SILICON VALLEY -- Apple announced on Wednesday that it will slash its App Store fees for smaller developers as the U.S. tech giant faces a showdown with global app makers over its commissions.
Apple currently charges a 30% commission on App Store sales and in-app purchases. From January, that rate will be cut to 15% for developers with sales below a certain level.
Apple said the planned fee cut is aimed at supporting small and midsized companies and individuals amid the coronavirus pandemic, with CEO Tim Cook stressing the importance of smaller business operators to the global economy.
The move, however, also comes as Apple and Google -- which likewise charges a 30% commission on its Google Play store -- face pressure over their app distribution policies and fees.
In August, U.S.-based Epic Games, the developer behind popular online game "Fortnite," took legal action against Apple, alleging uncompetitive practices in how it runs the App Store, including its rigid commission system. With Epic Games seeking support from other developers for its cause, Apple's planned fee cut appears to be aimed at heading off further criticism of the company.
The 15% fee will apply to business operators whose sales through the App Store in 2020 were $1 million or less. For business operators who start selling apps from January, the 15% rate will apply until sales in 2021 exceed $1 million, after which the 30% rate will kick in for the rest of the year, according to Apple.
Research has shown that just 1% of app publishers account for 80% of total downloads. Apple has not said what percentage of developers will be affected by this price cut, but it will likely be many of its 28 million registered app providers.
The App Store opened in 2008, the year after the first-generation iPhone went on sale, and is the sole avenue for app downloads for the world's 1.5 billion Apple devices, including iPhones, iPads and Mac computers. It boasts some 1.8 million game, communications, payment service, music and video apps.
Apple takes a 30% cut of app sales or in-app sales for paid apps, but it does not take any fees for free apps. For subscription-based apps, the fee is 30% for the first year and 15% after that.
Total sales on the App Store, including the sales of goods and services through apps, reached $519 billion in 2019, according to Apple. If the store were a country, its gross domestic product would be the 27th highest in the world, narrowly behind Sweden and Belgium.
Apple's move could impact Google's app strategy. Although the internet giant allows third parties to set up app distribution services for its Android mobile operating system, commissions on transactions made through apps downloaded from Google Play remain at 30%.
In addition to pursing legal action against Apple, Epic Games has also set up a nonprofit organization with Spotify, the Swedish music streaming app, and others to lobby for a more equitable app distribution infrastructure. With Microsoft endorsing the Coalition for App Fairness, as the group is called, Apple and Google may face further pressure to cut fees and offer more flexible distribution systems.