Apple Cuts Fees for Small Developers

• Apple will cut app store commission rates in half to 15% for apps making less than $1million PA

• If apps later fall under $1 million in sales for a calendar year, the lower commission can be restored

• The maximum discount for each app developer is capped

Last week Apple announced that it would be cutting fees by more than half for small app developers.

Apple will cut app store commission rates in half down to 15% for apps that are making less than $1million per year in-app revenues. Although developers who make over the $1m threshold will still be billed at the original 30%, if these apps revenues fall under this amount in the future, the lower rate will be applied. The move is a part of the App Store Small Business Programme, a commission structure that Apple hopes will "support small and individual developers and spur innovation for the next chapter of apps". The program will be put in place on January 1st, the new fees will apply to both paid apps and in-app purchases for all who qualify.

Once developers pass the sales threshold, they’ll be billed at the standard 30% rate, Apple said. If they later fall under $1 million in sales for a calendar year, the lower commission can be restored. Apple said it will reveal more details about the terms of the reduced commissions next month. Additionally, the maximum discount for each app developer is capped, where the commission reverts back to 30% when the fees accumulated reach $1m.

For many developers and app publishers, this is more than welcome news, and the change will most certainly help small companies who use their apps to generate revenue, especially during the coronavirus pandemic and its devastating impact on small business owners. While the new commission structure may seem to be favoring small developers, the top 1% of apps generate around 93% of all app store revenue. As of the third quarter of 2020, over 1.9 million apps are available on the AppStore, across this year non-paid apps have accounted for over 90% of those available, but the commission applying to in-store purchases will surely make a difference to small-app owners.

Apple have made the adjustment amid increasing global focus on its App Store business practices, especially following the House Judiciary Subcommittee report on Antitrust that stated Apple had “monopoly power” over software distribution on its products, allowing it to generate large profits from the App Store and extract rents from developers. Later the report stated that apple generates "supra-normal profits" from its App Store activities.

In a Security and Exchange Commission annual filing Apple noted that reducing its commission rate would have a negative impact on its bottom line because of the impact that the app store has on their financial results, last year the app store generated around $50billion ($15b of which would be a profit if this is figure is accurate - Apple doesn't release information about its app stores profits). In the quarter end of September, approximately 22% of Apples profits were from the App Store.