fair competition on the iOS platform for all participants in the digital economy."

Margrethe Vestager, executive vice president of the EU Commission, said in a statement: ″Apple sets the rules for the distribution of apps to users of iPhones and iPads."

"It appears that Apple obtained a 'gatekeeper' role when it comes to the distribution of apps and content to users of Apple's popular devices. We need to ensure that Apple's rules do not distort competition in markets where Apple is competing with other app developers, for example with its music streaming service Apple Music or with Apple Books. I have therefore decided to take a close look at Apple's App Store rules and their compliance with EU competition rules." 

The start-up executive mentioned earlier in this report said this is "one of the clearest cut anti-competitive cases in modern history" adding that the only reason the App Store hasn't already fallen is due to it being "slightly unclear who exactly is being hurt (end consumers vs. app developers), not whether they are being hurt."

Many developers see the App Store as a valuable platform to reach a large number of customers.

"It's not a tax," said Dave Thomson, chief of staff, product and design at Skyscanner, on his personal Twitter account. "It's the cost of their service for having access to one of the greatest marketing channels in history. Last time I checked paying for an optional and extremely valuable product wasn't a tax."

Either way, Apple probably doesn't wish to have this debate taking place as it heads into Monday's WWDC, where the company is expected to announce software updates for iPhones, iPads and Macs.

It may also reveal details about its plan to move away from Intel-based chips, which it has been using since 2006. New Macs are expected to be equipped with ARM chips instead.  

It is the first year that WWDC will be held virtually as a result of the coronavirus pandemic.