App stores: Apple vs Microsoft

Amidst the ongoing furore about Apple's app store policies, Microsoft is taking an alternative approach and promoting itself as the good guy of app stores in the process.

The aforementioned furore has come about because Apple charges a hefty 15-30% of a developer's revenue for using its app store and refuses to permit alternative app stores on iOS. This led to Epic Games taking Apple to court. Epic largely lost that case, but it ignited an app store war that looks set to continue for a while yet.

Dutch regulators recently told Apple it was in breach of its antitrust regulations and must allow alternative payment methods for dating apps. I have no idea why dating apps have been singled out, but Apple has issued instructions to developers of such apps describing how they can use alternative payment methods and still comply with Apple's App Store policies.

These instructions are onerous and that's probably not by accident. So, what sort of reduction is Apple offering to developers who choose to use their own payment processing method?

Consistent with the ACM’s order, dating apps that are granted an entitlement to link out or use a third-party in-app payment provider will pay Apple a commission on transactions. Apple will charge a 27% commission on the price paid by the user, net of value-added taxes. This is a reduced rate that excludes value related to payment processing and related activities. Developers will be responsible for the collection and remittance of any applicable taxes, such as the Netherlands’ value-added tax (VAT), for sales processed by a third-party payment provider.

A measly 3%! 27% commission instead of 30%. 3% may well be the raw cost of payment processing for Apple, but the entire effort of using their own payment processing is likely to cost much more than that. Developers will be out of pocket even more by using their own payment processing, which I suspect is just what Apple wanted.

Conversely, Microsoft has taken the opposite stance. In a recent blog post they wrote:

Developer Choice

  1. We will not require developers in our app store to use our payment system to process in-app payments.

  2. We will not require developers in our app store to provide more favorable terms in our app store than in other app stores.

  3. We will not disadvantage developers if they choose to use a payment processing system other than ours or if they offer different terms and conditions in other app stores.

  4. We will not prevent developers from communicating directly with their customers through their apps for legitimate business purposes, such as pricing terms and product or service offerings.

We also recognize that emerging legislation will apply new rules to companies that both run an app store and control the underlying operating system like Windows. Therefore, we are also committing today that:

  • We will continue to enable developers to choose whether they want to deliver their apps for Windows though our app store, from someone else’s store, or “sideloaded” directly from the internet.

  • We will continue to give developers timely access to information about the interoperability interfaces for Windows that our own apps use.

  • We will enable Windows users to use alternative app stores and third-party apps, including by changing default settings in appropriate categories.

I think Microsoft have seen the writing on the wall here and are getting ahead of the game, and they're wooing developers with some good publicity in the process.

Apple seems almost obsessively committed to locking down its iOS app store and preventing alternatives. There are good reasons why they might want to do that, such as the protection it affords consumers [1], but it's not so good for developers. Apple takes 30% in the first year if the developer makes more than $1 million/year from app store purchases. It then takes 15% of ongoing subscriptions. Developers who make less than $1 million/year from the app store pay 15% at all times. Google does likewise.

Microsoft takes a cut of app store revenue too — up to 12% — but, as detailed above, developers aren't forced to use their app store; they can sideload their app or use a third-party app store and pay nothing to Microsoft.

I don't think this issue will go away. Apple is using a stick to hang onto its app store revenues and I think it would be better off using a carrot. Allow third-party app stores, extol the virtues of the Apple App Store, apply disclaimers to anything loaded onto iOS from third-party app stores, and match Microsoft's commissions. First and foremost, make developers want to choose the Apple App store rather than not want to choose an alternative.

I think Microsoft has correctly read the way things are going in this instance.

[1]: Although some scams still get past Apple's review process.