Apple services and the App Store tax

Jason Snell posted about Apple’s record services revenue:

As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac.

Back in 2011 I explored the App Store’s 30% cut from the perspective of supporting free app downloads:

I’ve argued that Apple’s 30% tax is about growing that to significant profit at the expense of developers, but in the back of my head I’ve also been concerned that maybe it’s just to keep the App Store from falling into the red. Maybe they are really struggling under the weight of what they created, and long app review times and lack of focus around the Mac App Store launch are just symptoms of that.

In hindsight, 7 years later with $9.5 billion in services revenue per quarter, my attempt in that post to reconcile Apple’s cut seems like a stretch. To echo what Jason says above, I still believe that services should complement Apple’s core products.

iCloud storage is there to make the experience of saving files or backing up your iPhone better, not to nickel-and-dime users who need more storage for a backup. The App Store is there to make discovering apps easier, not to turn developers into a profit center. The more these parts of Apple’s business dominate their revenue, the more divorced their product planning becomes from what users and developers need.

$9.5 billion. As I’m posting this their stock price just pushed the company to $1 trillion in market cap. Many developers can’t make enough to support even a 1-person indie business full time.

As an exclamation point on the discussion around services revenue, Apple has also cancelled their affiliate program. Stephen Hackett sums up what I think many people in the community are thinking:

Payments made to people linking to apps with affiliate links comes out of Apple’s share of revenue generated by app sales and in-app purchases. How much money it costs them is unknown, but the idea that the reasons behind this move could be financial in nature feels pretty gross. Apple is a for-profit company, and it has no bottom-line reason to keep this program open, but sometimes doing the right thing comes with a cost.

And John Voorhees on Apple’s statement that the App Store no longer needs affiliate links:

If that’s the case, it’s short-sighted, but it’s certainly Apple prerogative to run its programs as it sees fit. Still, it’s not the right way to address the publications, developers, and others that have generated millions of dollars of referrals over the years in exchange for a modest 7% cut.

I’ve argued since the first days of the App Store that Apple’s 30% cut is too high. This tax on developers is completely out of line with the value that Apple provides. The fact that Apple is bringing in so much money from services — nearly as much as the Mac and iPad combined — shouldn’t sit well with developers who are still struggling. It’s even worse now without the affiliate program, which developers could use to recoup some of that 30%.

Note what I’m not saying. I’m not saying that Apple should lower the rate to match Stripe’s 3%, or that Apple should operate the App Store at a loss. It costs real money to maintain the App Store infrastructure and commit to featuring apps every day. But there should be a middle-ground that gives developers the best shot at a sustainable business.

Introducing a 15% tier for in-app purchase subscriptions (after the first year) was a good start. Most developers thought we’d never see that. We should be calling for an across-the-board 15% rate for all App Store transactions. It’s the right thing for Apple to do. As Apple’s services revenue continues to grow — and the TV streaming service will only add to that — the time to make this change is now.

Manton Reece @manton