Apple has recently been under a lot of scrutinies for its 30% commission model for the apps placed on its app store. While app developers have been dissatisfied with this model for some years now, it was Fortnite’sfeud with Apple that brought the issue to the limelight. 

To provide a bit of foreground to this issue, Fortnite, one of the most popular gaming apps out there, tried to work around this 30% commission model by offering its gaming currency (its main in-app purchase model) through its developer account. This made it possible for it not to process any payments made by the gamers through its iOS app. Apple didn’t like this act from Fortnite, and it removed the app from its app store and then, after some weeks, even deleted the developer account which owner Fortnite. 

While this move made Fortnite appeal in court against Apple’s laws and indulge in a very public spat with the tech giant, it did reveal one major thing i.e. Apple is not willing to bend its rules for anybody, not even the biggest revenue churners on its app store. 

Most of us assume that the apps that earn big have a lot of money to spend since they are raking in a lot of profit, but the Fortnite incident showed us that a 30% commission cut makes things difficult to manage and that some of the biggest apps out there operate on razor-thin margins. 

So if the bigger apps can’t bear this commission model, then what about the low-level developers, who have even lower margins than these much larger apps? How are they supposed to survive and be profitable?

This is one of the major issues that haven’t been talked about much over the years. 

Let’s explore the most important factors that make Apple’s 30% commission stifle the entry of low-cost developers into the app store:

Passing Off The Cost To The Customer Makes Their Services Costly:

One major way that is suggested to mitigate this extra cost burden is to pass it to the final consumer. For e.g. if an in-app purchase is priced at $10, including profit for the developer, then the final price should $13, which includes the 30% commission being charged by Apple. 

While this looks easy to implement, it actually will affect the amount of purchases users make in the app. 

No users like to pay a high amount for any item, and when large scale apps can offer the same thing for a much lower price since they have the benefit of things like a much larger investor pool and economies of scale, it makes it harder to small scale apps developed by low-cost developers to compete viably in the market. 

A lot of apps that did try to do this, either failed to bring in sales or they didn’t make as much money as they were expecting to. 

Even some top apps found it difficult to consider this model for e.g. Spotify, which did increase its subscription charges on its iOS apps as compared to the apps it offers on other platforms, found it difficult to reach the sales figures it was expecting from the iOS app store. 

It Makes It Difficult To Pitch To Investors:

Low cost developers often don’t have a large capital pool to rely on so they try to pitch to investors to gain some capital through which they can run and build their app.

But with the 30% added cost burden, the time required to hit profitability gets not just elongated but sometimes even hard to reach, making investors disinterested in app ideas, even though they might hold a high amount of potential. 

Large scale apps continue to generate huge amounts of revenue for e.g. the gaming app sector churns out billions of dollars in revenue each year, so most investors flock to such ideas with a high earning potential, leaving low-cost developers out of their consideration. 

Makes It Even Harder To Achieve Break Even & Eventual Profitability:

Apps are not just difficult to make. They are also quite expensive. Even the most simple of apps can cost upwards of $80,000, and if your app idea is complex, you can expect to pay in the range of $100,000 to $150,000 or even higher. 

This development cost then gets added with the initial marketing and customer acquisition costs, becoming a huge burden on the low-cost developer. But with such razor-thin margins due to the 30% commission, it becomes increasingly difficult for low cost developers to hit profitability. 

They don’t have a large amount of cash to rely on and neither do most of them have any sort of investor or seed funding to begin with. The end result? The idea of making an iOS app becomes less and less viable for the low cost developer. 

Makes Entry Into The App Market Less Appealing For The Developer:

If the cost of entry and sustainability in a certain market increases to a point where it becomes difficult for low cost startups to enter it, what invariably happens is that they start abandoning that field and look for other avenues to leverage their ideas in.

For e.g. the app developer would now shun the iOS store to deliver its idea from and opt for a website to do the same. Using professional web design services and a skilled team of developers, even the best website would cost way less than building an app, and with organic marketing thrown in, the idea would get much more traction at a much lesser cost. 

While Apple is showing no flexibility in its commission model no matter how much criticism it faces, its policies are making the app store devoid of some super innovative opportunities that might have come to its store had it relented on its policies for low cost developers. For now, Apple’s commission model stands and it will continue to stifle the entry of low cost developers in the market, so app developers will have to understand all implications even before trying to consider entering its market.