Apple's Slice Gets a Little Smaller

Posted by Matt Birchler
— 2 min read
Apple's Slice Gets a Little Smaller

Apple introduces the App Store Small Business Program:

With the new App Store commission structure, small and individual developers who earn up to $1 million in revenue for the calendar year are eligible for a reduced 15 percent commission rate — half of the App Store’s standard commission. The savings mean small businesses and developers will have even more funds to invest in their businesses, expand their workforce, and develop new, innovative features for app users around the world.

Compare this with my article on July 26, 2020 where I suggested what Apple should say:

A few years ago we started giving developers more money for each subscription after the first year. We’ve seen a boom in subscription services since then and we love being able to support the developers that make Apple’s platforms what they are today. We’re pleased to announce that as of today, we’re giving that higher rate to all apps on the App Store. This will help more developers achieve their dreams of building a business, and continues Apple’s tradition of creating jobs through our platforms.

Apple fell a little short of my suggestion, only offering the rate reduction to merchants making under $1 million per year on the App Store, but that accounts for the vast majority of merchants, and specifically targets the companies who are least able to make due with the App Store's 30% cut.

This does not sound like a "progressive tax", unfortunately, so it would appear that you get to keep 85% of all sales up until the $1 million mark, but then if you make more than $1 million then you drop to 70% for the next year. I think it would be better for them to make it so all merchants across the board get to keep 85% of their first $1 million per year, and then 70% of each dollar made after the $1 million mark (resetting every year).

Some are suggesting this will incentivize merchants to try to not eclipse the $1 million dollar mark, but I don't buy that argument. If you have earned $1M in a year and you would have to go to extra efforts to stop people from paying you even more, you're not going to try and slow that down. Also, since App Store payments are made out monthly, it is effectively a "progressive tax" for the first year that you eclipse that mark.

2020 has been a trying year for the App Store team, and Apple as a whole in terms of how they evolve the App Store to the realities of the modern ecosystem. This is a great policy change, and I don't expect it to be the last one we see over the next year.

Quick note on the $1 million mark. To make $1M at Apple's new 15% cut, you would need to sell a gross $1.18M. To earn $1M at the 30% cut, you would need to gross $1.43M in customer revenue. That $1.18-1.43M range is the bad area where you would take home less because you earned more money. If you fall in this range, you're no worse off than you were yesterday, but I could see why you would feel like you're missing out. That said, if you are in this range, then it would be quite the business that said, "we should try to reduce our revenue to get more money" instead of, "let's try to grow our business to increase our revenue even more."