Apple has unveiled a sweeping plan to break down some of the competitive barriers it has built around its lucrative iPhone franchise, but the new choices opening up for consumers and app developers will initially only be available in Europe.
Thursday’s announcement comes as Apple moves to do so upcoming European regulations aimed at giving consumers the choice to use alternative app stores and giving app developers unprecedented ways to avoid paying fees that have become a goldmine for the tech giant.
The overhaul, due to take effect in early March, will include concessions that Apple has previously refused to make in its app store, including reducing the fees it charges developers in Europe.
Most notably, for the first time, Apple will allow iPhone users in Europe to use app stores other than the company-run one that comes installed on the mobile device. It will also allow developers to offer alternative payment systems that could help them make more money at potentially lower prices.
But Apple says it’s afraid Opening up the iPhone to outsiders will also increase the chances that consumers who step outside of its proprietary system will be exposed to hackers and other security issues.
The Cupertino, California-based company is taking what it sees as a risky step just to comply with European rules known as the Digital Markets Act, or DMA, which take effect on March 7. Apple has promised to incorporate all the complex changes into the iPhone software update — iOS 17.4 — which is due to be released in the 27 countries of the European Union in early March. A test version of that software update will first be distributed to app developers.
Complying with that EU mandate will bring “inevitable increased threats to privacy and security,” warned Phil Schiller, who oversees Apple’s app store. “Our priority remains creating the best, most secure experience possible for our users in the EU and around the world.”
The revisions in Europe will reduce the 15% to 30% commission that Apple plans to continue charging in the rest of the world for in-app transactions made on the iPhone. The DMA will prohibit Apple from charging a 30% commission in Europe once it comes into effect.
So, in Europe alone, Apple is reducing its commission on in-app transactions to 10% to 17% for developers who choose to stay within the company’s payment processing system. Apple will not collect any commissions for in-app transactions made through alternative payment systems.
That’s a stark contrast to the way Apple adheres by a court ruling that came into force last week requiring iPhone apps to provide links to various US payment options. If an in-app transaction is made outside of Apple’s US system, the company plans to collect commissions of 12% to 27% to prevent free downloads on its iPhone software.
Apple will continue to charge 15% to 30% of in-app transactions made through its US payment system
Those in-app commissions are a major source of cash for Apple’s services division, which has been among the company’s fastest-growing segments in recent years. In Apple’s last fiscal year, the services division generated $85 billion in revenue, making it the company’s second-largest segment behind sales of the iPhone itself.
While Apple has no plans to charge for in-app transactions outside of its payment system in Europe, it will introduce a “core technology fee” for installing apps on the iPhone. This fee will also apply to alternative app stores that are downloaded to the iPhone after they have been reviewed and approved by Apple.
That review process and other steps Apple says it is taking in Europe have drawn derision from one of the company’s most outspoken critics, Epic Games CEO Tim Sweeney, whose company makes the popular video game Fortnite. Sweeney described Apple’s audits in Europe as “an insidious new example of malicious compliance” in the Post on Thursday on social media.
Epic took Apple to trial in 2021 in a battle over the iPhone commission system in the US. Although Apple prevailed on most of the claims in that legal battle, it resulted in a ruling that prompted recent adjustments to the iPhone app payment processing system in the US.
It’s still too early to say how all these changes in Europe might affect Apple’s earnings, but investors didn’t seem worried it would leave too much of a dent. Apple shares barely moved in afternoon trading Thursday after the news broke.
Apple’s changes to the commission structure for iPhone apps in Europe could encourage regulators and lawmakers in the US and other major markets to push for similar cuts.
Spotify, the world’s largest music streaming service and Apple competitor, is already promising to fight for change in markets outside Europe, where it believes consumers will benefit from more freedom.
“If you live outside certain markets, you’ll still encounter frustrating obstacles due to Apple’s ridiculous rules,” Spotify said in a blog post. “That’s why developers everywhere continue to ask other governments to pass their own laws like the DMA.”
In addition to overhauling its iPhone app store in Europe, Apple will also make it easier for consumers to switch to different default options other than its own Safari browser to comply with the upcoming regulations.