Deconstructing App Store Economics

To All:

Flashback to August 2020 when Epic brazenly challenged Apple’s closed mobile apps ecosystem in Fortnite.

After integrating an embedded payment flow ($9.99 vs. $7.99 or 20% discount), the Apple vs. Epic legal war quickly ensued.

While there has been endless debate and conflicting interpretations of the implications to the overall industry, one thing is absolutely clear: change is coming. 

No matter the specific interpretation of the current legal actions, everyone should by now accept that deeper changes are coming. And hopefully finally acknowledge the many changes that have already occurred:

• Apple reduces IAP commissions for subscriptions and small developers (TechCrunch)

• South Korea requiring alternative payments systems (WSJ)

• Apple must allow app developers to link out to alternative payment websites by December (CNBC)

Thank you Tim Sweeney!

For those of you that missed it, I was fortunate enough to be the last interview with Tim literally the weekend before the Epic vs. Apple wars kicked off. In that interview, Tim spoke not only about the future and economics of the Metaverse but about the Apple App Store monopoly and broke down specific economics behind App Store commissions.

If you haven’t read or have already watched this interview, I highly recommend you check it out:

• The Economy of the Metaverse | Interview with Epic CEO Tim Sweeney

To further discuss the potential structural and economic impact of changes to App Store economics we spoke with a few industry smart guys as below:

Speakers:

• Chris Hewish, President at Xsolla. Xsolla offers alternative payments system currently live for webstore and ready to go to support mobile payments as more openness comes to app stores.

• Matthew Kanterman, Sr. Equity Research Analyst at Bloomberg Intelligence. Matthew is an expert in mobile games, Asia, and increasingly the Metaverse (check out his podcast Into the Metaverse).

• Brett “Remote Work” Nowak, CEO of Liquid & Grit. L&G is a leading market research firm for mobile gaming and has IMHO the best research reports in the industry.

Key Take-aways:

• The nuance behind App Store changes comes at 4 levels: 1. App Store fees, 2. Contacting customers about web payment alternatives, 3. Direct link in-app to alternative payments, and 4. alternative App Stores.

• Generally speaking, all speakers agreed fees should come down but some disagreement on how much. Likely the range provided by Tim Sweeney makes sense: 7-12%

• Most people still aren’t aware that the lack of clarification in recent court rulings still give Apple leeway to control App Store economics. Two issues in particular: 1. Apple could allow alternative payments but still take fees off of gross regardless of payment method and 2. Apple could disallow web or alternative payments for cross-platform games to work in iOS games.

• Most speakers are skeptical of alternative app stores to gain significant traction. For there to be any chance, we would need fairness. See the point Tim Sweeney makes in his interview about Google creating artificial barriers to alternative app store adoption.

• Increasing legal and regulatory restrictions by different geographies will further complicate App Store policies potentially creating a very confusing app store market in the future or forcing more openness by Apple.

How do you think this plays out? Let us know!