Apple reforms App Store rules to allow third-party payment methods in the U.S. but will still charge a commission fee
The U.S. Supreme Court rejected appeals from Epic Games and Apple in the antitrust case between the two companies. What does this mean for users and app developers?
The feud between the two companies began in 2020, when Apple ousted Fortnite from the App store after it had found that the game used a third-party payment method for in-app purchases instead of its own payment system. Apple argued that Epic Games had violated its license agreement, which forbids third-party payment mechanisms.
Epic cried foul and sued Apple in an antitrust case. The decision from the San Francisco-based 9th U.S. Circuit Court of Appeals ruled in Apple's favor. Epic lost 9 out of 10 claims when the ruling was upheld by the Court in April 2023, but Apple was found guilty of violating California's Unfair Competition Laws. Apple's anti-steering policy for preventing third-party payment options in apps was deemed unfair, and the Court issued a nationwide injunction by directing the company to adjust its policy and allow app developers to display buttons and links to third-party payment methods in their apps.
U.S. Supreme Court refuses to hear Epic Games v Apple antitrust case
Both Apple and Epic Games were displeased by the ruling and filed claims in the U.S. Supreme Court. Apple was granted a temporary reprieve in August 2023, when the Supreme Court allowed it to keep its App Store rules temporarily, until it heard the case. However, the Supreme Court turned down the appeals filed by the parties by refusing to hear the case, and thus upheld the previous ruling. This means that Apple has to comply with the law and adjust the App Store policies. Epic's loss stands in stark in contrast to its impressive win against Google's Play Store's nearly similar anticompetitive policies.
Apple adjusts its anti-steering rules, but not in a good way
Epic's CEO, Tim Sweeney, said the court battle to open iOS to third-parties and payments in the United States is lost, and called it a sad outcome for developers. He also suggested that developers should exercise their court-established right to offer US customers about better prices on the web. But, Sweeney may have spoken too soon.
A few weeks ago, I had quoted a Sensor Tower estimate which said that Apple makes about $6 to $7 Billion each quarter from commission fees for transactions that go through the App Store's payment system. That would mean the App Store earns $24 to $28 Billion per year.
Taking that at face value, let's say that app developers start using third-party payment methods for in-app purchases. Now, you could argue that this could be a big loss for Apple. Essentially, it might seem like a small win for Epic and app developers. Nope, guess what? The Cupertino company already has a plan in place to protect its interests.
App Developers will need to pay a commission for using third-party payment methods
Apple charges developers a commission fee of 15% or 30%, depending on whether they are a member of the Small Business Program, or not. According to a statement that Apple sent to 9to5Mac, the Californian company has reformed the App Store guidelines to relax its anti-steering rules in the U.S. The company will allow developers to offer payment offers via third-party sites, provided that the apps also offer Apple's own payment system as one of the in-app purchase options.
(Note: the 9to5Mac link downloads a PDF when accessed via Firefox.)
Developers who wish to use alternate payment methods will need to apply for an entitlement, that will allow them to include buttons or links to the third-party payment systems. That may seem like good news at first glance, but here is a twist. Apple will attempt to charge a 12% commission fee from small developers, or 27% from large ones, as a revenue share for transactions that are done via third-party payment methods.
That's not even the worst part, Apple says that developers will be "required to provide a periodic accounting of qualifying out-of-app purchases". The company also has a right to audit the developers to ensure they are complying with the rules or not. Apple claims that it may difficult to collect this commission. That is ridiculous, as the whole point of offering third-party payment systems is to reduce the financial burden of the developer and users who pay for the in-app purchases. This new system defeats the entire purpose of providing benefits for users and developers.
I suppose third-party payment methods can be useful in regions where specific payment systems do not work due to local laws. e.g. Some domestic debit cards and credit cards may not be used for International transactions, etc. But this is not a problem in the U.S., is it? This is just Apple being Apple, and doing everything in its power to hold on to its shiny coin, and maintain its monopoly in its ecosystem that is akin to a walled-garden.
Tim Sweeney called Apple's decision to charge fees for third-party processors as a bad-faith "compliance" plan for the injunction, which undermines the order. He termed the solution anticompetitive, and said that Epic Games would be contesting the new guidelines in the District court. He also criticized the requirements for placing the in-app purchases in a different section instead of where a user may regularly access the option from. Sweeney was not a fan of displaying a full-screen warning about third-party payment processors, saying that this was Apple's "scare screen" which could dissuade users from proceeding with the transaction.
That is a valid argument. Is a 3% discount good? 27% or 30%, it doesn't make a big difference if you count in credit card fees, taxes and other fees that a payment gateway may charge you for. So, in the end, I think it's a big disappointment for users who were hoping for cheaper prices, and for developers who wanted to bypass the 30% commission fee.
I don't think all is lost. The U.S. Department of Justice is preparing a sweeping antitrust case against Apple, and a part of that lawsuit will focus on allowing sideloading of apps, and access to third-party app stores on iOS. Apple is expected to allow sideloading apps in the European Union from March 7th, to comply with the Digital Markets Law. The company is also facing the heat from antitrust regulators in Japan for blocking installation of apps from third-party sources.Advertisement