Source Code: Your daily look at what matters in tech.

source-codesource codeauthorDavid PierceNoneWant your finger on the pulse of everything that's happening in tech? Sign up to get David Pierce's daily newsletter.64fd3cbe9f
×

Get access to Protocol

Your information will be used in accordance with our Privacy Policy

I’m already a subscriber
Power

Apple defends its App Store tax ahead of antitrust hearings

Apple says its 30% App Store commission is industry standard — but Apple's the one that set that standard.

App Store icon

Apple's been criticized for charging app developers a high commission.

Image: Apple

Apple's App Store commission policies are completely fair, and valid, and no worse than anyone else's on the market. At least, that's what Apple thinks.

The company commissioned a study of digital marketplaces and found that its 30% tax is perfectly in line with the rest of the industry. The study, run by Analysis Group, looked at 38 marketplaces — for apps, video games, books and even hotel rooms and plane tickets — and found that commission rates vary widely. Much of the data is unsurprising: Ticket resellers have the largest fees, and retail like Amazon and Etsy tend to have the lowest. The study also found that "sellers generally earn a substantially lower share of total revenue from the distribution through brick-and-mortar stores and marketplaces than through digital marketplaces such as the Apple App Store."

The more interesting comparison is between Apple's App Store and others: the Google Play Store, the Samsung Galaxy Store, the Microsoft Store and the Amazon Appstore. In that case, there's remarkable consistency across the industry: All five charge a default of 30% commission on sales, with some small variance for one-off deals or subscriptions. For video games sellers like Xbox, PlayStation and Steam, the number is also 30%.

The standard's not a global one: Policies in China, for instance, tend to be very different. Tencent's Android app store charges a 55% commission for games, and the new Huawei AppGallery varies from 20% to 50% depending on the app type. But in the U.S., 30% is the magic number.

That number has become a hot topic in the tech world. Rep. David Cicilline recently called it "highway robbery, basically," and said that Apple is "bullying people to pay 30% or denying access to their market." These commissions are at the center of some of the antitrust debates currently facing Google and Apple. With a landmark hearing of tech CEOs — including Tim Cook — less than a week away, Apple may have wanted to get ahead of that line of questions. By commissioning the study, Apple's goal seemed to be to prove, to Cicilline and others, that at the very least it's not the only robber on the highway.

There's a reason 30% became the norm, though. And that reason is Apple. When Steve Jobs introduced the App Store in 2008, he ran through the revenue-split numbers. "When we sell the app through the App Store," he said, "the developer gets 70% of the revenues, right off the top. We keep 30% to pay for running the App Store." Jobs framed this as an extremely good deal, in fact "the best deal going to distribute applications to mobile platforms."

Actually, the 70/30 split actually goes back further than the App Store, to the iTunes Music Store. Apple split every 99-cent song download along the same lines. And just as with the App Store, the music industry complained for years that the terms were problematic, but that iTunes was so popular they couldn't afford to not play Apple's game. But when Apple applied it to apps, it took over the industry.

While Apple set the industry standard, it didn't necessarily invent the 30% app commission. The study's authors said they couldn't identify who used the number first, but that older stores from Nokia, BlackBerry and others charged commissions at least as high. Apple certainly popularized the terms, though.

Before the App Store, the mobile-software world was a mess of standards and prices, often negotiated individually or sold at brick-and-mortar-like markups. One early attempt to do better, though, was Qualcomm's BREW system. "The revenue split between all the companies is set up in advance," Dave Mock wrote in his book "The Qualcomm Equation," "but Qualcomm stipulates that the developer keeps the majority of the revenue from each download — usually 80% – while the carrier and Qualcomm split the rest."

Apple's one-size-fits-all approach simplified everything. In exchange for 30% of sales revenue, Jobs said in 2008, Apple would provide a number of services. "There are no credit card fees for the developer, we take care of all that. There are no hosting fees for us hosting the app, we take care of all that. There's no marketing fees." Later that year, in an interview with The Wall Street Journal, he elaborated. "It costs money to run it. Those free apps cost money to store and to deliver wirelessly. The paid apps cost money, too. They have to pay for some of the free apps. We don't expect this to be a big profit generator. We expect it to add value to the iPhone. We'll sell more iPhones because of it."

Apple's justification for the commission has changed slightly since then. It now frames the App Store commission in part as an incentive for Apple to keep innovating. The Analysis Group economists said that Apple also provides developer tools and SDKs, but also things like custom chips, cameras and security features. Developers, in other words, are now helping pay for iPhone development.

As iPhone sales growth slows, apps are an increasingly important profit generator for the company. Apple proudly announced in June that the App Store ecosystem facilitated $519 billion in commerce in 2019, and it reported $13.3 billion in Services revenue in the most recent quarter, much of which comes from those App Store commissions. Instead of adding value to the iPhone, that 30% tax has become a big part of Apple's second-largest revenue stream. And developers say that as a result, Apple is tightening the screws to get more money out of them.

But as Apple has expanded into its own services, the terms have changed. Spotify's disagreement with Apple, for instance, is not that it charges a 30% tax but rather that it doesn't also charge Apple Music the same. The antitrust fight is only in part about the highway robbery charge — it's about who's getting robbed, and who gets let go.

From Your Site Articles
Protocol | Workplace

In Silicon Valley, it’s February 2020 all over again

"We'll reopen when it's right, but right now the world is changing too much."

Tech companies are handling the delta variant in differing ways.

Photo: alvarez/Getty Images

It's still 2021, right? Because frankly, it's starting to feel like March 2020 all over again.

Google, Apple, Uber and Lyft have now all told employees they won't have to come back to the office before October as COVID-19 case counts continue to tick back up. Facebook, Google and Uber are now requiring workers to get vaccinated before coming to the office, and Twitter — also requiring vaccines — went so far as to shut down its reopened offices on Wednesday, and put future office reopenings on hold.

Keep Reading Show less
Allison Levitsky
Allison Levitsky is a reporter at Protocol covering workplace issues in tech. She previously covered big tech companies and the tech workforce for the Silicon Valley Business Journal. Allison grew up in the Bay Area and graduated from UC Berkeley.

After a year and a half of living and working through a pandemic, it's no surprise that employees are sending out stress signals at record rates. According to a 2021 study by Indeed, 52% of employees today say they feel burnt out. Over half of employees report working longer hours, and a quarter say they're unable to unplug from work.

The continued swell of reported burnout is a concerning trend for employers everywhere. Not only does it harm mental health and well-being, but it can also impact absenteeism, employee retention and — between the drain on morale and high turnover — your company culture.

Crisis management is one thing, but how do you permanently lower the temperature so your teams can recover sustainably? Companies around the world are now taking larger steps to curb burnout, with industry leaders like LinkedIn, Hootsuite and Bumble shutting down their offices for a full week to allow all employees extra time off. The CEO of Okta, worried about burnout, asked all employees to email him their vacation plans in 2021.

Keep Reading Show less
Stella Garber
Stella Garber is Trello's Head of Marketing. Stella has led Marketing at Trello for the last seven years from early stage startup all the way through its acquisition by Atlassian in 2017 and beyond. Stella was an early champion of remote work, having led remote teams for the last decade plus.
Protocol | China

Livestreaming ecommerce next battleground for China’s nationalists

Vendors for Nike and even Chinese brands were harassed for not donating enough to Henan.

Nationalists were trolling in the comment sections of livestream sessions selling products by Li-Ning, Adidas and other brands.

Collage: Weibo, Bilibili

The No. 1 rule of sales: Don't praise your competitor's product. Rule No. 2: When you are put to a loyalty test by nationalist trolls, forget the first rule.

While China continues to respond to the catastrophic flooding that has killed 99 and displaced 1.4 million people in the central province of Henan, a large group of trolls was busy doing something else: harassing ordinary sportswear sellers on China's livestream ecommerce platforms. Why? Because they determined that the brands being sold had donated too little, or too late, to the people impacted by floods.

Keep Reading Show less
Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.
Power

The video game industry is bracing for its Netflix and Spotify moment

Subscription gaming promises to upend gaming. The jury's out on whether that's a good thing.

It's not clear what might fall through the cracks if most of the biggest game studios transition away from selling individual games and instead embrace a mix of free-to-play and subscription bundling.

Image: Christopher T. Fong/Protocol

Subscription services are coming for the game industry, and the shift could shake up the largest and most lucrative entertainment sector in the world. These services started as small, closed offerings typically available on only a handful of hardware platforms. Now, they're expanding to mobile phones and smart TVs, and promising to radically change the economics of how games are funded, developed and distributed.

Of the biggest companies in gaming today, Amazon, Apple, Electronic Arts, Google, Microsoft, Nintendo, Nvidia, Sony and Ubisoft all operate some form of game subscription. Far and away the most ambitious of them is Microsoft's Xbox Game Pass, featuring more than 100 games for $9.99 a month and including even brand-new titles the day they release. As of January, Game Pass had more than 18 million subscribers, and Microsoft's aggressive investment in a subscription future has become a catalyst for an industrywide reckoning on the likelihood and viability of such a model becoming standard.

Keep Reading Show less
Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.
Protocol | Policy

Lina Khan wants to hear from you

The new FTC chair is trying to get herself, and the sometimes timid tech-regulating agency she oversees, up to speed while she still can.

Lina Khan is trying to push the FTC to corral tech companies

Photo: Graeme Jennings/AFP via Getty Images

"When you're in D.C., it's very easy to lose connection with the very real issues that people are facing," said Lina Khan, the FTC's new chair.

Khan made her debut as chair before the press on Wednesday, showing up to a media event carrying an old maroon book from the agency's library and calling herself a "huge nerd" on FTC history. She launched into explaining how much she enjoys the open commission meetings she's pioneered since taking over in June. That's especially true of the marathon public comment sessions that have wrapped up each of the two meetings so far.

Keep Reading Show less
Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

Latest Stories