We could say that lower fees mean better margins and be done with it and to some, this new push from Apple and Google to reduce their reduced app store fees is just that: a discount that will help reduce costs. But for the many others operating on a more careful budget – especially new businesses where every little bit helps – this is an opportunity. As such, it will be helpful to know the terms of these new programs and payment structures to take full advantage of these new conditions to help offset your bottom line.
After all, Apple has made previously made arrangements with massive companies like Netflix where they provided a significant discount, largely because they contribute to a sizable portion of Apple’s revenue. Google also stands accused of playing favorites which have caused many to fight back and none are more tenacious than the company behind one of the world’s favorite battle-royale games.
It’s public knowledge that the fees collected have been enough to cause court intervention as with Epic Games, the owner of Fortnite, and Apple. Recently, Epic was forced to pay a sum of $3.5 million to Apple for a breach of content but the judge further ruled that developers are free to plugin and call attention to non-Apple payment mechanisms. With this set in stone and some changes to the marketplaces, lower app store fees have also emerged. Let’s take a look at what the terms are for each company and discuss how this might impact payment collection processes for business.
Apple lowering app store fees for small businesses
Before the ruling that now provides businesses and developers more flexibility with payment processing, Apple announced a move that cuts fees from 30% to 15% for a large percentage of apps hosted on their platforms. As part of the App Store Small Business Program that went into effect on January 1st of this year, businesses earning less than $1 million in revenue through Apple Pay will have their fees automatically halved.
Anyone who made less than the million-dollar threshold can apply for the current calendar year. Should the company surpass this cap, the full 30% will be applied to future sales. And if sales ever fall below $1 million in the future, companies can re-apply for the program.
Businesses can also capitalize on lower fees by offering Auto-renewable Subscriptions that automatically reduce fees from 30% to 15% after a one-year period. Along with the Small Business Program, businesses will be rewarded for good retention as a company making less than $1 million can conceivably capitalize on the 15% fee under the Small Business Program and continue to enjoy lower costs for customers that continue their subscription after the first year. There is also a program for certain publishers called the News Partner Program that will reduce fees to 15% for a year if they participate in Apple News.
Apple likely saw this coming as the suit with Epic Games was part of an extensive plot derived by Epic Games CEO, Tim Sweeny, called Project Liberty (you can see the court’s findings on the matter, starting on page 20) that specifically targeted Apple and Google. The idea was to frame each mobile provider as violating antitrust laws, a bit like a move you’d see in a high-conflict divorce where one party swings for the fences to “win” at all costs: Early in this so-called fight for freedom, Epic Games even likened Apple to Orwell’s 1984 in a marketing (propaganda?) effort.
Apple manages to rake in tens of billions of revenue per quarter in their services category (i.e. the one that contains App Store earnings) alone so in the face of somewhat grave accusations, they made an effort to save face. For most businesses that don’t want to wage corporate warfare, this is a great way to save money on costs (and lawyer fees.)
Google is lowering app store fees as well
Even though Apple is usually the fast-follower, this time Google held back before making a move to address the pricing issue that developers and now legislators have been fighting against. Much like Apple, Google had to square off with the rebel forces at Epic Games where accusations were much the same.
Roughly a year after Apple’s announcement to lower app store fees, Google made a similar announcement. Like Apple, Google is lowering fees from 30% to 15% starting January 1st, 2022 for those earning less than $1 million from in-app purchases and subscriptions. This accounts for 99% of all developers on Google Play (for Apple, it’s around 97%) which means most businesses will benefit from this new arrangement.
Also like Apple, Google is offering a special discount for developers that will participate in a specific program. The Play Media Experience Program from Google can be used by those that primarily offer video, audio, or books to pay a 15% service fee that, in some cases, can be as low as 10%. Unlike Apple’s News Partner Program, the scope of this program is much broader as it includes the likes of streaming apps and other media-centric digital experiences.
What does this mean for business?
Apple and Google will do what they can to keep their payment processing options as the most attractive system for the masses. Even though both have an undeniable air of “Big Brother” about them, their technologies have allowed businesses to emerge and thrive in regulated marketplaces that aim to be fair to everyone.
Of course, “fair” is a subjective matter and many have critiqued Apple and Google for shaving off what has been positioned as an excessive amount in what is Apple’s most profitable business segment, and a major earner for Google as well, most recently bringing in $36.8 billion in 2020. Though some will certainly see these fees as too high, especially with respect to what other payment processors charge, it’s not an apples-to-apples comparison as both Google and Apple invest in a multitude of technologies that are often offered for free or a low-cost for developers. With that said, even though their payment options are convenient for native apps, they’re rivaled by many products in a highly-competitive space.
Fortunately, the new pricing structures will be immensely helpful to the many businesses that’s margins were significantly impacted by the rigid 30% cut, just as it will help the many who’ve been holding back for fear that such a commission would quickly run their business into the ground. With the additional savings offered from Apple and Google, a substantial number of businesses will be able to take advantage of additional savings for earnings beyond their initial first million.
In time, fees may change again and most likely, we’ll see new expectations to these rules, for better or worse. Moreover, businesses will have more options legally available for payment processing that can be tied to app subscriptions for most models. Either way, thanks in part to the Fortnite folks rocking the boat, almost everybody gets a bit of a discount moving forward.
Blue Label Labs designs effective pricing strategies
At our core is a dedication to ensuring that the projects we tackle and the businesses we support are set up to succeed. We do this by researching, testing, and deriving both short and long-term strategies that help businesses achieve their goals. When it comes to payment systems, we work with businesses to help them understand and implement the best solutions for their needs. For more information or to talk with someone from our team about your app idea, get in touch!
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