By Stephanie Stamm and Sarah E. Needleman
A host of companies, including Facebook Inc., Spotify Technology
SA and "Fortnite" maker Epic Games Inc., are challenging the way
Apple Inc. runs its App Store.
The App Store generates at least $15 billion in annual sales for
the tech giant, according to analysts' estimates. Critics say Apple
takes too big a cut of app makers' sales and wields monopoly power
over the gateway that connects hundreds of millions of users to
Apple disputes that characterization, saying that it collects
only a portion of sales from a small percentage of the almost 2
million apps available on the App Store and that its practices are
in line with competitors' app marketplaces. Here is an overview of
recent challenges to the App Store model and what they mean for
consumers and the company.
Apple takes a 30% cut on sales of paid apps and digital goods
sold within apps. Numerous companies have complained that the fee
is excessive and are pressing Apple to allow alternate payment
systems to process digital transactions. Apple's fee is in line
with those charged in Google's Google Play store and Samsung
Electronics Co.'s Samsung Galaxy Store. Apple said the commission
helps cover overhead costs such as security and privacy.
Last month, Epic Games attempted to skirt Apple's commission by
adding its own payment system to the version of "Fortnite" played
on iPhones and iPads. Apple quickly removed the shooter-survival
game from the App Store, saying Epic violated its rules. The two
companies are now suing each other over the matter, with Epic
claiming "Fortnite" should be allowed back into the App Store with
its payment system intact and Apple saying Epic should be
restricted from engaging in what it calls unfair business
A judge ruled last month that Apple can keep "Fortnite" out of
the App Store for now, but the company can't block Epic's access to
developer tools used to update software. A court hearing in the
case is scheduled for Monday. A trial is likely to take place next
Apple's 30% commission on digital goods and services means that
a customer's payments to Epic for "Fortnite" weapons are subject to
the fee, but purchases of coffee in Starbucks Corp.'s mobile app
aren't. For subscriptions purchased via the App Store, Apple's cut
falls to 15% after the first year. Apple also collects an annual
fee from developers who submit software to be distributed via the
App Store, with exceptions for nonprofits and government
To sidestep Apple's cut, Netflix Inc., Spotify and other
companies have shifted to selling subscriptions and downloads via
their websites instead of their apps. Apple bars companies from
mentioning in their apps where consumers can go to subscribe, and
it doesn't allow companies to say they are offering higher prices
in app purchases to offset Apple's fee.
Companies switching from selling real-world goods to digital
ones amid the pandemic -- such as Airbnb Inc., which now sells
travelers virtual experiences such as cooking classes -- have
complained that Apple wanted a cut of those sales.
Some app developers say Apple limits competition and ranks its
own products ahead of rivals' products in App Store search results.
Spotify filed an antitrust complaint in Europe last year claiming
that Apple, whose Apple Music service competes with Spotify, made
it difficult for rival services to market themselves in the App
The music-streaming company this month accused Apple in public
statements of unfairly harming competitors after the tech giant
unveiled a new bundle giving users access to multiple Apple
services, including Music, at a discounted price. A spokeswoman for
Spotify said the company is concerned that Apple is using its
market power and app marketplace to advantage its own products.
Apple defended its new bundle, saying it would recommend a plan
to customers "that saves you the most money based on the
subscriptions you already have."
Microsoft Corp., Facebook, Tinder owner Match Group Inc. and
Audiobooks.com also have publicly complained about Apple's
practices or described the company as monopolistic. Apple has
repeatedly said it doesn't give its own products an advantage.
Congress, the Justice Department, the European Union and the
Federal Trade Commission are investigating Apple and other tech
companies on antitrust grounds. The U.S. Supreme Court ruled last
year that consumers can sue Apple for forcing them to buy apps
exclusively from the tech giant. The ruling didn't address
plaintiffs' claims that apps would be cheaper if software
developers could sell them directly and bypass Apple. A lawsuit
filed last year by developers over App Store practices is ongoing
in California federal court.
Does anyone win against Apple?
It helps to be a big name when going up against one of the
world's largest companies. In 2015, Taylor Swift complained that
three-month trial subscriptions to Apple Music meant artists went
unpaid when users streamed their music through the service. Apple
later changed the policy and pays artists for music streamed via
Amazon.com Inc. successfully pushed back against the App Store
commission, in 2016 striking a deal that sets a 15% commission on
subscription sales to Amazon Prime Video and not the 30% fee that
all other apps are required to pay on first-year
digital-subscription sales. In April, Amazon began using its own
payment system to fulfill Prime Video purchases through its app
with Apple's blessing. Apple has said that is because Amazon is in
a program for "premium subscription video entertainment providers,"
which permits members to use the payment method tied to customers'
existing video subscriptions.
In August, a trade body representing the New York Times, the
Washington Post, The Wall Street Journal and other publishers said
the outlets want better deal terms from Apple on their
Apple on Friday said it is cutting its commission on some paid
events and experiences sold through mobile apps through the end of
2020. A company spokesman said the move is a recognition that some
businesses have had to switch to online experiences as the pandemic
halted many in-person gatherings and events.
Apple's next moves
Apple has faced plenty of disputes since its inception in a Los
Altos, Calif., garage 44 years ago, and rarely gives up ground to
opponents. But where adversaries in years past complained about
things including Apple's iTunes music service and e-book pricing,
companies today are targeting a source of revenue that Chief
Executive Tim Cook has put at the heart of the tech giant's future.
Some software developers formed a nonprofit to press for changes to
app marketplaces. It is unclear whether decisions from courts or
regulators will prompt Apple to adjust its rules or whether the
company will try to hold firm in the face of pushback.
Write to Stephanie Stamm at Stephanie.Stamm@wsj.com and Sarah E.
Needleman at email@example.com
(END) Dow Jones Newswires
September 26, 2020 10:31 ET (14:31 GMT)
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