It is unlikely that the court’s decision to force Apple will allow the use of external payment systems for in-app payments, which would greatly affect the company’s outcome.
No one liked the first 185-page Apple-v-Epic phrase when it arrived on Friday. Apple will need to allow people to pay for apps and in-app purchases using third-party payment services that developers will be allowed to connect to.
Epic is appealing the decision, but it is interesting that, although it sued Apple and Google for the 30% fee, it did not start a lawsuit against Nintendo, Microsoft or Sony, all three charge the same fee in their online stores.
What does the sentence mean?
Judge Yvonne Gonzalez Rogers’ ruling means that when you pay for a Spotify subscription or start the app, you can receive a link that allows you to pay through payment systems other than Apple.
I assume that developers will be able to choose which payment systems to use, but I imagine that Apple will still be able to insist that its payment systems be an option. Developers will have a choice. Some will offer their applications / services up to 30% less than the equivalent cost through the store; others will try to keep the extra change. Some will not bother to offer alternative payment systems; others are eager to do so.
What does this mean in practice?
What made the decision is to launch a new type of competition in the App Store and, if it happens there, it will happen elsewhere. After all, if Apple is forced to open up to payment competition (even a little), logically it should be like all other app store providers. Basically, payment systems in app stores have emerged as a new competitive space, and while this is bad for Apple’s bottom line in the short term, it may be able to reverse this challenge.
What can Apple do?
Apple can compete. The judge pointed to the 70% profit margin now generated by App Store sales, which is incredibly high and shows why Apple’s current 30% margin should change. At the same time, Apple’s payment systems are relatively robust and some of the benefits of using them are somewhat unknown. That will change.
Apple will simply strive to illustrate the inherent benefits of its own payment systems and work to improve the experience of using them.
What kind of things could improve?
There are many things Apple can do to improve your system. The decision highlighted some of these, including resolving disputes between developers and customers. Other improvements may include a quick resolution and the promise to return the money accidentally spent when children get involved in shopping.
The company can consider customer incentives provided by other payment processors, then select the best ones. Apple can focus on its strengths in terms of usability and customer experience design to ensure that when given a choice, consumers continue to select their brand for in-app payments.
Will consumers use alternative payments?
While Apple must now allow developers to include links to alternative payment systems in their applications, will consumers use them? We have seen several analysts conclude that the real effect of the ruling against Apple will be minimal. Wedbush analyst Daniel Ives estimates a 3% increase in revenue, but predicts: «The vast majority of consumers will continue to use the App Store for in-app purchases.»
Why could that be?
I think the friction of the payment processing services that developers choose to implement will make a difference. I also think that many smaller developers (who are the majority) will simply not bother to offer alternative payment systems. For its fee, Apple provides fraud protection, payment processing and payment-related customer support, which means that customers and developers have a point of trust.
Not all customers are the same
Much of the details of the error is that less than 0.5% of customers generate more than half of all revenue from the App Store.
«In the third quarter of 2017, large consumers, accounting for less than half a percent of all Apple accounts, spent ‘the vast majority of spending on games through IAPs’ and generated 53.7% of all invoices in the App Store for that quarter, paying more than $ 450 each. «
The hell is clear. Developers will need to provide shopping experiences that focus on the needs of the most premium customer segment. It will not be an easy market to satisfy.
Will developers offer alternative payment systems?
As a result of litigation, we now know that approximately 70% of App Store revenue is generated by games. Games also generate 98% of revenue from in-app purchases. This means that game developers are very likely to offer their own payment processing alternatives.
The most successful developers will be those who can offer a more elegant and user-oriented payment experience than Apple already offers. Consumers will soon identify the money as well, and eventually we’ll probably see half a dozen big names in the App Store payment space.
In the absence of a scale, proprietary payment systems are unlikely to match the user experiences offered by the largest payment providers. In this scenario, it seems inevitable that PayPal, Stripe and other large companies will appear as Apple’s main competition. Smaller operators will have problems.
The impact? Developers may find that they no longer have to pay 30% (or 15% for most developers) to Apple, but they will still be required to pay payment service providers of their choice. The only real question is how much they should pay and what kind of services they and their customers receive in return.
Why isn’t Epic happy?
One of Epic’s main goals was to force Apple to allow applications to be downloaded. The game’s developer argued that users should be able to install apps outside the App Store, just like Mac users. The court did not agree.
Epic is also unhappy because it was also asked to pay Apple the taxes it avoided when it breached its development agreement to offer sales outside the Apple system.
The court found that the Apple App Store model was justified on the basis of security, competition and intellectual property rights. In other words, it will not allow Epic or anyone else to offer alternative stores or in-store stores. All it will allow is a slightly more open approach to payments.
Is Apple a monopoly?
It doesn’t seem to be right now. Rogers rejected arguments that Apple is a monopolist, but warned that the company is:
«Close to the abyss of substantial market power or monopoly power, with its considerable market share. Apple is saved only by the fact that its participation is not higher, that competitors in related submarkets enter the mobile gaming market and probably because the applicant [Epic] did not focus on this issue. «
Apple now has to work hard to make sure it stays on the safe side of that rock.
That is happening now?
The App Store will not change immediately. Apple has been given 90 days to comply, Epic has already appealed the decision, and Apple can file its own appeal. It is reasonable to wait months of legal disputes before something changes.
The judge also said that it is logical for some fees to be paid at a certain level. «However, it is also true that, with few exceptions, not all companies have the right to have access to what is actually storage space if they cannot pay a commission to the platform host,» he said.
In terms of damage control, we can speculate that Apple could start supporting these external payment systems early next year, when it has already said that it will allow such support in Reader applications. That doesn’t mean it will be safe, it just might.
How can Apple make everything disappear?
I don’t think Apple can make Epic happy. At the same time, I think you can end most of this litigation by proposing a 15% fee for App Store fees and accepting payments from third parties, as you’ve been told. Although there will be a cost, such an action would almost certainly end most pending litigation and negative publicity.
But this will also define the rules of engagement. By merging about 15%, Apple may lose revenue, but will tell everyone that in order to compete, developers and payment providers will need to be able to provide a payment experience in the App Store equal to what Apple already offers. the same rate or less.
I suspect that doing so within the 15% margin will be a challenge. It certainly challenges Epic, which (court documents suggest) manages a portion of 88% to 12% of its own store revenue (which, according to the judge, is at a loss). That consumption of 30% may be too high, but 12% is too low. In the end, the only bargain is how much it should cost.
One more thing
Apple makes the platform that developers use to create the applications they sell. It also creates tools that developers can use to build those applications. App Store and hardware sales help fund software development today, but Apple will have to find new revenue to offset any losses caused by the App Store’s mandatory payment switch.
Apple has several options available.
In the short term, you can choose to increase the current nominal annual fee you charge developers for access to your development tools. You can link this fee to a developer’s income, or you can charge a distribution fee to provide anything other than free apps.
However, in the long run, I believe that Apple will not find the impact of the current court-ordered change as profound as many anticipate, as most consumers and developers continue to use their own payment systems because they are familiar with them and I already feel confident.