- The App Store added an estimated $64 billion to Apple’s bottom line last year.
- Tech columnist Jason Aten argues as the App store comes under more scrutiny, it’ll cost the company severely.
- A new antitrust bill, a lawsuit with Epic Games, and developer pushback are threats to the tech giant’s valuable asset.
- Visit the Business section of Insider for more stories.
The iOS App Store is a remarkable thing. Since it was first launched in 2008, it’s proven to be one of Apple’s — if not the tech industry’s — most important inventions.
Before that, as innovative as it was, the iPhone came with 16 apps, and that was it. It’s a little hard to remember that there was once a time when the closest thing to a third-party app you could get was a Maps app powered by Google, and that’s only because it came pre-installed on your iPhone.
A year after the original iPhone, Apple opened up the platform to developers and changed the way most people found, purchased, and installed software. Since then, the App Store has enabled an enormous ecosystem of developers, services, and users across Apple’s devices. Along the way, that’s meant the creation of millions of apps that do everything from count steps to customize your home screen to keep track of your finances.
Apple has avoided much of the intense criticism that its Big Tech peers like Facebook and Google have faced over issues like privacy and antitrust, but there’s no question it’s attracted an increasing level of scrutiny around the App Store.
Even though the App Store’s had a few missteps (we’ll get to that in a minute), on the whole it’s been good for users, good for developers, and very good for Apple. A report in 2020 estimated that the App Store was responsible for a half-trillion dollars in economic value the previous year. That includes all of the subscriptions, purchases, and other revenue generated by services and apps on the iPhone, beyond just app downloads themselves.
It doesn’t take more than a quick look at Apple’s financial results to see how its services division, now the company’s second-largest after the iPhone, has grown into a profit-generating machine. Apple doesn’t break out the specific revenue for each of the services, but the segment includes Apple TV+, AppleCare, iCloud, AppleOne, Apple Music, its search deal with Google, and the App Store.
The company has, however, made a point of highlighting that it’s paid developers over $155 billion, not to mention the estimated $64 billion it added to Apple’s bottom line last year alone. That means the App Store would be around 52 on the Fortune 100, roughly the same size as Lockheed Martin or Morgan Stanley.
As the company’s built up its services division, it’s easy to see why the App Store is maybe the most important piece of the plan.
The App Store may be more consequential even than the iPhone itself. The iPhone as a device is a remarkable product, but it’s the platform that really changed the way we communicate and connect to the world around us.
Smartphones are a mostly saturated market, meaning most people who’re in the market for one already have one. There’s a finite number of devices that will be sold in a given year, and that number is directly related to convincing people to either upgrade from older devices or switch from competitors.
Apps, on the other hand, are — for all practical purposes — infinite. The number of apps people can put on their devices is basically only limited by the amount of storage they have, which is a trivial issue.
Apple says it has 1 billion iPhones active. There are currently almost 2 million apps available on iOS, and 2.6 million available on Android. The point is that the potential growth of the App Store isn’t fixed to the population the way that the growth of the iPhone is. Plus, every time Apple sells more iPhones, it directly benefits the App Store as well.
Apple’s been involved in a months-long battle with Epic Games.
The company behind “Fortnite”has filed a lawsuit alleging that Apple is exerting illegal monopoly control over apps on the iPhone because it won’t allow Epic to have its own in-app payment option.
Further, Epic’s CEO, Tim Sweeney, has said the ultimate goal is that Epic wants to have its own app store for games on iOS so it can collect its own commission from other developers.
Apple’s also faced pushback from developers for what many consider heavy-handed tactics designed to push apps to offer in-app payments. While Apple has made a few small moves to make things easier for small developers, like lowering the commission for developers that make less than $1 million, it’s been a bumpy road to say the least.
Apple famously got into a spat with the developers behind the Hey email app when the company rejected its update because the app didn’t include the ability to sign up. Users had to subscribe using the developer’s website, something Apple said was a violation of the developer agreement since it bypassed the in-app purchase system that guarantees Apple gets a cut of every transaction.
Now, Senate Democrats have introduced a new antitrust bill that could have a real effect on the App Store.
The bill would prohibit what it calls “exclusionary conduct” — specifically, conduct by a company with a dominant market position that either actually or could potentially have a negative effect on its competition.
While much of the proposed legislation is aimed at making it harder for big companies to simply buy their smaller competitors or put them out of business, it could mean bad news for the App Store as well.
In Apple’s case, in addition to maintaining the App Store platform, the company also sells its own apps and services that compete directly with third-party developers.
In the case of those developers, Apple collects a 15 or 30% commission every time a user makes an in-app purchase or subscription. Apple’s own apps are not subject to that fee, which gives it a competitive advantage.
The most obvious example is Spotify, which directly competes with Apple Music. Both services are $9.99 a month. Except, if Spotify were to allow in-app subscriptions (which it doesn’t), it would have to pay Apple 30% of that amount for the first year and 15% each subsequent year of a subscription.
In order for Spotify to make the same amount of revenue per subscription, it would have to raise its price by $3. As a result, Spotify requires users to sign up on its own website to avoid having to pay that commission, which is a far worse user experience and a disadvantage.
The same is true for Netflix, which competes with Apple TV+ and which doesn’t allow new subscribers to sign up through the iOS app.
Apple reviews every app for compliance with its developer agreement, and rejects apps that it feels might harm users.
At the same time, developers have complained that the review process is often opaque, resulting in strange requirements like when Apple told the WordPress app, which is free, that it would have to start offering a subscription. Apple has since reversed this position, but it shows just how much control it has over the platform as a whole.
It’s also able to encourage people to sign up for its various services by prompting users with system notifications, something no other service can do. For example, Apple will display messages and badge icons within the Settings app to prompt users to sign up for free trials of its services.
Jason Aten
That’s been very good for Apple, but it’s also invited the type of scrutiny I suspect the company would like to avoid.
All of that means that Apple has a serious advantage over its competition, and it’s used that advantage to build the App Store into maybe the most dominant software platform today.
Just this week, North Dakota introduced a bill that would prohibit Apple and Google from requiring third-party developers to use their platforms to distribute apps. A representative for Apple who testified during a hearing on the bill said it “threatens to destroy the iPhone as you know it.”
Whether that’s true or not, it’s no surprise that the company is worried. Especially since it could destroy something even more valuable — the App Store.
Editor’s note: Insider reached out to Apple for comment, but did not immediately receive a response.
