Written by Jack Nicas and Kellen Browning
Apple has gotten into the habit of calling its iPhone App Store an “economic miracle,” and it cited developers like Zach Shakked as proof.
Shakked has created an iPhone app that helps businesses find trending hashtags on social media. In the past 12 months, its sales have exceeded $ 5 million.
But one of Shakked’s biggest expenses is paying the richest company in the world a cut. In his case, Apple took almost $ 1.5 million – its fee to allow it to run its app on its devices.
Now Shakked hopes that he can keep at least some of that money soon. A federal judge on Friday ordered Apple to allow developers to hijack their customers from their iPhone apps to pay for their goods or services, which Apple had banned. This is big news for developers like Shakked, as sales made outside of Apple’s payment systems aren’t subject to its commission of up to 30%.
“It finally feels like the little guys have won,” said Shakked, 25. “There is a sense of justice.
The decision in the year-long legal battle between Apple and Epic Games, maker of the popular video game Fortnite, has sparked celebrations among app developers. From one-man startups to Fortune 500 companies, they have long complained about paying Apple big cuts in their operations.
The impact of the decision will be felt mostly by smaller developers like Shakked. He said the change could save him hundreds of thousands of dollars a year, allowing him to hire more employees.
“This is a really big deal,” said Denys Zhadanov, board member of Readdle, which creates five productivity apps for tasks like email that together have been downloaded around 175 million times. . The change could save his business millions of dollars every year, he said.
The legal battle has often been presented as a battle between industry heavyweights: Apple, which is worth $ 2.5 trillion, against Epic, a much smaller company but still one of the few makers of capable apps. to take on the titan of Silicon Valley.
Friday’s verdict shouldn’t hurt Apple’s results. In fact, the company declared victory, as Judge Yvonne Gonzalez Rogers, of the United States District Court for the Northern District of California, ruled that Epic had failed to prove that Apple had a monopoly. in the mobile gaming market – which would have had a much more serious impact.
The decision appeared to disappoint Epic. Tim Sweeney, its CEO, said the move was not “a win for developers or for consumers”. He vowed to continue the fight for his business.
There could be a number of barriers to mandatory App Store changes. Apple could ask another judge to temporarily block the order, which is expected to take effect in 90 days. Epic on Sunday has appealed the decision, a process that could take several years.
Apple could also restrict how developers hijack customers from their apps to complete transactions, including having them list Apple’s payment system as an option and prohibiting them from offering discounts to customers who don’t pay through. Apple. Such discounts may be needed to persuade customers to take the extra step of opening a web browser and entering their credit card information, rather than just pushing a button and paying through Apple.
“I’m sure app developers will benefit somewhat from it, but I’m not sure how consumers will actually use it,” said Sumit Sharma, senior researcher for technology competition at Consumer Reports.
Still, the wind may be starting to turn against Apple’s tight control over its App Store. Regulators in Japan and South Korea have forced Apple to change the way it runs the store, and regulators and lawmakers around the world are also considering measures to limit the company’s influence.
Dan Burkhart, CEO of Recurly, a subscription management and billing platform that works with more than 2,000 companies, said many of the app developers he communicates with on a regular basis were buzzing with excitement on Friday afternoon. Large companies with “established momentum and brand awareness” should benefit from the opportunity to direct their loyal customers elsewhere, he said.
Match Group, maker of Tinder and Hinge dating apps, is set to pay Apple and Google – which controls a similar app store for phones running its Android software – over $ 500 million in commissions this year, the company’s biggest expense, said Gary Swidler, Match’s chief financial officer. The company was already considering ways to use Friday’s decision to reduce that bill as much as possible, including charging less for paid subscriptions on one of its websites, he said.
One analyst estimated the change could save Match $ 80 million a year, but Swidler said there were too many questions to make such a prediction.
“Depending on the participation rate, it will help us from a bottom line perspective, and it will allow us to invest more in our business, and also allow us to pass the benefits on to consumers,” he said.
Michael Love, founder and CEO of a Chinese dictionary app called Pleco, said the prospect of avoiding a commission – he pays Apple 15% – was good news. Even better? The possibility that he could interact directly with customers in ways that the App Store rules precluded, such as sending promotional emails, issuing refunds, and finding old orders.
“I am excited about the possibilities of paying without Apple getting in the way,” he said.
Love, 39, said he hadn’t been able to make many deals with other dictionary publishers because those publishers didn’t want to pay him and Apple commissions and lose a lot of money. .
Now, by avoiding Apple’s fees and working directly with publishers, he could potentially transform his business into an “e-book retail store,” Love said. That could increase his income from around $ 500,000 a year to $ 5-10 million, he said.
“It allows the little guys to compete,” he said.
This article originally appeared in The New York Times.
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