App Store taxes are good, actually

Good morning! If you want your app to reach millions of people, it will cost you. But that’s not necessarily a bad thing. I’m Owen Thomas, and I always buy music from iTunes just to be tough. Mainly RuPaul songs.

Don’t step on the rake

There’s a full assault on the App Store model, from the European Parliament in Brussels has a courtroom in oakland. Legitimate questions are being raised about the anti-competitive behavior of Apple and Google to keep the high fees they charge developers in place. The problem is that a lot of the arguments that are thrown around ignore the realities of, you know, capitalism: sometimes distributors bring a lot of value.

If you want to play the game, you have to pay the rake. Or fee, commission, toll, vig, tax. No matter. Shut up and pay!

  • Venture capitalist Bill Gurley took a look at the rake phenomenon billed by app stores, marketplaces and other intermediaries in 2013.
  • The rakes vary enormously according to the activities and the nature of the goods sold. E-commerce marketplaces may charge 10% to 15%. Most ticketing sites charge more. Apple and Google were charging 30% in their app stores then, as they mostly do to this day, with a few exceptions.
  • Gurley’s conclusion: lower rake is generally correlated with higher chances of long-term success. But what is crucial is that “the value of being in the network clearly exceeds the transaction costs charged for being in the network”.
  • For most developers selling through Apple’s App Store, this has proven true. Access to hundreds of millions of relatively wealthy iPhone users who have grown accustomed to one-click app downloads has created a thriving app economy.

There’s a lot of talk about payment processing, and it’s a total red herring. Don’t twist it.

  • The fees charged by Apple cover all of the value it provides: security, quality checks, customer access and, yes, payment processing.
  • Let’s talk about that, though. The roots of the 30% fee are from the iTunes Music Store. When Apple was selling songs for 99 cents, a 30% fee was actually pretty reasonable, given the outrageous discount credit card companies take on small transactions. Apple didn’t make much profit on these fees.
  • When the App Store launched five years later, Apple kept the fee. And nearly half of the most popular paid apps accused only 99 cents, like an iTunes single – a proportion it’s always true today.
  • Businesses from Amazon to eBay to Patreon are wrapping the cost of payments into larger fees that might be considered more of a marketing cost. Spreading out the payments doesn’t affect the overall cost much, but it does add a lot of software development and customer service issues.
  • When a Dutch court ordered Apple to allow alternative payment systems for dating apps, Apple agreed. He reduced the App Store commission to 27%. It’s a good way to think about the value of payments, which isn’t much.

The subscription economy has changed everything. Suddenly, those App Store commissions based on one-time purchases were applied to recurring bills.

  • That’s why Netflix doesn’t allow new customers to sign up through its iOS app, and why Spotify filed an antitrust lawsuit against Apple over the fees.
  • In-app purchases are also a sore point. This is the crux of Epic Games’ complaint about Apple’s handling of Fortnite.
  • What’s happening is that the business logic of the 30% rake breaks down as the app industry evolves.
  • By the way, Apple is not a big fan of App Store fees when it has to pay them. That’s why Apple TV users have found that they couldn’t buy movies or tv shows on Android TV devices from last week.

The right commission may not be 30%, but neither is it 0%. Apple already reduces subscription fees to 15% after the first year and gives a similar reduction to developers with revenues below $1 million per year. Microsoft reduce the costs of its PC game store to 12% last year. And what about the economics of micropayments, which seem to require a 30% cut from Apple just to break even? Well, Apple is making some interesting moves in fintech that could make payments much cheaper everywhere. If that means we can stop gossiping about alternative payment systems and start debating the real value of distribution, so much the better.

—Owen Thomas (E-mail | Twitter | dog instagram)


“To earn more revenue for your sales teams, start with the customer. Understand what your customers need and ensure those needs are aligned with clearly defined internal success criteria. what you have sold to the customer is what is to be delivered.” – Pilar Schenk, COO at Cisco Collaboration

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People are talking

Elon Musk said he came again with COVID:

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Musk also spent part of the weekend thinking about creating own social media platform:

  • “I am seriously considering this.”

Apple thinks the Digital Markets Act will create barriers to privacy:

  • “[The DMA] will create unnecessary privacy and security vulnerabilities for our users.

Coming this week

of President Biden 2023 budget proposal arrives today. Among other things, it would include a minimum tax on billionaires and their assets.

TO SHARE started yesterday and includes sessions on DevOps, IT operations, and professional development.

The very first LA NFT conference start today at several locations across the city. It will include presentations from Mark Cuban, NBA player Baron Davis and others.

Data Center World also starts today in Austin. Executives from Dell and Autodesk are expected to speak at the event.

Sundar Pichai meeting Margrethe Vestager Wednesday to talk about competition, among other things.

The Intuit Trans Summit it happens thursday with Intuit workers, members of the GenderCool project and special guests.

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Spotify stopped services in Russia. The company had already closed its offices in the country earlier this month.

The Apple vs. Epic feud continues. Apple wants a federal appeals court, which is mostly on its side, to dismiss Epic’s appeal.

A former employee accuses Microsoft of firing him for uncovering corruption. Yasser Elabd posted an essay on whistleblower site Lioness claiming that Microsoft fired him for asking too many questions about bribery and corruption.

Google Fiber workers are unionized, becoming the first to do so among Google Fiber employees and the first recognized bargaining unit for the Alphabet Workers’ Union.

Apple hands out six-figure “special retention grants” worth between $100,000 and over $200,000 in restricted stock units, to help retain a group of engineers.

Follow the oil and see where it goes

If you know where to look for public information, you can create a Twitter bot out of anything. More recently, a group of data scientists from Greenpeace created a bot which can track where tankers transport Russian oil around the world.

The goal is to hold governments accountable for their bans on Russian oil and gas, which will be enforced after a 45-day grace period in the United States. In just a few weeks, the Twitter tool has already diverted an oil tanker heading to Sweden and helped Greenpeace organize protests against the import of fossil fuels from Russia to other places.


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Maria R. Newman