Seeking DMA compliance, Apple gets to business

Apple has once again tweaked its terms of business for developers as it continues to seek alignment with Europe’s Digital Markets Act (DMA) while looking to protect its business. 

The latest changes followed accusations from the European Commission that the conditions Apple had made so far to meet the DMA did not go far enough. Regulators felt the terms prevented developers from freely guiding customers to alternative ways to pay and were threatening very costly legal action for non-compliance with the law. In hopes of avoiding a large fine, Apple has now completely relaxed those rules, while introducing a new fee structure. 

As usual, the changes still won’t satisfy the company’s fiercest critics. But at this stage of the game, it appears very little will — though for the vast majority of developers Apple’s EU offer is better than before.

What changes has Apple made?

The primary change involves relaxed restrictions on how apps in the EU can link out to external sites. While some of the changes are relatively complex to easily summarize, the tweaks give developers a lot more flexibility as to where and how to promote external offers, including via competing app stores.

Apple is permitting developer links to open inside the app, rather than in a web browser. The company has also changed the way it charges fees for the service. Among the tweaks:

• First, it is introducing an Initial Acquisition Fee (5%), which must be paid for the first 12 months subsequent to a new customer being won on Apple’s platforms. This reflects the value of Apple’s platform as a way to find new customers and ends after 12 months.
• An additional 10% Store Services fee is charged for all sales of digital goods and services across 12 months following any app install, update, or reinstall, though the vast majority of developers will pay just 5%. The way this fee is structured means Apple will continue to collect it in future.
• Apple also takes a €0.50 Core Technology Fee for apps distributed via the App Store, Web distribution or alternative app marketplaces. This fee is paid for each first annual install over 1 million first annual installs in the year, and reflects a contribution to maintaining the company’s platforms.
• Users can opt-out of reading the disclosure sheet Apple provides to warn people when they are about to make purchases outside the protection of the Apple platform.
• Apple revised its fee calculator to help developers understand the consequences of the new fee structure.
• All the changes are described in full in Apple’s revised guidance on apps distributed in the European Union.

The guidance also notes that developers can communicate and promote offers for purchases at a destination of their choice (not just their own website) and can design those in-app promotions as they wish. This gives developers a lot more flexibility as to where and how to promote external offers and where those offers are made available.

There are plenty of nuances to the guidance that might apply to you or your business, but the basic outcome is most developers will be paying less and developers of free apps will continue to pay nothing at all. Fee-based apps with fewer than 1 million downloads (which is most of them) will pay just 5% Store Services Fee, or 7% for developers remaining in the App Store ecosystem.

How much is fair?

For all the complexity, it seems reasonable to believe Apple’s problems with regulators will inevitably coalesce around the question of how much is appropriate to charge for access to its ecosystem. It’s not as if globally accepted and used computing platforms create themselves; they are the sum of decades of work, investment, and effort that requires reward. Otherwise, why bother trying? 

Apple’s biggest critic, Epic CEO Tim Sweeney, doesn’t see it that way, arguing that Apple’s top rate 15% fee is an “illegal junk fee.” But it is difficult within that argument to discern any recognition for the value provided by Apple’s platforms. It can’t be that Sweeney doesn’t understand this intrinsic value. After all, Epic charges application developers using Unreal Engine 5% of revenue after the first $1 million. Is that a “junk fee?”

Logically therefore, it makes sense that those who profit from the existence of the platforms should compensate platform providers for the tools they use to build on them. You cannot warm yourselves beside the fire if you don’t go out and seek some fuel for those flames from time to time. 

While critics seem to think Apple (and by inference, every Apple customer) should bear all the costs of maintaining the platforms, that seems unreasonable. A competitive marketplace cannot and should not demand one entity stokes the fire, while everyone else casts happy shadows in the smoke. It requires at least some shared reward, and shared risk.

Where is the value?

With this new fee system, Apple has taken fresh steps toward defining the value of its business, by which I mean, addressing what it brings in terms of customer introductions, platform creation and development, and tools and support to developers. All three of these are uniquely provided by Apple and have inherent value. The only stumbling block is now and always has been, how much should that value be?

Apple meanwhile continues to work with EU regulators. The company has been in talks with them for years over these matters and will continue to engage as it works toward building a viable business proposition that works for Apple, EU, developers who value its platforms, and Apple’s European customers. 

We must now wait and see whether Europe feels Apple’s new changes meet their expectations of its behavior under the DMA.

More from Jonny Evans

• Why health might be Apple’s AI profit center
• Macs are becoming more locked down
• Here’s why Apple will become the world’s leading AI vendor

Please follow me on Mastodon, or join me in the AppleHolic’s bar & grill and Apple Discussions groups on MeWe.