Apple releases study defending App Store's 30% cut ahead of testimony | Hacker News Reader

Apple releases study defending App Store's 30% cut ahead of testimony

cnbc.com

23 pointsxoxoy28 comments

The four major findings of the study can be condensed down to two:

1) Our competitors do it too (Google, Amazon)

2) It's cheaper than brick and mortal distribution

Notably absent: How the high fees, and payment restrictions benefit consumers and developers. I guess they couldn't find any solid consumer/developer benefits that would stand up to scrutiny? Not a good look.

From the study (emphasis mine):

>Many sellers currently sell (or previously sold) their goods through brick-and-mortar stores and marketplaces. We find that sellers generally earn a substantially lower share of total revenue from the distribution through brick-and-mortar stores and marketplaces than through digital marketplaces such as the Apple App Store.

What percentage of developers on the App store also sell through brick and mortar? I can only think of Microsoft and AAA game developers off the top of my head.

I'd hazard to guess it's a fraction of a single percentage point (in number of developers, not sales). It's certainly not "many". This is a perfect example of using weasel words [0] instead of making an actual claim.

[0] https://en.wikipedia.org/wiki/Weasel_word

you can look at the 30% in two ways: 1/ the dev is paying 2/ the user is paying I look at it from 2/ so Apple charges me 30 on top of 70 which is almost 43% extra for consuming a service via their distribution channel, for which I already paid a premium price.

This one made me laugh.

> The Apple-backed study has four major findings:

> * Most app stores charge the same 30% cut on digital goods.

Fairly certain that if another company tires to create an "app store" they get sued by Apple. i.e. why Google is called the "Play Store". So when they say "Most app stores", are they are talking about the only "app store"?

"Most app stores charge the same 30% cut on digital goods. Retailers, travel booking services and other marketplaces can charge more than 30% for their services.

Distributing software through an app store is less expensive than distributing through brick-and-mortar retailers.

Other app stores and digital marketplaces often require users to use their in-app payment mechanism and forbid sellers from redirecting buyers to finish the transaction in another venue."

-- Apple's main findings.

The test should be whether Apple is charging a rate that is higher than it would charge under perfect competition. Not whether it's higher than traditional brick and mortar stores that obviously have higher distribution costs.

Indeed, the fact that both Apple and Google charge 30% could suggest collusion.

I don't think the rates are based on competition. If I make an app, I can publish it on:

- App Store, and get 70% cut of X users

- Play Store, and get 70% cut of Y users

- Both, and get 70% cut of (X+Y) users

So as long as I can cover my development costs for both platforms, it makes sense to publish to both stores.

Let's say Google charged only 10%. Would that change which platforms I publish to? I would say no: I would still want to get 0.7X + 0.9Y.

Theoretically at least, Google's App Store would have better pricing, thus giving Android a competitive advantage (unless Apple follows).

Realistically, I'm sure the advantage would be so small so as to not amount to anything.

If your company had decided it wasn't worth the extra effort to port to Google, that extra 20% might potentially cover the cost of the extra employees and overhead, or at least lessen the sting.

But most relevantly, it doesn't impact the decision of whether to port to iOS at all. If iOS was profitable before it still is, if it wasn't it still isn't. You can't use the Play Store instead of the App Store because the customer sets are completely disjoint.

> if it wasn't it still isn't

[citation needed]

A 10% change is not a 10% increase in profits, it's a 10% increase in margins. I could be going from 20% to 30%. I'd be making 50% more by porting my code to iOS than we previously forecast. Which also means I might invest more resources in doing it well which will also increase my profits. Because there is less risk involved with starting the project.

When you're trying to get a company to change directions, you need one really great reason or a lot of pretty good reasons. Sometimes one more reason is all you need.

You don't get any increase in margins for porting to iOS if the percentage changes for the Play Store because you can't sell to iOS customers via the Play Store.

You started with “most relevantly” and my initial reaction to this follow up is “how is that relevant at all”?

The costs of porting are relevant to value of the new audience. The value to the old audience is negative (what are we losing while they are focused in something else). The value to the team is complicated, has to be weighed, and big changes like new APIs or new revenue structures tip that balance.

> You started with “most relevantly” and my initial reaction to this follow up is “how is that relevant at all”?

It's relevant to whether the rates are based on competition, or to put it the other way, whether competition affects the rate they can charge.

If Google charged a lower rate, would it change the calculation for porting to iOS, so that Apple might have to lower their rate too? No, because you can't reach iOS customers via Google Play, so if you want to sell to them you still have to pay whatever Apple demands:

> If iOS was profitable before it still is, if it wasn't it still isn't.

The "everyone does it too" argument quickly breaks down if there's no alternative for you platform. On Android, you can easily sideload others stores, on PC you can use Epic Store or one of many others, but iOS has no other options.

How about Xbox or PlayStation? Those have both virtual as well as physical app stores in the form of game disks. There’s no way to avoid the lic fees in these platforms either.

The "everyone does it" is true in console gaming though, so the argument actually could apply them. Apple is the only mobile platform that it doesn't do the same as others (Android)

It’s not just the 30% cut, it’s the “loan” that stores get by withholding payments to developers for arbitrary amounts of time.

If you have a poorly-performing app, it may take months for a few “purchases” to even reach you! Meanwhile, all expenses (web hosting, $99/year developer fees, etc.) don’t stop, and any downsides (e.g. supporting “customers”, or reviews from “customers”) still affect you.

Apple loves to boast about its thousands of “developers” but imagine the size of the slush fund Apple can maintain if there are tons of poorly-selling apps not being paid out for awhile? It’s a large, interest-free loan to Apple. Meanwhile, discoverability and other features that could actually improve sales are entirely up to Apple (and most of these suck).

So if you devote most of your time to a poorly-discovered app that no one buys, you can’t make money. Thus, it isn’t surprising at all that lots of apps start to be “shoveled” into the store, in the hopes that the poor sales of all of them combined will be sustainable. Rinse and repeat.

Apple is directly responsible for huge problems with the app economy, and there is really no defense of their tactics at this point.

As I said in an earlier thread:

Apple pioneered the 30% cut, and it was a massive improvement over the status quo. But they haven't ramped down at all since and that's why these conversations and cases are happening.

Also for game theoretic reasons, they should charge a higher % for in-game purchases and lower their cut for outright purchases.

> Apple pioneered the 30% cut

How so? Wasn't it the standard brick-and-mortar rate, and Steam had already been taking 30% for a few years at that point.

Before you had to sell your mobile applications through the carriers, who would take up to 70%. When I heard this at a mobile meetup I asked them to repeat it because I was sure I hadn't heard it right. I mean I knew the carriers were insane but that was just beyond the pale. They had a habit of charging extra for featured content, so I suspect that 70% was for content that you actually wanted to advertise.

The mobile app community was all aflutter when Apple Store debuted - margins more than doubled? Popular apps get placements for no additional charges? Yes please. The hype about mobile apps at that time wasn't just about the iPhone, or the app store. Steve Jobs somehow convinced the carriers to let him break the walled garden. Loosen their tight-fisted monopoly. That was a huge watershed moment.

But you can only sit on those laurels so long and I agree that the time has passed. What have you done for us lately?

ETA:

I suspect that 'somehow' was the long exclusivity deal with AT&T. I think people were still wiping away the saliva from the unreasonably popular RAZR phone and getting the next RAZR locked in made them consider things they might not have otherwise. He also got Intel to sell him a bin of mobile CPUs for the original Intel Macbook Pro that was not (yet) available to anyone else. Which makes a weird sense because volume was low, and you can't sell a rare bin to IBM or Dell, but still pissed a lot of people off.

But it seems like that gambit is spent. I haven't heard of anyone recently using these sorts of tricks outside of manufacturing (does Apple still pay for factories to upgrade but then they have to give Apple a permanent discount and right of first refusal?)

The obvious fallacy in the comparison to carriers is that they were extracting monopoly rents too, and (counter-intuitively) they charged more because they had less of a monopoly than Apple does.

A monopolist wants to maximize profits, so they choose the maximal trade off between margins and volumes. If they charged 100%, nobody would make apps and they would get 100% of nothing. For the carriers, if they charged 30%, more people would make apps than if they charged 70%, but then the competing carriers would benefit from that as much as they do even if they're still charging 70% (which they still can because they each have a monopoly over their own users), so they all charge 70%. Apple gets 100% of the increase in app production rather than ~25%, so their profit-maximizing monopoly rent is a lower percentage (but a much larger absolute dollar amount).

But that 30% is still dramatically more than the ~5% it would take to cover their costs and provide a reasonable profit in a competitive distribution market. Which is what Microsoft now charges in their store, for example.

For physical sales, the developer got pennies on the dollar. You needed to find a publisher. Not only would they help with packaging, marketing, localization, and QA, but they also brought access to the wholesale channel. Ingram and MicroD (before they merged) would not touch you unless you could guarantee a certain volume. And like the book business, there were buy backs for unsold product.

I was involved in an Amiga game development deal from 1989-1990 that eventually fell apart and our cut was 18%.

“Everyone else does it” is an interesting defense.

Personally I don’t think they charge too much, but i still dream of a world where you can sideload apps on iOS with 0 fuss.

I think the bigger argument against the App Store isn’t about the cut Apple takes but the process. The human review process is nice because it helps control the amount of abject garbage on the App Store compared to the Play Store but Apple plays fast and loose with letting certain apps/companies use Private APIs that they’re not supposed to.

Unequal enforcement of their policies is a bigger argument for abuse of their monopoly position than that it’s too expensive.

I assume that they know very little of the arguments against it is centered around the 30% cut but this is a bit strange to see.

@dang can we possibly merge this thread with https://news.ycombinator.com/item?id=23919089 please?

The big controversy about this disappeared because of WWDC. Has it picked up again, or were devs mollified by the new APIs and improvements?

One can have a range of perspectives on this.

30% of nothing is nothing. Seriously, for a large number of developers the App Store is a big pile of nothingness.

Apple accelerated a race to the unprofitable bottom rather than to create a bottom that could actually deliver a financial return for developers. I mean, they could have established a $1 minimum price for apps, rather than $0. They could have created minimum business models that would deliver benefits to both developers and users. They chose to got to zero because a bunch of developers killing themselves to fill the app store with apps is good for Apple and users and developers are a dime a dozen (or at least that's the level of importance Apple seems to assign to them).

App discovery has sucked for years, which means that having an app found and noticed requires either luck, a tremendous amount of external marketing, a very large pile of cash or all of the above.

We've had apps on the App Store, about a dozen of them, it was a big waste of time and resources. Still, I am not holding that against Apple, they provided everyone with opportunities and many benefited from this greatly.

That said, I think they could have done a far better job of preventing the ecosystem from becoming a race to the bottom. This is where the optimization of the hardware sales vs. number of apps for free curve likely drove a decision that was not favorable for developers and entrepreneurs.

Early in the day we worked on an app for a client. Before they came to use they had already invested hundreds of thousands of dollars on the app. They needed a large rewrite due to Apple forcing code updates on everyone. This cost them a pile of cash. They made nothing with the app before engaging with us and still made nothing after we got done. They were in a segment dominated by the likes of Disney, who put millions of dollars into apps, gave them away for market share and, if that wasn't enough, poured real money into marketing.

This is where app discovery challenges and the race to the bottom truly hurt a lot of entrepreneurs. We abandoned all of our apps eventually. It just didn't make any sense to expend resources update code for zero return on investment.

I do think that 30% is high, yet that never really bothered me. I'd be glad to pay 30% if there was a real shot at app discovery and the entire ecosystem wasn't --using the term for dramatic emphasis-- tantamount to voluntary slavery for the benefit of Apple hardware sales. Sorry to be so negative, I imagine a wide deep path of entrepreneurial destruction created by Apple as a result of what the App Store devolved into. Apple sure made billions of dollars and lots of entrepreneurs did well. However, nobody ever gets a peek at what lies beneath the portion of the iceberg that protrudes through the surface. That portion, I am certain, is deep, wide and full of sad stories.

Put a different way: You can go sell products on Amazon for about the same 30% cut and have a FAR better chance of your products being found and making a profit.

There is a very interesting article on how App stores lead to the prostitution of developers

I can't find it at the moment. If you can then do read it

He speaks to points very similar to what you are saying

Every free market with infinite/near infinite competition goes the same way

It's happening in games and books also

That should be an interesting article.

One of the things that happens is that a lot of these ecosystems attract young entrepreneurs who, devoid of business experience, jump in head first and give it all they got. They see accidental success stories like Flappy Bird and think "If I can do 1/10 of that I'm set". Three years later they are alive to regret the opportunity cost they wasted on that decision.

I am going to say that in business you have to be quite sanguine. Not always, of course, but the world and your competitors want to eat you alive, and if you walk into one of these arenas unprepared you are going to get used, abused and tossed out.

I don't want to be negative on Apple but I would sure like to know the numbers on the millions of developers who contributed massive amounts of time to the growth of this platform with free apps of all kinds that didn't even buy a daily loaf of bread for them. While developers were enjoying their get-rich-quick scheme, Apple piled billions of dollars (I lost track, $100 BN, $200 BN, more?) by selling hardware on the strength of a platform made useful by millions of free apps that nobody made any money on.

In a nutshell, I don't really like it when folks get used and discarded --which is precisely how I see what Apple did. They controlled the platform. They could have setup a win-win. They did not.

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