New York City, United States, 09/24/2021 / Top Wire News /
A recent court ruling in the Epic Games v. Apple case can end up forcing Apple to open up its app store to third party payments and will effectively end the monopoly that Apple has enjoyed over in-app purchases.
On 9th September, Judge Yvonne Gonzalez Rogers decided in Epic Games v. Apple, that Apple can no longer force app developers to use in-app purchases. Now developers can provide links to their app customers that will allow customers to make in-app purchases outside of Apple’s ecosystem. Apple’s shares dropped almost 3% after the news of the judgment.
Apple takes a 30% cut of all the in-app purchases made on its platform. This has been an incredibly lucrative arrangement for Apple and has contributed to the ever-increasing revenues and profits of the company. Developers have long complained about the steep commissions deducted by Apple.
App Store Revenue
Although Apple does not disclose the revenue that it generates from the App store, we can get an approximate idea of this by referencing the total amount paid by Apple to developers. Using this reference, along with an assumption that Apple takes a 30% cut of all in-app purchases, the total revenue from the App Store comes at a whopping $64 billion in 2020.
Apple essentially gets paid when someone uses an app, even though it has not done anything to develop these apps. Apple’s ecosystem reminds us of a toll road where one has to pay in order to use the road. Apple explicitly forbade apps to introduce other methods of payment that would bypass the app store ecosystem and thus it effectively created a monopoly on in-app purchases.
The new ruling will dismantle this monopoly and can make a serious dent in Apple’s revenue from the app store if a large number of app developers and app users switch to alternative methods for making in-app purchases. This will deprive Apple of its 30% cut from in-app purchases.
This new ruling has posed new questions for several stakeholders. Investors need to ask how much this ruling will affect the profitability and share price of Apple. While it also needs to be seen whether app developers and app users shun Apple’s in-app purchase ecosystem in favor of other methods thus depriving Apple of its lucrative 30% share of such revenues. There is a chance that even after this new ruling app developers and app users will stick to in-app purchases due to the familiarity with the ecosystem and ease of use.
An unsustainable policy
App developers have long called for Apple to reduce its 30% cut to more sustainable levels and industry veterans have long called the high commission that Apple charges as a sign of a bad and unsustainable policy. Perhaps this ruling would have not materialized if Apple had set its commissions at a more modest level of say 10%. The Epic case ruling can also serve as the motivation that Apple needs for creating a more sustainable policy towards app developers.