The majority of new startup businesses in the 2020s are technology-related businesses. They operate mostly or entirely on the internet and frequently don’t own offices or have a high street presence. Having a website was enough to support such a business in the early years of this century, but it isn’t as we move further into the century’s third decade. In an increasing number of cases, a business also needs to have an app – and that can seriously eat into your profits. Apple’s App Store and Google’s Play Store are both generally happy to have you as customers – but that custom comes with a price to you.
In return for featuring your app on their stores and allowing anybody to download it, both Apple and Google take a cut of all the money you make through your app. That cut isn’t limited to the amount it costs to purchase your app. It also covers any payments taken through the app. That cut is thirty percent, which is no small amount when you’re a new business trying to find a foothold in the market. That leaves a small business owner with two options. They either charge more for sales through the app than they would if they were doing business through their website, or they swallow the cost. Swallowing a thirty percent loss in profit isn’t something that most small businesses can handle, so they tend to do the former. That means higher prices, and higher prices frequently mean fewer sales.
This issue has been in the news frequently within the past year thanks to Epic Games and its ongoing standoff with Apple about the massively popular Fortnite video game. Epic thinks thirty percent is too much for Apple to charge when the company does nothing other than host the app, so they found a way to circumvent it. Apple responded by accusing Epic of theft and kicking Epic’s apps off their store. That dispute still hasn’t been resolved and is likely to result in many court cases as the two enormous companies gear up for a lengthy battle. In the meantime, Google has been re-evaluating its own stance on the matter.
The point that’s been made by Epic Games – along with several smaller businesses why sympathize with their stance – is that app developers have no choice but to agree to the 30% cut if they want their apps to be listed. They compare the situation unfavorably to the vibrant and thriving online slots website industry. There are thousands of online slots globally and thousands of websites upon which those slots are hosted. That gives online slots developers a wide choice for where they want their creations to be published. If an online slots website wants too large a slice of the pie for hosting the slot, they’ll go elsewhere. Different online slots websites offer different terms, and everybody’s happy. The “hosting and charging for access” system is the same for the App Store and the Play Store, but Apple and Google are the only operators available. There’s no freedom of choice, so developers have to accept the terms or go without providing customers with access to their apps.
Google has pointed out in the past that its terms aren’t as restrictive as Apple’s. While Apple won’t allow apps to be downloaded to an iPhone or an iPad via any other means than its App Store, Google will allow customers to download apps from third-party websites or other sources. That’s a small improvement, but most customers won’t go looking for websites to download apps from. They’re accustomed to getting them through the Play Store, and if they can’t find what they’re looking for there, they’re unlikely to carry on looking. Now, Google has taken another step toward helping out small businesses. With effect from July 1st, they’re going to cut their share of the revenue from 30% down to 15% for the first million dollars made by a developer each year. For the overwhelming majority of small businesses who can only dream of one day making one million dollars in sales each year, this amounts to a permanent rate of fifteen percent. It’s still high, but it’s progress.
For the sake of clarity, we should also point out that Apple announced a similar change last year and has already implemented it. However, there’s a crucial difference between Apple’s terms and the terms offered by Google. Under Apple’s terms, if a developer’s revenue exceeds one million dollars in any given year, they’ll be permanently removed from the reduced rate and charged thirty percent on all earnings as we advance from that point. Google’s rate applies to the first million dollars earned by every developer every year. It doesn’t differentiate between small developers and large developers, and more importantly, it doesn’t penalize people for earning more in one year than they do the next.
We probably haven’t heard the last of the debate about app store fees. Many industry analysts believe that thirty percent is a scandalous rate to charge for access. Even fifteen percent would be seen as far too high if more companies were around to provide competition. That doesn’t seem likely to change at any point shortly, though. So long as mobile phones use either iOS or Android, they’re stuck with Apple’s store or Google’s store, respectively. It might take legal action to force their hand on the issue and persuade them to look at reducing rates further, and that might yet be one of the outcomes of Epic’s court battle with Apple. Expect several appeals to be filed by the losing sides in that battle before any finality is achieved on that front, though.
Until then, the news, in brief, is that operating a small business that uses an app to interact with customers just got cheaper through Google’s Play Store, and that will hopefully make life a little easier for companies and sole traders working with small profit margins. Hopefully, that fifteen percent saving can be put to good use.