Apple CEO Tim Cook attends the “Senior Chinese Leaders Event” held by the National Committee on US-China Relations and the US-China Business Council on the sidelines of the Asia-Pacific Economic Cooperation (APEC) Leaders’ Week in San Francisco, California, on November 15, 2023.
Carlos Barria | AFP | Getty Images
apple announced plans to open the iPhone App Store in Europe to competitors on Thursday, a move that opens cracks in the company’s famous “walled garden” by which it controls the distribution of apps to its devices.
Apple didn’t make these moves voluntarily — the changes were required by a new European law, the Digital Markets Act, which obliges major tech companies to open up their platforms by March of this year.
The new rules could threaten Apple’s lucrative App Store fees, especially if developers like Spotify and Microsoft take advantage of of new regulations that allow it to bypass Apple’s 30% fee for in-app purchases and move forward with launching its own competing iPhone app stores.
But Apple also announced a new fee structure in Europe that includes an annual per-install fee for popular apps that don’t use Apple’s App Store, raising the possibility that many big developers will end up paying Apple a similar amount even if they take advantage of the new possibilities.
Apple said Thursday it believes the new regulation puts its users at risk of fraud, scams and abuse because apps that don’t make it through Apple’s App Store aren’t screened for content and may contain malware. He also warned that some new browser apps that use a non-Apple-made, DMA-enabled “engine” could hurt the user’s battery life.
Developers in general are likely to celebrate, as many have struggled for years with Apple’s fees and strict App Review program that often rejects app updates. While regulators around the world aim to get Apple to open up its platforms, Thursday’s changes are the most drastic yet and may provide a preview of what could happen if the US implements similar regulations.
The changes are limited to Europe and accounts registered in the EU, rather than changes to how iPhone app distribution works in the US. The changes will go live in an iOS software update in March.
“Developers can now learn about the new tools and terms available for alternative app distribution and alternative payment processing, new capabilities for alternative browser engines and contactless payments, and more,” said Apple App Store chief Phil Schiller.
Here’s what changed
Apple has said it will allow non-Apple companies to offer app stores in Europe, but the system requires an Apple app to gain “authorization.”
The new app stores will be “special” iOS apps that integrate with Apple’s built-in DMA-compliant software. Apple will know which companies have app stores, and the company will be able to revoke those permissions if the other app stores are filled with scams or malware.
For users, it means apps installed from alternative app stores will appear in settings, with details about when and where they were downloaded. When developers upload an app for Europe, they’ll be able to choose which app store they’d like to distribute it from. Apple will “stamp” the apps, meaning the company will scan them for malware and other code issues.
For developers such as Spotify and Microsoft, which have expressed interest in distributing apps outside the App Store in Europe, the rules do not conflict with their stated plans, but Apple’s application adds obstacles beyond offering a file installer for download on their website.
Apple will also allow app developers to charge their users directly. Previously, apps could only charge users for digital goods — game coins, for example — through Apple’s billing system, which takes between 15% and 30% of total sales.
Now, Apple will allow iPhone app developers to take credit card numbers within the app, or app developers can choose to link users to their website to collect their payment information.
But Apple said Thursday it still plans to collect fees and commissions from apps, even if they handle their own payments or distribute through an alternative app store. Developers can stay with the current system, but if they choose one of the new features in Europe, Apple will start charging reduced commission rates in Europe, but will add an installation fee for popular apps.
“Importantly, developers can choose to remain on the same business terms as they are today if they prefer,” Schiller said in the statement.
Here are the new business terms, according to Apple:
- iOS apps in the App Store under the new terms will pay Apple between 10% and 17% of total digital sales, depending on whether they are subscriptions or if the app earns a small amount of money.
- Apps distributed through an alternative app store won’t get the full control over content that App Store apps do, but they won’t have to pay any commission to Apple.
- iOS apps in Europe under the new rules can still choose to use Apple’s in-app purchasing software for a 3% fee.
- Apple will charge an annual fee of half a euro for each app install by more than 1 million users for the first time, which it says will cover part of Apple’s costs of developing software and distributing apps.
- The “Basic Technology Charge” applies if the apps are downloaded through a third-party app store or from the Apple app store. Developers can distribute their apps to both the App Store and third-party alternatives at the same time, and the fee covers installations on both. Up to 1 million accounts in Europe can download an app each year before Apple starts charging its fee.
The DMA has been in the works for years. Spotify, among other companies, lobbied hard for it starting in 2019. It goes into effect in March, but other parts of Apple’s business could come under scrutiny as the European Commission continues to look into Apple’s business practices — specifically, can focus on creating Apple’s iMessage service is interoperable with competitors.
On Thursday, Apple also made changes to how it makes its digital wallet technology accessible, as well as allowing competitors to use different underlying web browser technology.
Earlier this month, Margrethe Vestager, the head of the European Commission’s antitrust commission, visited Apple CEO Tim Cook in California. She posted on social media that they had discussed Apple’s compliance with the law.
Epic Games CEO Tim Sweeney posted on social media on Thursday that Apple’s plan was an “excessive new case of malicious compliance,” arguing that its new business terms amounted to “useless fees.” Epic Games sued Apple in the US over antitrust and similar App Store restrictions in 2020, mostly losing, and the Supreme Court declined to hear appeals earlier this month.
Spotify said on Friday that Apple’s changes were against the aims of the DMA and called on regulators to reject them.
“The ball is in your court, European Commissioners, and you must once and for all reject this flagrant violation of the very principles you have worked so hard to establish,” Spotify he said in a blog post.
“We strongly encourage appointed gatekeepers to test their proposals with third parties,” a European Commission spokesperson told CNBC.