Last week Apple declared it will be reducing the commissions on in-app purchases and application sales to 15% from 30%. This is meant for all developers who make less than 1 million dollars from the Apple store annually. Because of this, Apple has been facing criticism about how it handles the Apple store practices. Critics claim that the practices are hurting small developers while tech giants like Apple continue being scrutinized by regulators for their market power. With the reduced commission, more than 98% of the application developers that pay commissions to Apple will benefit. This information was shared by an analytics company called Sensor Tower.
It is not clear how the reduction of commissions by half will affect Apple’s service business that is growing at a fast rate. The Apple store generates a third of the service revenue Apple makes. Not quite. Sensor tower explains that Apple makes most of its revenue from the Apple.
store through the larger developers. Sensor Tower states that fewer than 5% of the developers last would meet the threshold to reduce commissions by half. Moreover, the discount to the developer goes back up to 30% after the developers cross the 1 million mark.
Apple makes most of its revenue through the Apple store Apple TV +, Apple music, Apple care, iCloud, licensing, third-party subscriptions, and Apple pay.
How does the Epic lawsuit impact Apple?
Last week, Apple was sued by Epic Games for antitrust violations. This was after the popular Fortnite Game from Epic was removed from the Apple store. This happened because Epic allowed players to bypass Apple’s in-app purchase system that allowed Epic to avoid the 30% commission that goes to Apple. Although Apple has had several lawsuits with developers in the past, the Epic lawsuit is unique because of a few reasons.
First, the lawsuit comes when Apple and other tech giants are facing serious scrutiny from regulating bodies because of their market power. Secondly, Apple has become very dependent on the services it provides to other businesses than ever before. Epic’s lawsuit is targeting Apple’s commissions that are currently the most profitable revenue stream.
According to Sensor Tower, Apple has made approximately $360 million from the fortnight commissions in the last two years. This is a drop in the ocean for Apple that made over $260 billion in revenues last year. However, if the court rules in favor of Epic, Apple will be forced to reduce the commissions and change the terms and conditions of the
Apple store. Other developers are going to start demanding similar terms.
This means that if Apple made $20 billion last year from the Apple store revenue, and it is forced to reduce the commission from 30% to 20%, then the commission will reduce to $13 billion. Although this might only be 3% of the total revenue Apple made, the impact would affect the profits considering all the revenue Apple makes from Apple store commissions is profits only. The operating income might reduce by 10% if the commission were to be reduced across the board.