(placid music) - [Jaden] On the surface,
it looks like Apple is having a pretty good year.
After all, it did become the world's
most valuable publicly traded company.
But behind the scenes, it's longstanding disputes
with app developers are bubbling over into public view.
- Apple is facing backlash
over the way it runs the App Store
at a time when the App Store is a key part of its business.
- [Jaden] Queue the "Fortnite" gaming controversy
(placid music)
Over the summer, Epic Games publicly rebelled
against the App Store's 30% fees
and urged players to join its fight against Apple.
- Ladies and gentlemen, Apple just banned "Fortnite", what?
- It's going down, Apple versus "Fortnite".
- They're probably the one company out there right now
that is so beloved by the public
that they'll be able to at least put up the best fight.
- [Jaden] It's not just Epic Games.
Spotify, Airbnb, Tinder, Facebook and Netflix
have all had disputes with Apple over App Store rules,
all while lawmakers are scrutinizing Apple
and other tech companies for potential antitrust violations.
- What's to stop Apple
from increasing it's commission to 50%?
- We, sir, we have never increased commissions
in the store since the first day it operated in 2008.
- [Jaden] So, what are app makers asking for
and is Apple going to listen?
First, it's important to understand
how crucial the App Store has become to Apple's business.
In recent years, Apple's been shifting its focus
from selling more devices like iPhones
to selling more software and services.
Think Apple Music, Apple Care,
and of course the App Store.
- Apple One gives you and your family
all the services you love in one simple plan,
- [Jaden] In 2020, its services business,
which includes the App Store,
helped the company set a new sales record
in the June quarter.
Apple doesn't break out its App Store revenue,
but analysts estimate it brought in roughly $17.5 billion
for fiscal year 2020. (placid music)
Some apps and services are particularly important
for the App Store ecosystem, like "Fortnite".
The game has more than a hundred million registered users
on Apple devices.
That's produced more than a billion dollars
in global App Store spending since its launch in 2018.
But in August, "Fortnite" was kicked
off the App Store altogether.
That's because the games creator, Epic Games,
set up a system to get money directly from players
without paying Apple its cut.
Apple takes a 30% commission on sales of apps
and in app purchases.
So, if an app costs 4.99 upfront,
Apple collects a dollar 50,
while the app creator gets the rest,
same goes for if you use an app to buy digital goods,
like virtual weapons or sign up for a subscription
to a monthly service,
but the fee doesn't apply to physical goods and services,
like clothing purchases or home rentals.
- What Epic Games did was it tried to skirt that commission
by adding its own payment system to the "Fortnite" app
on iPhones and iPads.
That goes against Apple's rules.
Apple pulled "Fortnite" from the App Store, Epic sued Apple,
and then Apple filed a counter suit.
- [Jaden] Google pulled "Fortnite" from Google Play
in August for the same reason.
And since the two companies banned the app,
their monthly revenue from the game has taken a big hit.
- From a developer perspective, it definitely feels
like we're forced to pay 30% right off the top.
- [Jaden] Austin Benson developed an app for Apple
and Android called Hang that helped organize meetups.
And he's currently a CTO at a small tech startup.
- It literally feels like a tax
and those dollars don't really go
towards a government to pay roads and bridges.
They go to pay two of the biggest
and arguably most powerful corporations in the world.
- [Jaden] In late September,
Spotify, the owner of Tinder and Epic Games teamed up
to pressure Apple and other App Store operators
to change their rules.
Apple and Google have defended their business practices,
saying the commission fees are necessary
because of the services the stores provide,
including security and safeguarding user privacy.
(placid music) In some cases,
the battle over App Store fees
has also spilled over into accusations
of Apple allegedly stifling competition.
Enter Spotify's fight with Apple.
In 2019, Spotify filed a formal complaint to the EU,
accusing Apple of making it difficult for rivals
of Apple Music to promote their subscription services
without using Apple's payment system.
Apple takes a 30% cut on subscriptions
for the first year and 15% the second year.
- [Announcer] If you were to upgrade to premium in our app
through the App Store,
we'd have to give Apple a whopping 30%
of your subscription fee.
- [Jaden] Spotify didn't want to pay that fee
on its premium subscription revenue.
So, it removed the option to sign up from within the app.
Users can still register on Spotify's website,
but Apple's rules don't allow Spotify to direct users
from the app to its site.
Netflix has taken a similar approach,
telling users you can't sign up for Netflix in the app,
and Tinder charges members more to sign up in the app
compared to its website.
Apple said that developers are free
to promote other pricing outside of the App Store,
including on television and billboards.
- Certainly, when you see the big headway companies
like Netflix and Spotify make that move,
you can imagine that other companies
are considering the same thing,
but if you'll look at a Netflix and a Spotify,
they're in a better position in the market themselves.
So, they could potentially do say a TV commercial
that says sign up here.
Smaller companies may not have that ability.
- [Jaden] Apple has said it doesn't
give its own products an advantage
and that its 30% fee is in line
with the rest of the industry.
But if you're an app developer,
your business largely depends on just two companies,
Apple and Google. (placid music)
Roughly 95% of all mobile app spending in the U.S.
happens on the App Store in Google Play.
- We have Congress, the Department of Justice,
the European Union, the FTC,
they're all investigating Apple
and other technology giants too on antitrust grounds.
Google and Amazon and Facebook,
they're under the spotlight as well.
The tension though with Apple
by these government entities,
though, has so far centered largely around the App Store
and the App Store has become,
essentially, Apple's bread and butter.
- [Jaden] In late September,
Apple said it would exempt some apps
from paying commissions on virtual events
hosted during the pandemic.
But many app makers say they want Apple
to review its commission policies altogether.
And Apple's legal battles aren't going away anytime soon.
Depending on how things play out,
the "Fortnite" case could have a lasting impact
on how much revenue developers are able to keep
and how apps accept payments altogether.
- The biggest thing that I'm watching on the sidelines
is is Apple going to continue to take 30%?
Because that is just a large number off the top.
Which means I have that much less to hire sales
and marketing teams, hire other developers,
and get my product out to other people.
And it makes it that much harder
as a small business to survive.
- There are all sorts of possibilities
as to what could happen or things could stay the status quo.
But given the importance of the App Store
to Apple's bottom line,
should the outcome be such changes,
that could have a serious effect on Apple's finances.