Note: Apple announced that it would be reducing the App Store fee from 30% to 15% for most developers starting on January 1st, 2021. Check out this article from The Verge for more information.
For app entrepreneurs and ecommerce store owners, the battle to be noticed in the marketplace is ongoing.
For customers, the process of looking for apps to download usually takes place in one of the four leading app marketplaces; Google Play, Apple App Store, Windows Store, and the Amazon App Store. According to Statista, there are millions of apps available for download across each of these platforms:
Yet in August, Epic Games took aim at Apple’s App Store, claiming that their commission cut was unacceptable. The company’s move to circumvent Apple’s App Store policies with its app Fortnite triggered a lawsuit in the process.
Epic Games wants to change a fundamental part of Apple’s App Store: how much commission they take and ultimately how much the marketplace earns.
Yet the undertones of Epic Games’ argument is what really matters here.
How viable is it for companies to shop their apps outside of mainstream marketplaces? Is it safe? How can they make sure their customers trust the content and can handle transactions safely?
We’re going to take a look at:
- What’s at stake for Epic Games and Apple?
- Why software/SaaS companies should care
- Epic Games wants to take control of their online sales with its own marketplace
- Why this isn’t a reasonable solution for all companies
- The importance of direct to consumer sales
Ready to break all of this down? Let’s go 👇
What’s at stake for Epic Games and Apple?
Let’s take a step back in time to August 13th, 2020.
That is the date that Epic Games made a feature update to their enormously popular App, Fortnite.
The change Epic Games’ developer’s made to the app was so that people playing the game could circumvent Apple’s policy and pay Epic Games directly for the in-app currency they needed to keep playing Fortnite. According to Apple’s App Store policy, all payments need to go through their system for security and commission reasons.
By disregarding the Apple store’s payment processing system and breaking the rules, Epic Games were able to offer in-app currency to its users at a cheaper price.
The move was… controversial, to say the least. Fortnite is played by more than 350 million players across the globe, so the impact on Apple’s revenue is potentially devastating.
After Epic Games made the changes to Fortnite, Apple quickly banned the app from its App Store. Epic Games retaliated by suing Apple, alleging their rules and commission cut are anticompetitive. In an email to Apple, Epic’s CEO Tim Sweeney said the lawsuit wasn’t just about Fortnite, but about addressing basic freedoms of all consumers and developers.
“We choose to follow this path in the firm belief that history and law are on our side.
Smartphones are essential computing devices that people use to live their lives and conduct their business.
Apple’s position that its manufacture of a device gives it free rein to control, restrict, and tax commerce by consumers and creative expression by developers is repugnant to the principles of a free society.
Ending these restrictions will benefit consumers in the form of lower prices, increased product selection, and business model innovation.”
The underlying premise of Epic Games’ fight hasn’t been lost on some developers, who think the company brazenly used Apple to build up its revenue, and now it’s trying to build its own marketplace to take their own revenue cut. Case in point:
So, there is an argument being made by Epic Games for freedom within the marketplace. They believe smartphone users should be free to install apps from sources of their choosing, creators should be able to distribute them as they wish, and both groups should be able to do business directly without unfair commission structures.
Apple isn’t biting 🍎
In a filing against Epic’s lawsuit, Apple said Epic has benefited from the store’s promotion and developer tools, earning more than $600m through the App Store marketplace.
“Although Epic portrays itself as a modern corporate Robin Hood, in reality, it is a multi-billion dollar enterprise that simply wants to pay nothing for the tremendous value it derives from the App Store,” Apple’s Head of Games Business Development for the App Store, Mike Schmid said in the filing.
“In particular, Epic requested an exemption from Apple’s then-in-place guideline against gifting within apps,” he continued.
“As a general rule, Apple had prohibited live in-game gifting because such activity, if left unregulated, can be a major vector for fraud if not carefully monitored.”
So where does this leave developers and ecommerce stores and what is more important—freedom or safety? 🤔
Why software/SaaS Companies Should Care
The battle between Apple and Epic Games goes beyond revenue.
It’s about addressing core issues of app marketplaces, like safety policies, security, fraud, and malware. A recently released study by Analysis Group found the App Store was responsible for $519 billion in estimated total billings and sales last year. Of those sales, only $61 billion are subjected to Apple’s 30% revenue cut.
Although it’s still a huge number, Apple’s point was that the revenue cut it takes isn’t always cut and dry. For example, it offers a reduced 15% commission rate in the case of longer-lasting subscriptions.
What software companies need to know is the other strict regulations that Apple requires, that aim to be beneficial for both developers and consumers.
The company requires app developers to follow strict policies around what it labels “objectionable content”, like pornography, violence, or drug use. Apple also regularly scans apps to search for security issues and spam that could be used to take data from people’s phones without their consent.
“Apple’s requirement that every iOS app undergo rigorous, human-assisted review — with reviewers representing 81 languages vetting on average 100,000 submissions per week — is critical to its ability to maintain the App Store as a secure and trusted platform for consumers to discover and download software.”
-Apple court filing
Like any good debate, arguments are brewing on both sides. Sweeney thinks the issue is bigger than Epic Games vs. The App Store. It extends to customer freedoms:
Tech writer Benedict Evans thinks Sweeney’s way of thinking is dangerous for developers and consumers:
So, what happens if monopolies like Apple have their power taken away and companies are free to sell products directly to consumers?
Epic Games Wants to Take Control of their Online Sales with its Own Marketplace
Epic Games’ ultimate goal is to add 3rd party payment processing systems to compete with the default payment systems within the App Store.
If they win their battle, users will be able to choose their preferred payment processing service when they make purchases for things like in-app currency. Yet the company’s goal to create their own marketplace doesn’t mean consumers won’t be paying fees—Epic Games’ store, Unreal Engine, takes a 12% cut on revenue.
So the debate starts to enter new territory. If it’s not about cutting out commissions (which Unreal Engine will keep), then a larger issue that needs to be addressed is how purchases will be processed.
As Benedict Evans highlighted in the last section, taking the marketplace’s payment processing environment out of the equation means that individual apps can then decide what payment processing option they want to use. This means that consumers and developers will be responsible for deciding what payment processing methods are trustworthy.
The downside to this move would not only be a significant cut in the App Store’s revenue, but it could also undermine one of their most valuable assets: the level of security placed on customer payments.
So, where does this leave developers and companies who might be wanting to move away from app stores?
Why Creating Marketplaces isn’t a Reasonable Solution for All Companies
First of all, selling apps and software isn’t as simple as deciding that you want to go out on your own.
There are five key areas you have to be aware of before shopping your app independently.
The reality is that relying solely on a third-party marketplace is not the best strategy for businesses looking to scale and grow into new markets.
Yet building a marketplace is complex. You have to think of a viable way to set up such an environment that will be able to process your customer’s transactions securely and distribute your product effectively.
Not all companies have the money and resources to build complex marketplaces to sell their digital products and services.
Belgian indie iOS Developer Edouard Barbier sells nine apps on the app store and says he is okay with the 30% cut as it gives him “free marketing”.
“If you know how to rank in search, the user acquisition is pretty much free for small developers, and that has huge value (for me personally), so I’m ok to “pay” Apple for this.
“Without the App Store, I wouldn’t be able to live off my apps.”
Of course, some developers believe selling apps on third-party marketplaces costs them money. Developer Christian Tietze says while using the App Store for distribution is convenient, it’s also a money sponge.
“You lose more money with each transaction, you’re bound to the strict App Store Sandboxing policies, you cannot create special offers – and if Apple disables your account, your business is effectively closed,” he says.
“This doesn’t happen often, but it can happen.”
Pro-tip: You don’t have to pick between securely selling your apps and freedom. A full-service ecommerce platform like FastSpring takes the risk out of selling your software. From acquisition to activation through to renewal, FastSpring helps your company successfully manage the entire app subscription lifecycle.
Apple gives developers the tools necessary to build apps on their respective platforms.
But there are also other big draws developers like, such as the platform’s regular security updates and new tech it offers free of charge. Its review process also means apps are vigorously tested for fraud and content to keep standards high.
It’s fair to say that smaller companies just don’t have the resource pools to do the same.
Remember, there’s a reason that marketplaces like the Apple Store are so popular—consumers trust them to make secure purchases.
Every account linked to the Apple App Store is protected by two‑factor authentication, as well as using other tech like Touch ID and Face ID, which adds an extra layer of security.
Safely Selling Software Direct to Consumer
The good news for developers and ecommerce merchants is that even though marketplaces like Apple do have benefits, seeking an alternative solution is possible thanks to the emergence of full-service ecommerce solutions.
Selling software and apps outside a third-party marketplace and keeping your customer’s transactions safe is possible by using a tool like FastSpring. The full-service ecommerce solution acts as a Merchant of Record for your company, making it possible to sell digital products, software, and SaaSsecurely without losing 30% of your revenue.
This is the approach Eduard Metzger took when he launched his productivity app, NotePlan, in 2016.
While the app found initial success from the App Store, Metzger and his team soon realized that if the company wanted to maintain a steady revenue stream, they needed to find a way to sell directly to their consumers. The company decided to partner with FastSpring and use the platform’s flexible API to build a modern, popup checkout on their website.
Since partnering with a full-service ecommerce solution from their own website, NotePlan has doubled its app’s revenue and allowed them to expand to two selling channels which consistently drive revenue.
Want to learn more about how you can sidestep third-party marketplaces and still sell directly to your consumers? Check out our complete guide to D2C selling here!