Since the introduction of the App Store in 2008, Apple has run it in much the same way in 175 countries, up to the 30 percent commission it collects on each app sold.
The company calls the result an economic miracle. The store generated more than $1 trillion in sales, helped create more than seven million jobs and delivered Apple billions of dollars in annual revenue.
But as the App Store approaches its 16th anniversary, a patchwork of local rules is upending Apple’s authority here.
On Thursday, European Union regulators will begin enforcing the Digital Markets Act, a 2022 law that requires Apple to open up the bloc’s iPhones to competing app marketplaces and alternative payment systems for in -app sales.
The changes follow similar demands in South Korea and the United States, where Apple has been forced to allow alternative payment processors. Similar concessions are discussed in Britain, Japanese and Australia.
The rules break what was once a single store into a jumble of digital stores across national borders. The once consistent experience of shopping for software on an iPhone is now different, depending on where people live.
“The App Store is completely fragmented,” said Eric Seufert, who invests in app makers and runs Mobile Dev Memo, a blog about the app economy. “The approach to compliance is pretty similar: ‘Let’s lower the fee a little bit.’ But the pain.”
Apple has worked hard to adapt to the changing regulatory landscape. An Apple spokesman said the company spent months talking to the European Commission about the Digital Markets Act and hosted meetings with developers as it developed plans to revamp the App Store while shrinking the dangers of malware, fraud and scams on iPhones.
Apple says its control over the App Store is important to the safety and quality of the apps it distributes. The company stopped short of abandoning the 30 percent commission. But over time, it has made some concessions to developers and regulators by reducing the commissions paid by smaller app makers and allowing developers to link out of their websites to charge those directly. user for subscriptions.
The changes are expected to pinch Apple’s sales and reduce profits. Last year, the App Store generated an estimated $24.12 billion in revenue, according to Bernstein Research.
When the App Store first appeared, Steve Jobs, the co-founder of Apple, said that the fee was a “great deal” because it allowed every developer – big or small – to deliver software to every single iPhone. But for years, Apple’s fees have been a point of frustration for developers. Over time, regulators began to listen to those complaints.
In 2019, Spotify filed a complaint against Apple in Europe, accusing it of anticompetitive practices because it prevents streaming music services from advertising where and how users can subscribe in their app. A year later, Epic Games, the maker of Fortnite, filed a lawsuit in US federal court accusing Apple of violating antitrust laws by forcing developers to use its payment system.
The complaints spurred developers around the world to start lobbying for changes to the app economy. In 2021, Lawmakers in South Korea was among the first to respond by passing legislation to force app store operators to allow alternative payment systems. Apple eased its requirement that developers use its in-app payment service, but said developers who used alternative services owe Apple 26 percent commission in sales.
The developers argued that the new commission rate is the same as the 30 percent rate after credit card processing fees are added. Their criticism resonated with regulators in South Korea, who said Apple’s plan undermined the intent of the law. The country’s telecommunications regulator said this Apple could be fined $15.4 million for “unfair practices.”
Apple said it disagreed with the South Korean regulators’ conclusion and believed its changes complied with the law.
The company took a similar approach in the United States. During the Epic Games case, Tim Cook, Apple’s chief executive, said that being forced to offer alternative payment systems “would be a mess.”
“We have to come up with another system to invoice developers,” he said, adding that Apple would still pay a commission.
The federal judge in the case ruled in 2021 that Apple needs to allow alternative payments in the United States. Apple complied as it did in South Korea, except it said it owes developers to use alternatives a 27 percent commission.
“Obviously, this is window dressing,” said Colin Kass, an antitrust lawyer with Proskauer Rose who had no connection to the case. “Does this satisfy the court? Maybe.”
Apple said the judge upheld the right to charge a commission, and its solution fulfilled the judge’s request to allow out-of-app purchases. Epic said it plans to file a motion challenging the 27 percent fee and asking the court to intervene.
In 2022, the European Union passed the Digital Markets Act to introduce competition in the App Store on iPhones, among other changes. Apple has two years to comply.
The company’s engineers have spent thousands of hours creating more than 600 new software tools for developers. In January, the company introduced those tools and outlined three options for app makers in the European Union, home to about 450 million people.
Under Apple’s plan, developers can stick with the status quo App Store system and pay up to a 30 percent commission on sales. They could reduce their commission to 17 percent while adding a new 50-euro-cent charge per download over one million annually. Or they can avoid Apple’s commission by selling through a competing app store while still paying a download fee.
Apple said the plan complied with the law and meant that 99 percent of developers in the European Union would reduce or maintain the fees they owed.
But app makers say the plan violates the letter and spirit of the law. Under the new rules, a tech giant like Apple must allow app makers to sell subscriptions and services outside of their apps “for free,” said Damien Geradin, a European antitrust lawyer advising app developers. He said Apple’s 50-euro-cent fee and 17 percent commission violated that part of the law.
European regulators won’t weigh in on Apple’s proposal until after the effective date on Thursday. If they open a formal investigation, it could set up a lengthy legal battle that could force Apple to change or risk fines of up to 10 percent of its global annual revenue, which was nearly $400 billion last year. .
Mr. Geradin said Apple was unlikely to succeed but, in the meantime, could continue to collect commissions.
“It’s part of their tactics,” he said.
