A backlash against the app stores of Apple Inc. and Google is gaining steam, with a growing number of companies saying the tech giants are collecting too high a tax for connecting consumers to developers’ wares.
Netflix Inc. and video game makers Epic Games Inc. and Valve Corp are among companies that have recently tried to unsurp the app stores or complained about the cost of the tolls Apple and Google charge.Grumbling about app store economics isn’t new. But the number of complaints, combined with new ways of reaching users, regulatory scrutiny and competitive pressure are threatening to undermine what have become digital goldmines for Apple and Google.”It feels like something bubbling up here,” said Ben Schachter, an analyst at Macquarie. “The dollars are just getting so big. They just don’t want to be paying Apple and Google billions.”
Apple and Google launched their app stores in 2008, and they soon grew into powerful marketplaces that matched the creations of millions of independent developers with billions of smartphone users. In exchange, the companies take up to 30 percent of the money consumers pay developers.For most of the decade, the companies won praise for helping to build an app economy that’s projected to grow to $157 billion in 2022, from $82 billion last year. But more recently, smartphones and apps have become so important for reaching customers that these app stores have been criticized for taking too big a share of the spoils. Rather than supporting innovation, Apple and Google are being talked about as tax collectors inhibiting the flow of dollars between creators and consumers.
“They’re very aggressive about making sure companies aren’t trying to work around their billing,” said Alex Austin, co-founder of mobile company Branch. “They have whole teams reviewing these flows to ensure they get their tax.”Last week, Schachter co-authored a report arguing that current app store fees were unsustainable. Apple and Google take 30 percent of subscription dollars and in-app purchases made on iPhones and Android phones using Google’s app store (effectively all those outside China). About two years ago, the companies lowered that cut to 15 percent in some cases.
If app store commissions fell to a blended rate of 5 percent to 15 percent, that would knock up to 21 percent off Apple’s earnings, before interest and tax, by fiscal 2020, Macquarie estimated. Google could lose up to 20 percent by the same measure, according to the brokerage firm. The technology giants are expected to earn more than $50 billion each, before interest and tax, in 2020, according to analyst forecast data compiled by Bloomberg.This is particularly worrying for Apple investors, who are expecting the App Store to support the growth of the company’s services business. Apple often highlights the financial success of its App Store on conference calls with analysts.