You’re Paying Into a Broken System Whenever You Buy Something on iOS
by Owen Williams | Jul 30, 2019
omeone always pays the price for convenience. When you pay for something using the iOS App Store or Google Play on Android, developers may actually be the ones shouldering the burden, thanks to unfair policies around payments.
For example, Apple takes a 30% cut of anything sold through its App Store — be it an app download or a microtransaction within Candy Crush — which means a smaller profit for developers than they might get in an open app market. It’s the basis of a long-running lawsuit against Apple alleging a monopoly, one that the Supreme Court and European Commission have proven sympathetic to, but the problem exists elsewhere in the industry. Tinder earlier this month launched a new default payment system on Android asking users to type their credit card information into the dating app rather than simply tapping into the default Google Play option that similarly supplies the search giant with a 30% cut of the app’s revenue.
Tinder joins a growing contingent of developers, big and small, that are removing App Store payments from their apps to protest what amount to convenience fees. Tinder, Netflix, Spotify, and Fortnite-maker Epic Games have all implemented similar workarounds on Android — but on iOS, Apple bans any alternative payment methods, leaving developers stuck paying 30% if they want their products distributed to iPhone and iPad users.
Apple also expressly forbids apps to mention alternative ways to pay, such as on the web. (“Apps and their metadata may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase,” the policy states.) In protest, Netflix and Spotify recently removed the ability to subscribe to their services via Apple’s App Store entirely — no more revenue-sharing with Apple — leaving customers at a dead end. Tinder still accepts payments on iOS, but it may only be a matter of time until it takes a similar step.
This is a textbook case of abuse of power, and so far, Apple’s gotten away with it.
Previously, developers worked around Apple’s policy by raising the prices of subscriptions by 30% on iOS to offset the price of subscribers joining on their mobile devices. Services like TunnelBear, a popular VPN service, still do this, but they aren’t allowed to mention that their services are available for less money elsewhere — if they do so, they risk being removed from the App Store.
On no other platform would we accept a scenario where the owner of that platform dictated not only the tools developers can use, but restricted the ways they talk about their products and pricing. We would call it unfair, monopolistic, and overbearing. But on our smartphones, it’s just a fact of life.
It’s time to reboot the system.
Apple’s rules — or bust
Here’s the thing: If you’re a developer for iOS or macOS and want to charge customers money, the Apple-provided payment tools, which demand a 30% cut, are the only ones you’re allowed to use. It’s not even a discussion.
You’d assume that if Netflix or Spotify weren’t happy with the cut, they could just direct potential customers to their web browsers to pay for the service, but as I’ve mentioned, Apple outright forbids this in the App Store rules. Developers aren’t allowed to link to a site where users might find a way to pay, and can’t provide a sign-up link or even a simple URL, either. This leads to absurd situations like that of the Kindle app on iPad, where Amazon can’t even link to the Kindle store, and users must figure out on their own that they should visit it on the web to make purchases.
Generally, if you’re building a subscription service like Netflix or Slack, you’ll need to use a “payment provider” to facilitate the complexity that comes with accepting payments. There are many different companies to choose from, like Adyen, Stripe, and PayPal, and all of them integrate within your app to process payments on your behalf.
For each card processed, a developer will pay an average processing fee of around 2% to 3%, and they get much more control over how the payment process appears to the user. When building for the App Store, however, Apple forbids developers from using their existing providers — forcing them to route payments via Apple’s own tools and to pay that 30% cut.
It’s true that Apple will reduce its cut to 15% in the case of subscribers who stick around beyond the first year, but that’s cold comfort. Take Netflix, for example: It will compete on razor-thin margins with Apple’s forthcoming TV service, so the pricing structure presents a big disadvantage, as Apple can price its own services much lower given it’s not paying the same fees.
It’d be one thing if Apple passively provided a platform, but it directly competes with many of the apps on its own App Store. In the music space, which already lives on razor-thin margins, Apple is able to charge customers 30% less for Apple Music than Spotify, because it doesn’t need to pay its own fees. Spotify is either forced to pay artists less or lose money to compete at the same price point, which gives Apple an unfair advantage.
This is a textbook case of abuse of power, and so far, Apple’s gotten away with it.
Developers should be able to build their own payment solutions in a similar way to those on Android, where an approved pop-over allows them to show their official payment gateway on the web.
That choice would enable real competition, and Apple’s payment tools would suddenly start competing for customers like on any other platform in history. Apple should be forced to compete on merit — if Apple’s payment solution is the best, developers will use it without being forced to.
Apple should charge developers for the bandwidth or other services they use, just like any other cloud platform.
Is any of this status quo justifiable? Apple fans are quick to point out that their 30% fee is fair because the company needs to somehow offset its costs for providing the App Store to developers, which helps them both reach audiences and distribute their apps for free at a massive scale. Apple also regulates the App Store, blocking developers whose apps are fraudulent or even dangerous. It’s a walled garden, and Apple mans the walls.
But this setup ignores how other industries have solved this problem: by offering choice. Cloud-hosting platforms charge their users for the bandwidth they consume, how much processor power they use, or the size of their servers. A simple solution here: If a developer decides to use their own payment tools to avoid the 30% fee, Apple should charge developers for the bandwidth or other services they use, just like any other cloud platform.
Or if that’s too complex, there’s a much simpler solution: Apple should not be allowed to arbitrarily restrict developers from mentioning they can pay on their own websites, particularly in categories it directly competes in. Keep the 30% cut and mandatory payment tools, but give developers a choice in the matter where they can send users to a website — or at least even mention its existence — to get the service for less money.
I reached out to Apple and asked for comment on all of this, but a representative did not immediately respond. In May, Apple rolled out a new website to respond to criticisms of its App Store model — with security and quality being the chief justifications.
“We take responsibility for ensuring that apps are held to a high standard for privacy, security, and content because nothing is more important than maintaining the trust of our users,” the site says.
All of this feels so ridiculous to write out, because the system is so obviously broken. In no other industry has this level of control ever been allowed to exist — Microsoft spent a decade fighting an antitrust suit over the fact that Internet Explorer was set as the default web-browsing service on Windows, ultimately settling for billions of dollars and a painful “browser choice” screen.
Apple, meanwhile, only allows app payments from a single source (its own), provides the exclusive payment tooling, and gouges developers while enforcing blatantly unfair rules over how they present their own services. If there were ever a prime case for breaking up a company, and forcing Apple to make the App Store an independent entity, this is it.
Until now, regulators have turned a blind eye, but recent news suggests that might change as the FTC begins to take a closer look at monopolies in the tech sector. Unless we all make noise about it, nothing will change — and everyone’s wallets will be worse off for it.