More App Store Studies
Apple’s App Store policies may be violating Japanese antitrust law, according to a new report from the Japan Fair Trade Commission (FTC) that was shared by Nikkei. Japanese regulators do not believe there is enough “competitive pressure” on Apple and Google as the two companies have a duopoly in mobile operating systems and dominate the app market.
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Japanese regulators want Apple and Google to allow users to choose third-party payment methods for apps and services, rather than forcing them to use the built-in purchase options in the App Store and Play Store.
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The FTC suggested that app store commission rates between 15 and 30 percent could be an abuse of a dominant bargaining position.
The JFTC makes a clear distinction between conduct that raises concerns under Japan’s Antimonopoly Act (AMA) and further observations and recommendations that may require new legislation in order to restore competition.
Potential violations of the AMA relate to “exclusion of competition through self-preferencing”, the unilateral imposition of “high commission rates” (app tax), and a concept that is increasingly relevant in Japan as well as South Korea, and possibly also in other East Asian jurisdictions: “abuse of a superior bargaining position”.
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In its market study, the regulator correctly identified the problem that switching rates between mobile operating systems are low, and that Android apps don’t compete with iOS apps (and vice versa). Also, 97.4% of all Android app downloads in Japan are made from the Google Play Store, which shows that Google faces “[l]imited competitive pressure from other app stores.” Sideloading on iOS (which again is entirely impossible on iOS) also exerts “[l]imited competitive pressure” because users commonly download apps from app stores. Web apps are also dismissed as a competitive force as they just can’t compete with native apps[…]
An independent study conducted by economists at Analysis Group found that small developers on the App Store grew their businesses and reached more customers around the world, even outpacing larger developers. With the support of a wide range of App Store tools and initiatives, small developers globally — defined as those earning up to $1 million a year and with fewer than 1 million annual downloads — grew revenue 71 percent between 2020 and 2022. In the U.S., those developers saw an above-average increase of 83 percent in earnings during the same period.
This is the same group that did the study last year, and again it’s “independent” but funded by Apple. The PDF is very short, only including summary statistics.
It sounds like they are saying that small developers in the US have increased their sales 83% in just two years, which is incredible but does not match what I am personally seeing or the general sentiment that I hear from other developers. So I tried to figure out what exactly the study is saying and what it really means:
I’m not sure whether 2020 is a representative start date, as this was during the brunt of COVID-19. My sense is that for some businesses that was a record good year but that for most it was below average. So it’s possible that some of the increase in 2022 just represents a return to normal.
2020 was also the last year before the App Store small business program. The study does not say whether “revenue” means the amount received by Apple or the amount received by developers. In other words, if I sold the same number of units at the same price in 2020 and 2022, does that count as a 0% increase or a 21% increase due to Apple’s fee decreasing from 30% to 15%? It’s also not clear to me why Apple and the study sometimes say “revenue” and other times say “earnings”—for the same numbers. I’m guessing that Apple is using both to mean the amount before subtracting Apple’s commission, which is the more fair way of comparing. It elsewhere seems to use “proceeds” to refer to what developers actually get paid.
They are counting developers who were small in 2020 but may no longer be small in 2022. So this will include indie successes, which is what it sounds like they are talking about, but it will also include VC-backed startups and pre-existing large businesses that happened to create their App Store accounts in 2020. It would be interesting to see the numbers for businesses that are still considered small in 2022. Are they growing?
Apple’s subhead highlights “small developers, whose growth outpaces large developers.” But it’s not surprising that large businesses had lower growth. No matter how great the next iPhone or VR product is, Apple (the #3 company in revenue) is probably not going to increase its revenue by 83%. For large companies, this only happens under particular circumstances, e.g. Pfizer rapidly scaling to billions of units of a new product that was both government funded and mandated. Even then, the increase was not enough to bring up the aggregate for the entire set of large companies. If 94% of App Store revenue still comes from the top 1%, they would have to grow a lot to bring up the total for large developers by a big percentage.
The most important thing is that the reported increases are totals. They are not looking at the change for the median small developer. They’re counting in a way so that some big successes make the numbers look good for everyone. (They do, however, exclude $10+ million accounts, which reduces this effect by an unknown amount. And, surely, some developers must have closed their accounts after 2020, so the increased total revenue is actually generated by fewer developers.) I would be interested to know, say, what the average percent increase was among developers who in 2020 had an app that was not purely free. How many such developers make enough to at least cover the Apple developer membership fee?
I also thought this part was interesting:
In addition, while over half of all developers’ earnings in 2022 originated from games, small developers’ earnings came from apps across more diverse categories, such as entertainment, social networks and health and fitness apps, with games accounting only for about a quarter of small developers’ earnings.
Note that they switched to talking about developers who were small in 2022. It sounds like they’re trying to spin a success for small developers—look how many different ways there are for you to succeed. But this is exactly what you would expect to see given that there is a high level of inequality and that most revenue comes from games. You could also look at this as saying that it’s harder for small developers to be successful with games or that it’s hard to have a big hit that’s not a game.
Previously:
- Sideloading Rumored for iOS 17
- Renewing the App Store Small Business Program
- Apple-Funded Study on Success of Third-Party Apps
- Relaxing Anti-Steering Rules for Reader Apps
- 94% of App Store Revenue Comes From the Top 1%
- Over 70% of App Store Purchases Are for Games
