On Wednesday, Apple announced that it would halve the commission rates charged to small app developers and individual developers earning less than $1 million, down from 30 percent previously. Following the announcement, media and institutional analysts commented that 98 percent of developers would benefit but would not have a material impact on Apple’s profits.
The New York Times: Apple finds the best of both worlds
Apple’s move to cut commissions for small and medium-sized developers in the App Store will have little impact on its profits, but it is a sudden shift in the company’s attitude to commissions, which it has been adamant about. In the 12 years since its launch, the App Store has helped Apple achieve impressive growth, but the company seems reluctant to do anything to change it, even as its charging policy becomes the focus of antitrust complaints.
Now, Apple seems to have found the best of both worlds, winning over countless developers and allowing its executives to justify their commissions to regulators and journalists, none of which will cost the company too much. Sensor Tower, an app analytics firm, estimates that the change will affect 98 percent of developers who pay Apple commissions, but these developers accounted for only 5 percent of the app store’s total revenue last year. However, lower commission rates may not calm the gap between Apple and the big app developers, who have long complained about the fee, and Apple’s move may just be an attempt to appease regulators.
Washington Post: Apple is trying to evade regulation
Critics, including many developers, argue that Apple is trying to evade regulation by cutting app store commission rates, a move that will do less to increase competition and innovation in the app store and will not change the app store’s business fundamentals. Many developers have accused Apple of using the App Store for anti-competitive behavior, and lawmakers are investigating.
Andy Yen, founder and chief executive of ProtonMail, said Apple’s offer of discounts to small developers was “ulterior motives”. “Apple’s position is basically this: as long as you’re not big enough to compete with us, you’re eligible for a fee cut,” he said. But once you start to gain attraction, we will immediately use anti-competitive pricing to strengthen our dominance. “
“We want regulators to ignore Apple’s move to ‘decorate the front door,'” said Adam Grossberg, a Spotify spokesman. David Heinemeier Hansson, co-founder of email service Basecamp, said: “I think it’s a very clever stopgap and I hope it doesn’t work. The impact of this move was so small that it was like a joke. “
The Federal Trade Commission and the Justice Department declined to comment on Apple’s move. A spokesman for the European Commission, the EU’s top antitrust agency, said the investigation was ongoing.
Wall Street Journal: Dividing the app developer community
Apple will halve the commission it charges smaller developers who sell software through the App Store, meaning it has made some concessions to critics on how to exercise power in its digital ecosystem. However, Apple’s new initiative applies only to small developers earning less than $1m, for which big developers such as game developers Epic Games and Spotify still have to pay a 30 per cent commission.
Tim Sweeney, chief executive of Epic Games, said Apple’s move was aimed at dividing the developer community and preventing them from uniting against Apple. Apple hopes to eliminate enough critics so they can get away with it by blocking competition.
As a result, the fee cut gives Apple the ability to defend itself against claims that its practices hurt small developers while keeping most of apple app store revenue intact. Gene Munster, an analyst at Loup Ventures, a venture capital firm, said Apple’s discounts were unlikely to have a significant impact on its revenue. He estimated that the move would cost Apple $1.6 billion and cut its revenue forecast for the current fiscal year by 0.5 percent. Munster estimates that Apple will still receive $15.8 billion in commissions from developers this year.
Andrew Uerkwitz, an analyst at Oppenheimer, said Apple was seeking to strengthen its position in the eyes of regulators. That won’t have a big impact on Apple’s revenue. Instead, it shows that Apple cares about small developers. However, the timing of the rate change may not bode well for Apple. Ken Rumph, an analyst at Jefferies, said: “Doing so under duress could cost Apple the appearance of support for developers. “
Bloomberg: Apple App Store revenue will still rise
Apple will cut in half the commission it charges most developers who sell software and services in the App Store, marking the biggest change in the company’s revenue structure since the service was launched in 2008. However, for many developers, this is still not enough.
Revenue from app developers has been key to Apple’s growing service business, which will earn nearly $54 billion in fiscal 2020. Toni Sacconaghi, an analyst at Sanford C Bernstein, said the App Store is one of several products and services that make up Apple’s services division, but it is its biggest source of revenue. He estimates that the App Store alone will bring in $18.7 billion in commission revenue in 2021, about a third of Apple’s total service revenue next year.
Shannon Cross, an analyst at Cross Research, estimates that the fee adjustment will reduce Apple’s revenue by about $600m in 2021 ($274.5bn in fiscal 2020, $600m is less than a day’s worth of revenue for Apple). ), which is only 3% of her company’s forecast for app store sales. Apple is betting that the fee cut will lead developers to develop more apps and stick to the App Store, which will generate enough new revenue to offset any potential negative financial impact of the fee cut.
J.P. Morgan: The impact of the fee cut on Apple is limited
Apple has cut app store commission rates for most developers, and while the company’s revenue and earnings per share may face some headwinds, it will have only a limited impact on the company’s finances.
Samik Chatterjee, chief analyst at JPMorgan, said the move “may be a response to the increasing scrutiny of the business practices of ‘big tech companies'”. He says the plan will reach most developers, but the impact on store revenue drivers is likely to be much smaller. These benefits will apply to small businesses and independent developers rather than major platforms, so the impact on Apple’s potential earnings will be relatively small.
JPMorgan estimates that every 5 per cent reduction in app store fees could reduce revenue by $2.7bn and earnings per share by 3 per cent. Currently, the investment bank estimates that the app store has commission revenues of about $16 billion and total revenues of $55 billion, based on 31 billion downloads. Apple’s latest data shows that the App Store has about 585 million subscriptions. Based on forecast earnings of $4.85 per share in 2022 and a mixed price-to-earnings ratio of about 31 times, Chatterjee maintains Apple’s $150 target share price.
Morgan Stanley: It doesn’t mean a broad shift in policy
Katy Huberty, an analyst at Morgan Stanley, said the financial impact of the plan to lower app store commission rates on Apple was “irrelevant” and did not mean a broader policy shift. Mr Huberty said the “vast majority” of the app store’s revenue came from the biggest developers, so the plan was unlikely to have a significant impact on Apple’s profits.
So far in 2020, 1,500 developers have contributed 91.7 percent of the App Store’s revenue, according to data compiled by Huberty. As of November 15, the developers’ total revenue, excluding commissions, was $40.3 billion. By comparison, another 23 million developers generated a combined $43.9 billion in revenue. All in all, this means that “there will be no material impact on Apple’s financial performance”. The 50 per cent cut applies to small developers with only 5 per cent revenue, meaning app store revenue is likely to fall by only 20 basis points and earnings per share by $0.03.
Huberti, meanwhile, doesn’t see the plan as a sign of a broader change in Apple’s App Store commission rates. Instead, it follows a precedent set by Apple to “adjust app store commission rates to support growth that is good for both Apple and the developer community.” The analyst believes the new plan will stimulate innovation and engagement by independent and smaller developers. In the long run, this may accelerate the growth of application downloads. (Small)