Apple’s 30% Tax Hurts Startups

Photo by Andrew Johnson on Unsplash

Recently it has come to light that Apple’s 30% app store tax or “Service fee” is unjust. Spotify, Epic Games, and others have shed light on the unfair tax, and finally, people are starting to see that it needs to be changed.

However, I understand that it is tough to sympathize with the idea that a 2 trillion dollar company is taking 30% of revenue from other billion-dollar companies. Who cares about billion-dollar companies having any income taken from them? As a startup founder, I would like to share the issues that the app store tax presents for us.

I struggled with publishing this because I don’t want to bite the hand that feeds us, and I also don’t want to be complaining about things rather than just pushing through them. However, with all that is going on, I think it is essential to speak up on this issue.

Duopoly

The main concern is not the 30% tax. The problem is that there is no choice. Businesses should be able to charge whatever they want, and if you don’t like it, you should go to their competitor and get a better price. That is what capitalism is all about. That is what drives innovation, and that is the sole reason why capitalism is usually good for the consumer. Competition breeds fairer prices. But when a monopoly (or, in this case, Duopoly) is formed, then there is no competition on price. The consumer loses big time. Wouldn’t it make sense for Google to have 22% fees compared to Apple’s 30% if they were actual competitors? The issue is that they are not genuine competitors but rather two roles in a massive duopoly.

Unfair treatment for larger companies

What bothers me is the special treatment larger companies receive from Apple regarding the 30% cut. Amazon can rent out movies on Amazon Prime Video and use their own payment method while not giving 30% of every sale to Apple. If I add payments for videos into my platform, I will be forced to pay 30%. I not only see that as unfair, but I see it as anti-competitive. It feels like unless I am a part of the billion-dollar club, we are subject to giving a third of our revenue up until we get to that club. I understand Amazon provides value for Apple whereas small unproven startups do not, but I argue that small developers are what makes the app store great in the first place.

Uber and Airbnb can avoid the fee because they are not providing digital goods but rather are a method to provide a service through a digital process. Therefore they are not subject to Apple’s payment processing and avoid the fees. This way, they can charge their own fees without stacking Apple’s on top. This allows them to pay their drivers and hosts without missing out on revenue. In short, they can function in the gig economy profitably and steadily. With Wefiq, we want to provide creators with a way to make revenue. Creators, unlike Uber drivers, provide digital content as opposed to a service like a ride. Because of this, Wefiq would have to pay 30% of our revenue out and therefore hurt our creators in the process. I can argue that we also are a service that is providing creators content to fans through our method and that we should not be taxed by the app store. But as a small company without leverage, there is no point in trying this as it is a losing battle.

Users pay more on Apple

Most people do not realize this, but as an everyday Iphone user, you are paying more for things than a desktop user. If you see a subscription available to purchase in-app on your phone, chances are on the company’s website there will be a lower price for that same subscription. You would know this if apps were allowed to mention anything about accepting payments on their website in the app, but that is forbidden. (See section 3.13 on Apple’s developer guidelines)

Per 3.13:

“Apps in this section cannot, either within the app or through communications sent to points of contact obtained from account registration within the app (like email or text), encourage users to use a purchasing method other than in-app purchase.”

Why can’t we tell our users they can pay online for a lower price? It is surely in their best interest to spend less. If we charge 30% more on our IOS app, we don’t lose revenue, but the consumer pays more. The only difference is that Apple gets a cut also. Users should at least be aware that they can get the same services for cheaper elsewhere. Wherever you see something that costs $1.29, it probably costs 99 cents on their website.

Value proposition

Apple claims that the App store fee helps keep the app store safe. It only takes a few seconds to find countless harmful apps in the app store , and it has been shown in recent weeks that the app review process in place is not effective at all . Apple also claims that they add value by putting our apps in the app store and providing that value justifies their fees. I pay a developer fee every year of $100, which is honestly overpaying for what value I receive from the app store. They do not help me develop my app. They don’t promote my app unless, by some miracle, I get on the top charts. They don’t offer helpful feedback other than making us comply with their guidelines. The app store is oversaturated as there are a couple of million apps in there now. If it was 2012 and the app store still had a low number of apps on it, maybe they would be able to justify that the app store provides value. That just is not the case anymore. A service fee should provide a service that can be reflected in its value.

The other point that Apple makes is that they are giving access to their user base of over a billion IOS devices. This is true. Due to the smartphone being the greatest product in human history, and Apple being the pioneers in that field, they have a monopoly on the most important product for any human being to possess.

There is simply no choice for any app developer but to put their apps on the app store.

Charging developers 30% is a complete abuse of power.

The 15%

Apple attempts to show their empathetic side by saying that they charge developers who make less than $1 million dollars a year only 15%.

Companies making less than $1 million shouldn’t have to pay any fee as the value provided back is not justified in 15% of revenue. A company making 500k a year from IOS payments would have to pay 75k to Apple. That is ridiculous.

The cost has to be reflected on somebody.

The worst part of the app store tax for a product like ours is that the cost has to be reflected on somebody. Either we, our creators or our users have to make up for the 30% tax. Apple only profits from it. We either give up 30% of our revenue, take more from our creators, or charge our users more than we want to. And then we pay it to Apple. How is that fair at all when no value was provided in return?

Sideloading

One way Apple differentiates itself from Google is that Apple does not allow you to download apps onto the iPhone without using the app store. (There are ways to do it, but realistically it is not practical for most users). On Android, you are able to download apps from the browser.

Apple argues that by downloading apps from somewhere other than the app store, they would be compromising the security of their device and their users. This argument makes no sense for two reasons:

  1. The app store has many unsafe apps. Scams, gambling, fake VPNs, you name it.
  2. On Macs, you are able to download programs from places that aren’t the Mac App Store. Does this mean Apple is saying their Macs have compromised security and Mac users are in danger? Of course not. They know that is not true. Macs would be unusable if they only let you download from the Mac App Store. The only difference is they don’t have a monopoly on computers, just phones.

Illusion of choice

A classic tactic of monopolies throughout history is offering the illusion of choice. Apple and Google in this case are no different. I am always being told that if I don’t like these practices, I don’t have to use the app stores. The reality is the world is mobile-first now, and if I want to make any consumer-facing software, I 100% have to use these app stores. Without making apps for IOS and Android, I will miss out on a large majority of users. There are no other options. Apple also uses the Illusion of choice to compete and effectively crush competitors. Marques Brownlee does a good job of explaining that here.

Startups and small developers have been complaining about these predatory practices for years. Actions are being taken now that big players in the industry are speaking up because they are directly affected. Even now, startups and small developers are being ignored for larger agendas. This all needs to change. There is confusion in the general population about why this 30% tax is even an issue, as every company speaking on it is worth billions anyway. Fortunately, small businesses will benefit from this battle if it ends in our favor.

Founder @ www.Wefiq.com