For the second time in ten months Apple has refined its App Store rules, now allowing app developers to communicate with customers outside of the App Store (primarily through email) to inform them how they can make purchases outside of Apple’s in-app payment system. The 30% in-app take rate for large developers and 15% take rate for smaller developers remains unchanged. Our bottom line is that from a consumer perspective, the value proposition of the App Store remains compelling, given the App Store makes it easier for users to manage multiple subscriptions, gives them frictionless payments, along with lowering the risk of malware and providing greater payment security. In the end, we believe it will have at most a fractional impact to App Store revenue.
The likely mechanics
We want to preface the details of how this will work by saying it’s complex.
- While using an app, the developer asks the user permission for Apple to share the user’s email with the developer. The developer must have an option for users to opt-out at a later date.
- Once a developer has the contact information, they can email the user and likely promote lower fees if they transact directly with the developer.
- The user would set up an account within the app, then login to the same account through a browser and make purchases to the account through the browser.
- When the user returns to the app, they can use their purchases.
Benefitting smaller app developers
This policy change will likely benefit smaller app developers given they are less likely to have a way to contact their users. Larger developers, like Netflix and Spotify, have already stepped away from Apple, prohibiting new users to sign up inside the App Store. Larger publishers have a strong enough brand to require new users to jump through the extra payment hurdle.
Moderation of anti-steering
It’s important to note the change does not mean developers can advertise within their apps about alternative payment options. This is a moderation, not an elimination, of the anti-steering clause.
We’ve written previously that a likely outcome of Apple’s App Store regulatory battles is the removal of the anti-steering clause. Today’s announcement is a step toward that end. We see Apple’s adjustment as a win-win-win for all three parties involved: Apple, app makers, and lawmakers. That said, there’s more legal fights ahead.
The next battleground, allowing third-party app stores
The App Store regulatory conversation has three central legs: anti-steering, take rate, and allowing third-party app stores. We believe there’s a low probability regulators will make any movement on the take rate because it’s a complicated topic that goes beyond the digital economy. There is a question whether given Apple’s 50% market share in the US, the company will be forced to allow third-party app stores on iOS. Currently, Google allows third-party app stores on Android, most notably, the Amazon app store. The way this would work is an iPhone user would go to Apple’s App Store and download a third-party app store, i.e., Epic Games, or a large centralized store like Google. The iPhone user would then enter that third-party app store and download an additional, for example, gaming app. Once that gaming app is installed on the iPhone, the iPhone user would access the app as they do any other iOS app.
Little will change
In moderating the anti-steering clause, Apple’s giving more control to developers, and ultimately, consumers, when it comes to payment methods. That’s a good thing for Apple because it will resonate with regulators. That said, little will likely change in terms of consumer behavior. While transacting through the App Store may be more expensive than going direct to a developer, the App Store makes it easier for users to manage multiple subscriptions, gives them frictionless payments, along with lowering the risk of malware and providing greater payment security. In our view, the benefits of transacting within the App Store far outweigh any potential additional costs. We expect more than 95% of users will continue to rely on the App Store for payments.
One step ahead of regulators
We believe lawmakers will be pleased with Apple’s compromise because it gives consumers more choice, and potentially reduces distribution and maintenance costs for app developers. While additional App Store regulation proposals will continue to surface, particularly around third-party app stores, Apple’s revisions to the App Store keep them one step ahead of the regulatory curve.