Apple app developers are developing new software to avoid the "Apple tax"

Beijing time, October 8, noon news, it is reported that application developers are currently developing new software. In the future, these companies will no longer need to pay Apple a share when charging users. As of now, Apple's share ratio can be as high as 30% of the transaction amount.

Third-party app developers are preparing for new changes Apple will have to implement as a federal judge ruled in September that Apple must allow app developers to offer users links to alternative payment systems. The ruling was the result of a legal battle between Apple and Epic Games, the maker of "Fortnite."

The new software could threaten Apple's profit stream if it is widely adopted by developers and users. The App Store is part of the company's services business, which had revenue of $53.8 billion in fiscal 2020 and a gross margin of 66%, accounting for about 20% of Apple's revenue.

Developers are preparing several options, and it's unclear how they will comply with Apple's new rules. Apple has not yet shared details of its plans to comply with the judge's order, which will take effect on December 7 of this year.

Paddle Chief Executive Christian Owens said the ruling provides an opportunity for the company to expand its billing business for Mac and Windows customers to Apple's iPhone App Store. Paddle has built three different implementations of its iPhone payment products in the hope that one of them will comply with the rules.

"We want to hear from Apple and want them to clarify what is and is not allowed," Owens said.

A version of the Paddle software development kit (SDK) lets app makers offer users monthly or annual subscriptions through an "Upgrade Now" button. The button links to a Paddle-hosted web page in the Safari browser that has multiple payment options, including Apple Pay and PayPal. After the payment is processed, the user is returned to the app.

Jacob Eiting, CEO of RevenueCat, a company that builds tools for iOS developers to manage customer subscriptions, said they are also working on a browser-based payment system that developers can add to their apps without having to build their own. "The real magic is that developers will get a portable link that they can integrate in external marketing materials or integrate in the app, and use our SDK to instantly unlock access," he said in an email. "We assume that developers will still be required to use Apple's IAP within their apps, but you will now be allowed to connect to external paywalls."

Paddle's CEO agrees with this assumption. Owens said: "I think it will be a situation where if you want to offer an in-app purchase mechanism outside of Apple's platform, you have to also offer an in-app purchase mechanism for Apple."

So far, Apple has not updated its App Store guidelines, the document that determines what developers can and cannot do in iPhone apps. All iPhone apps and updates go through a process called "app review," and Apple employees have the power to reject apps that don't comply with Apple's rules.

The judge said Apple must allow customers to leave its ecosystem and buy virtual goods on the open web. But that doesn't prevent Apple from making other policy changes to its store, such as developing a new way to charge fees for iPhone app transactions that take place outside the platform, a possibility that Apple CEO Tim Cook raised in testimony during the trial.

“Without in-app purchases, we would have to come up with another system for invoicing developers, and I think it would be a mess,” Cook said in May.

Apple declined to comment, but the company argued in court that the App Store ensures user privacy and security. Apple General Counsel Kate Adams said in September that the Epic Games ruling was a "huge victory" and the company welcomed the court's finding that Apple was not a monopoly.

Impact on Apple and consumers

Some Wall Street analysts believe that the new ruling will have a very limited impact on Apple, but it will indeed have an impact, possibly causing Apple's revenue to decrease by about 4%, as non-platform billing will be used more for expensive software subscriptions.

Eiting said Apple's change may not have a huge financial impact on developers. He believes that if users have to go to an external web page, even if the app can link to it, they will be less likely to complete the purchase. The move may also annoy users because they will have to manage subscriptions individually and cannot manage them all in the iPhone's settings.

Other payment systems will charge developers less than Apple while still offering conveniences like managing and canceling subscriptions and providing analytics on sales trends.

Owens said Paddle will take 5% to 10% of total purchases, less than Apple's 15% to 30%, while still handling behind-the-scenes issues such as international taxes and customer support. This cost savings will ultimately be reflected in the purchase price for consumers.

If Apple requires apps with direct billing links to also offer an in-app purchase option, developers would have an incentive to lower the price of their services. For example, if a user subscribes to a music service in the App Store, the developer might charge $9.99/month because Apple takes a cut of those purchases, but if the user clicks on the link to subscribe directly on the service's website, it would only be charged $6.99/month. "We're going to build a competitive in-app purchase solution, and by that I mean we could do it for even the smallest transaction with 10% of the value of those transactions and then adjust the price down," Owens said.

Epic Games CEO Tim Sweeney, whose lawsuit against Apple led to the change, congratulated Paddle in a tweet on Thursday.