Wednesday, November 18, 2020 [Tweets] [Favorites]

App Store Small Business Program With 15% Fee

Apple (MacRumors, Hacker News):

Launching January 1, 2021, the industry-leading new App Store Small Business Program is designed to accelerate innovation and help propel your small business forward. The program has a reduced commission rate of 15% on paid apps and in-app purchases, so you can invest more resources into your business and continue building the kind of quality apps your customers love.

[…]

  • If a participating developer surpasses the $1 million threshold, the standard commission rate will apply for the remainder of the year.
  • If a developer’s business falls below the $1 million threshold in a future calendar year, they can re-qualify for the 15% commission the year after.

This doesn’t address any of the structural issues with the App Store, which I think are far more significant than the fee percentage, but it’s certainly a welcome change. It’s smart for Apple because most of the public complaints about the fee come from smaller developers, but almost all of the App Store revenue comes from mega-successful apps. So Apple can help a large number of developers at a small cost to itself. And now most developers are no longer on the same side as the likes of Epic, at least with respect to the fee.

Note that even 15% is still quite a bit higher than other full-service payment processors.

John Gruber:

These odd incentives could be eliminated if Apple applied the commission more like marginal tax rates, where you never lose money by earning more income. I would suggest tweaking these rules so that each year, developers who qualify for the program would get the 15 percent commission until they reach $1M in revenue, then get charged 30 percent for sales over that threshold. Let developers stay in the Small Business Program even as their sales grow.

I wish it worked more like tax brackets, so that everyone paid 15% on the first $1M. That would help mid-sized developers.

We won’t know the details until December, but I think this system where developers need to apply and get approved to enter the program is just about a vetting process to prevent fraud (e.g. a developer with 10 apps setting up 10 different shell companies to try to get them all commissioned at the 85/15 split).

Previously:

Update (2020-11-19): Michael Love:

The thing about this is that there’s really no way for them to tell, or even really to lay out a clear definition of ‘shell company’ if they had perfect information; you’d have to start arguing about beneficial owners and at what point these companies are actually the same.

Subsidiaries are one thing, but how can they stop me from starting another software company to sell another app I’ve made? It’s a different company with a different name; ownership details would be easy to conceal if I wanted to.

And even if Apple knew that I was the owner of both companies, why would that necessarily disqualify me from the program? Plenty of people own more than one company; two different businesses making two different products.

Apple itself uses shell companies.

Oliver Reichenstein:

15% is still high, but one can run a business at that margin.

[…]

As great as this is for small developers, and as much as this is a first-class PR move… Apple’s concession doesn’t change the big picture. Small to medium-sized companies (at 1M revenue you are still small) are still held back to grow to bigger companies.

As to why the 15% doesn’t work like taxes, David Barnard:

Sensor Tower estimated that 2% of developers would be impacted. Some have multiple apps, so it’s not a perfect calculation, but 2% of 1.8M apps is 36k. $150k/yr gift to 36k apps is $5.4B/yr in pure profit. No way Apple would give that up.

Craig Hockenberry:

An extra 15% for indies is great news!

Dealing with the customer sentiment that 99¢ software is an expensive one-time purchase would be even better.

Gus Mueller:

This is very good news and I’m happy to see a reduction in fees finally happen.

Can we get upgrade pricing next?

David Heinemeier Hansson:

Quote from Cook is beyond cynical. Written in that faux-care style so beloved by lobbyists. Apple is making smaller app developers growl before Apple (this program isn’t even automatic!), such that the abusive tax on payment processing is lowered from 10x to 5x the market rate.

[…]

It also further undermines the fantasy that “App Store rules are the same for everyone!”.

[…]

The root of the issue is the monopoly claim that Apple must process all payments, own all customer relationships.

Jack Nicas:

Tim Sweeney, Epic’s chief executive and another of Apple’s toughest critics, also accused Apple of trying to divide developers. By charging smaller companies less, “Apple is hoping to remove enough critics that they can get away with their blockade on competition and 30 percent tax on most in-app purchases,” he said in a statement. “But consumers will still pay inflated prices marked up by the Apple tax.”

David Heinemeier Hansson:

BUT WHAT DO YOU WANT FROM APPLE!? Simple:

1) The choice to use a different payment processor, so we can have competition. Monopoly platform can’t mean monopoly payments.

2) The right to tell customers that our software is for sale, without linguistic contortions.

Thomas Tempelmann:

To be fair, the real problem for us devs is not that we pay Apple too much, it is that Apple leaves us no choice and has the last word over what we can deliver to an iDevice and possibly soon also to a Mac.

Loren Brichter:

If you ever wonder how old dinosaur companies got fat and started to rest on laurels, you’re watching it in real time with

It’s super frustrating because the hardware is so freaking good, and the strategy should be so freaking obvious.

Tanner Bennett:

The thing everyone is overlooking is that big players still get a better deal than we do. Why do small businesses get only 15% up to $1M while Amazon gets 15% up to infinity?

Tom Conrad:

Scoop: Apple to charge 0% fee for first $1T in revenue from developers who choose to monetize through advertising or via the sale of real world goods and services.

Francisco Tolmasky:

I don’t know why people focus so much on the dev perspective. As a customer, that 15-30% doesn’t materialize into anything worthwhile for me. That 15-30% would make a bigger difference going to new features on that app than towards “AppStore improvements” that never happen.

15-30% on can be the difference between being able to afford a 2 person team or a 3 person team. That could translate to dedicated support for the app vs. the engineers having to split time answering emails. Just from a cold business perspective this is bad for customers.

Brent Simmons:

I’ve been saying it should be 5% for a long time already. 👍

Steve Troughton-Smith:

If other platforms do start adjusting their rates to 15% to match Apple’s terms, it just showcases Apple’s outsized influence and power (direct or indirect) over the entire industry

Ryan Jones:

Once you think of it, the mechanism of “lower fee on $XM” is so obvious.

✓ EXACTLY the right incentives - new apps and creativity

✓ Apple gives up ~nothing (i.e. all the revenue comes from high end)

✓ Users get more better apps

I’m just glad Apple realized it too. Phew.

It makes a lot of sense, but I don’t know why it took Apple so long. This is the same pattern that eSellerate was using when I first started selling Mac apps in 2002.

John Luxford (via Hacker News):

Phones are general computing devices, and as such, should not be maintained as closed ecosystems. This doesn’t benefit users, many of whom are also developers themselves, because it limits our freedom on both sides of the equation. General computing platforms should be protected from such predatory practices by manufacturers through strong government regulations.

[…]

I’ve seen many comments on sites like Hacker News and MacRumours that this isn’t a problem users should care about and that developers should essentially stop whining or take their software elsewhere. But this also limits the choices users have, and it limits the types of apps they get to benefit from. This limitation won’t be felt directly, because you don’t feel the absence of something you never knew you could have. You don’t know what you don’t know.

Update (2020-11-20): Steve Troughton-Smith:

Apple’s rate drop, giving us 21% extra profit on App Store income, just barely compensates for inflation from 2008 to today money (which is just under 21% on USD). If you sold the same app at 99c from then to now, you’re only now earning as much as you were receiving in 2008 😅

Update (2020-11-23): Ken Harris:

Yet another reason not to price an App Store app at $0.99.

For an app priced at $10, and you have control over increments of 10%. At $20, increments are 5%, etc.

Beyond tier 50, you lose precision again. It’s like IEEE754. You want to stay in the middle of the range!

Update (2020-11-24): Apple:

Since Apple announced its new App Store Small Business Program, developers are sharing their positive reactions to the news. Under the new program, which launches January 1, 2021, the vast majority of developers who sell digital goods and services on the App Store can qualify for a reduced 15 percent commission. From focusing on their apps full time, to growing their teams, experimenting with features, and even launching new apps, developers are ready to write the next chapter of innovation and creativity on the App Store.

21 Comments

> Note that even 15% is still quite a bit higher than other full-service payment processors.

I see Apple's procurement of the App Store as more than a payment processor. The effort and maintenance that Apple puts into all of the frameworks to enable developers the ability to take advantage of the platform is worth something. That is a little bit harder to quantify. But, 30% still seemed quite high.

[…] The App Store ‘Small Business Program’ […]

@Nick Apple would do that effort and maintenance even without any App Store revenue, as evidenced by decades of history, since without that it wouldn’t be able to sell its hardware. Plus, they get billions in developer program member fees, whereas anyone used to be able to ship an app for free.

The thing that often gets left out of these debates: What, exactly, is the percentage fee paying for?

I could see 5% to account for payment processing + subscription management. Other companies like Square and Paypal are in that range. But everything else is apparently paid by the $99 annual dev fee -- App Store review, hosting, etc because free apps get it for no extra cost. So what's the other 10-25% for? I've never seen a rational explanation when the explanation must also consider that free apps exist in the same store and use the same resources.

To further Ben G.’s point: there is no added marginal cost to Apple for hosting and selling an app with a higher price tag, regardless of the price.

Consider two similar fart apps: Vendor A sells his for $1, while Vendor B sells hers for $1000. Why should Apple be entitled to one thousand times the cut on the latter?

Good point, Ben K. I've also brought that up before and I've never heard a reasonable justification why Apple should get more money simply because the *developer* took the time to create a high quality app. All Apple's fees do is encourage devs to release free apps (where they monetize your privacy) or low cost apps which result in a) low cost = crap quality or b) low cost = developer doesn't make a living, stops updating app. iPhones would be nothing without high quality 3rd party apps, so it's crazy that Apple treats real devs like dirt and focuses on extracting money from gimmicks like games.

Totally get the sentiment behind gruber’s point about vetting for shell companies, but why shouldn’t people set up separate companies if they want - I mean, they’re separate legal entities, it’s a valid way to split things up isn’t it...? And Apple use ‘shell’ companies all the time in their own business.

Ben G,
One of the big services that Apple provides is global sales tax, consumer, privacy, and trade law compliance. The 5% that you might pay to Square or PayPal doesn’t give you that. So if you accept payments from all over the world, you are breaking laws all over the world. Sometimes developers just assume they are so small they will never be noticed. I know that the EU actively searches for foreign developers who aren’t paying EU sales tax. They have the means and the desire to collect. Countries (and even sub-nation regions) all over the world are changing their laws to collect this sales tax from internet transactions. And at the banking, payment processing level, all of this information is freely shared with all governments.

There are a few companies, in addition to Apple, that provide these services. The two biggest examples are Paddle and Fastspring, but there are others. Here is recent publication from Paddle on the subject (https://paddle.com/blog/the-saas-tax-agony-is-real/) and a YouTube video of a recent seminar (https://www.youtube.com/watch?v=klTqCeR1YnQ). You’ll pay anywhere from 8-15% for these services, depending on a lot of factors. Paddle has a nice Mac SDK and optional licensing services available. If you think you can manage this on your own, please check those two links.

Paddle gives you sales tax and privacy compliance for about 8%. I use Paddle and I’m reasonably happy. But Paddle’s services are still not as good as what Apple gives you. You still have to get a licensing architecture. You can lock yourself into Paddle or build one on your own. That costs time and money. Even if you use Paddle’s licensing, they don’t isolate you from day-to-day payment processing annoyances as well as Apple does. Chargebacks aren’t a problem for most legitimate developers, but they are an annoyance. Essentially, you have to give refunds to anyone who asks. If you refuse, they still get their refund and Paddle will charge you an additional $15 for their trouble.

Also, remember that Paddle is in the UK and follows UK law. Don’t assume that what is legal for Paddle in the UK is legal for you in the US or other countries. You can hire a lawyer, but they charge several hundred dollars per hour. Because Apple operates independent retail storefronts in most major markets, you automatically get consumer, privacy, and trade law compliance both from a country-specific store, and US, perspective. With Apple, you don’t have to worry about sales in Iran, for example.

If you are big enough to setup your own global payment processing system, as Hey and Epic have done, then you are effectively paying twice for those services. That might annoy you enough to complain and file lawsuits in an attempt to complete directly against Apple inside their own ecosystem. These companies also have their own lawyers on staff. They are complaining about Apple’s special deal with small developers because Apple has been refusing their attempts to cut special deals for a long time.

And finally, even with Paddle and Apple, you still need to read those legal agreements you are signing. Neither Apple nor Paddle provides services in every country, or even most countries, in the world. How much are you going to make in those other countries, and for how much legal exposure and risk?

Now you can add all this up in your head and come out with your own estimate of what a “fair” “Apple tax” might be. How much would you otherwise have to pay for AWS developers & hosting, business managers, accountants, and lawyers. If you think you can do it all for 15% or maybe 12%, go ahead and give it a try with a Mac app. You have nothing to lose, except for all the money you have to pay up front for all those services that Apple charges as a fixed, post-sale fee.

@John I sell through Paddle, FastSpring, and the App Store. My experience is that App Store receipt validation (and the associated unreliable servers) is way more of a headache than the licensing stuff I implemented myself. And I do more business outside the App Store. Same with refunds and other customer billing issues. The fact that Apple “handles that for you” doesn’t mean that it’s not your problem, just that your customers contact you about the same issues and you’re powerless to help them. When I do need help from the store provider, both Paddle and FastSpring get back to me quickly (typically under an hour). Apple takes multiple days or drops the ticket completely.

@Michael, My experience is the exact opposite. Maybe file a DTS ticket about whatever problems you are having with receipt validation, especially if those problems also seem to be impacting your customers. Or perhaps post a question on the Developer forums where other developers who aren’t having those problems can offer some suggestions.

I’m not familiar with Fastspring. I have an account there but it seems very opaque. I always ask people if Fastspring has an SDK that I can’t find and they never respond at all.

As for Paddle, I’m happy with the services. It seems easier than Fastspring and the SDK provides a very App-Store-like experience. But the US-based Fastspring might be more convenient from a legal, trade, and export standpoint.

I haven’t been very happy with Paddle’s customer service. It takes them 2-5 days to forward customer support inquires to me. Lately, Paddle has been sending me customer complaints from other developers.

As a general rule, Paddle only see the world from their own point of view. If you have different needs than they do in the UK, they won't help. Their website even uses the magic word “indemnify” (https://paddle.com/platform/comply/). I’m highly skeptical about that. I follow the advice of my own accountants and Canada Revenue Agency instead. I encourage other developers to do likewise. By comparison, Apple has all the correct tax forms, does everything by the book, and accountants/tax agencies all understand and accept the Apple model.

If you can’t be in the App Store, then I would recommend Paddle. Just double-check everything yourself and check with your own financial and legal support. But I would never tell any other developer to avoid Apple’s App Stores. If anything, when I see someone who has an idea that doesn’t seem compatible with the store, my advice is always to find some other idea. I think it is important to separate the opinions of people on social media from the practical needs of developers for their livelihoods and careers.

@John Other developers are having problems, too. See, for example, this post. And I’ve since learned (and confirmed with Liscio) that even that code doesn’t work properly. The other issue is that, particularly for test accounts, the server that issues the receipts sometimes stops working. Again, I’ve confirmed this with other developers.

I think it’s unwise for Mac developers to only be in the Mac App Store, but it’s probably a business mistake to opt out of it if there’s a way for your app to be in it. The bar is higher, but if you have a great idea, I wouldn't drop it simply because it’s not compatible with the store.

I must be dump but I don't get this part in Apple's PR:

"[…] helping developers fund their small businesses, take risks on new ideas […]"

or this part in Ryan Jones' comments:

"EXACTLY the right incentives - new apps and creativity"

How is lowering the Apple tax going to help with the unpredictable reviews that can ruin a company product update or brand new product?

is there a real difference between 70% of 0 and 85% of 0 from a risk assessment point of view?

Apple has over 20 million developers now. I'm sure some of them are having problems.

I agree that it is unwise for developers to only be in the Mac App Store. Developers should be in the App Store with 10x the market of the Mac. If that is successful, the a Mac version might be warranted. A financially viable Mac app is much more difficult. A Mac app that is incompatible with the Mac App Store would be very risky, regardless of payment processing fees.

I would also recommend the Apple Developer forums for suggestions on dealing with reviews.

But these are all distractions. My goal was to answer Ben G's question, "What, exactly, is the percentage fee paying for?"

The answer is that it pays for lots of services that help the developer put more time and effort into a product instead of managing licenses, payments, and customers. If people want to debate relative services and their values, that's great. But people aren't doing that. They are spreading misinformation on social media to support their agendas.

Yes, the App Store is a premium platform at a premium price. But then, so are Macs and iPhones. That means that Apple customers are also premium customers. There shouldn't be any debate on that point. The point is that Apple gives us access to the best customers in the world, at scale, for virtually no up-front costs. And now they've reduced the back-end costs.

@someone The risk difference is simply that you don’t need as many sales to stay in business. So it makes it easier to succeed as a small business and/or gives you more time/resources to find a larger audience.

@John The App Store does give you access to premium customers, but pretty much everything else about it (feature set, the amount you have to code yourself, App Store Connect, tools, testing environment, support, unprofessional review process) is decidedly non-premium. I think that’s in large part why many find the fee to be high.

Once again, people conveniently ignore that FREE apps get the same benefits from the App Store that are often touted as "what the Apple tax is paying for". I have recurring subscriptions to apps and services that are managed via Paypal and Patreon -- they charge less than 5% to the developers/creators. It does not cost a ton of money to process payments and manage subscriptions. Apple's fees above 5% are nothing but a money grab because beyond what Visa charges to process the payment, the percentage of the apps selling price has zero bearing on Apple's cost for hosting etc. If it really cost them so much money to run the App Store, free apps wouldn't exist, and there wouldn't be carve outs for other non-free apps like Uber and Airbnb to completely bypass Apple's tax yet still reap 100% of the benefits from being in the App Store.

If they really truly do need the money, create a tiered system for the annual developer fee, so even free apps from huge companies like Facebook and Uber have to pay $5,000 per year or something. The way they set it up is nothing more than socialism for the ultra rich -- free apps that monetize you in other ways, from corporations worth billions of dollars, pay zero. Meanwhile the honest developers who want to make a living providing a quality app at a sustainable price get screwed, because the more you charge for an app, the more Apple takes, even though it costs them not 1 cent difference between an app that sells for $1 vs an app that sells for $30.

It's all so completely arbitrary and two-faced: people argue that Epic Games shouldn't complain about an Apple tax because their in-game purchases are zero marginal cost. It's all free money. Well, it's the same with Apple. Them taking a percent of sales is also zero marginal cost -- a money grab. Developers could put that extra cash to MUCH better use if it was in their own pockets.

(I should mention also that those subscriptions via Paypal and Patreon are going to people / companies not all of whom are U.S.-based. So yes it seems quite possible to do global payments and not get ripped for 15%)

@John: I'm confused. I thought the point of those hundreds of pages of Mac App Store agreements was that they *don't* handle any tax or legal paperwork for you.

In the USA, at least, they seem to say "You're on your own with all taxes". They recently added that crypto wizard in App Store Connect that tells me I shouldn't sell my app in France unless I fax the French government paperwork, and I'm on the honor system to submit a crypto declaration to the US government at the end of every year. And so on.

@Sam Yes, unlike other providers, Apple makes you file your own paperwork for foreign governments, e.g. for Japanese royalties tax. Also, the way they report sales info in the US is a mess for tax purposes.

"Sometimes developers just assume they are so small they will never be noticed."

Yes, that's how small business works. Those two guys down the street turning the old warehouse into a coffee shop? It may shock you to learn that they're not 100% OSHA-compliant. They prefer cash because there's no paper trail. They're not paying taxes on all of it. No small business in the world would be able to survive if they had to be perfectly in compliance with every law from the very beginning.

You can go to folklore.org and read about some of the illegal shenanigans Apple pulled when they were young. They wore it as a badge of pride.

@John:
> I’m not familiar with Fastspring. I have an account there but it seems very opaque. I always ask people if Fastspring has an SDK that I can’t find and they never respond at all.

FastSpring doesn't have a macOS SDK, but it has several APIs. For building an own IAP store, I've hacked up this thing, which is working well for me in Shrugs and might be helpful to others: https://github.com/ZeeZide/FSCheckoutSheet (it's just the FS checkout parts, you still need to do the store UI).
IIRC building the whole FastSpring IAP store / setup took me about a week.

There is this pretty good book by Christian Tietze I started out with: https://christiantietze.de/books/make-money-outside-mac-app-store-fastspring
It is a little outdated now because it focuses on the older FS APIs, but still has really good info (e.g. on CocoaFob and things).

@michael The issue I see is that the risk to get an app being rejected has not changed since the review process remains unchanged. So lowering the tax rate is good for applications that are already on the stores. It's not a big change for applications that are trying to get on the stores.

Anyway, I can't help but see the irony in the fact that a giant business, using tax avoidance ad nauseam, claims it's cool that small businesses pay less taxes than bigger businesses.

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