Apple Cracks Open App Store Ahead of New EU Law, Opening Market and Risks for Small Developers

Apple just announced dramatic changes for its services throughout the European Union. The shift was prompted by government-level action, and likely influenced by the lawsuit from the gaming giant Epic Games, which has been pushing against what it sees is Apple’s monopoly control.

Among Apple’s many tweaks, perhaps the most important is a relaxation of its famously controversial iron grip on the App Store. If your small company builds freemium apps–which cost users nothing at first, but generate income via subscriptions, or in-app purchases–you’ll definitely want to take note.

The rules as to exactly how the new app distribution system will work are layered, and very complicated. Apple has even made a special fee calculator available so developers can try and work out what the impact of the changes could be. You may look at this and see potential upsides for your business. But beware. There’s a contentious change Apple is implementing: the Core Technology Fee. This is a special charge for each app installation made outside its control, and it could land small developers with ongoing costs that they simply can’t handle in the way that a billion-dollar maker like Epic could.

To explain: Apple’s EU App Store changes boil down to two reimbursement systems running in parallel. The one you use could affect your company’s fortunes.

App developers can either choose to keep things exactly as they are, with their products available exclusively on Apple’s App Store, subject to Apple’s rules, and the longstanding revenue split the tech giant charges for access to its systems. This used to be a simple 70/30 split in favor of Apple, but in 2020 Apple launched the Small Business Program so smaller enterprises would only pay a 15 percent commission.

Or, developers can choose to adopt new business terms in the EU. Among these terms is the huge opportunity to sell apps through third party app stores instead of Apple’s Store. The Verge reports that at least one alternative app market has already said it’s going to embrace this option-AltStore. These alternative app marketplaces will (mostly) operate outside of Apple’s strong control on how apps are downloaded onto devices like iPhones or iPads. Users could visit such a store, see an app they like, and download it-all without having to use Apple’s App Store or even its payment systems. 

App developers could be attracted to selling their wares through these stores for a variety of reasons. Imagine an alternative app store that could “fit” your app better, for some reason. Say your company sells a sci-fi or horror game. You may decide that it would sell better from an app store that focuses only on promoting this genre. 

Perhaps the most attractive part of selling your app through a third-party store like this is that app developers don’t have to pay Apple a commission at all. Third-party app store owners would be free to charge developers a different commission, of course. They could tempt companies by offering a different revenue split to Apple’s that’s more in favor of developers, or maybe even charge no commission at all.

But the catch is that apps sold under the new EU business terms have to pay a Core Technology Fee (CTF) of €0.50-around 54 cents-per alternative app installation, per year.

The first million app downloads aren’t subject to Apple’s tech fee. But imagine your company sells a freemium app that has a wild overnight success and your total download number jumps to 2 million. The second million downloads would be subject to the CTF, and you’d suddenly find yourself owing Apple more than $500,000. As website MacRumors points out, this could be really problematic for smaller developers who rely on freemium business models. 

Your free-to-download apps must earn you at least €0.50 on average from every user before you can even start thinking about profits beyond the first million downloads. If your freemium app has a large number of nonpaying or low-paying users, that’s could be tricky.

So, even if you don’t foresee your company earning big from a viral app success in the EU, the new rules may mean you opt to change nothing and keep your app distribution under Apple’s existing App Store system. It’s clearly what the $3 trillion company prefers.