The “Apple-Tax”

The Apple App Store is the second largest app store globally, but for developers of apps in the United States, maybe the most important. The agreement that governs the App Store, Apple’s Developer Program License Agreement (or “DPLA”), is high-profile in it’s own right because of the way it impacts corporate decision-making, customer experiences, and the economics of the internet.

Of the nearly 100 pages worth of provisions that make up the DPLA, the only one that has gained public notoriety is the provision outlining the 30% share that Apple retains on any sale made in-app. The Google Play Store and other platforms have similar provisions, and these commissions should be a key strategic consideration. Will you simply sacrifice 30% as the cost of doing business with giants like Apple and Google? Do your margins allow it? Will you charge your customers 30% more for the convenience of purchasing through your app? Is there a demand for your product at that price? There’s no right or wrong answer to these questions, only what’s right for each app developer, CEO, or strategist.

In 2015 Spotify famously decided that it would charge its customers a premium for the convenience of being able to subscribe to its music streaming service on an Apple device. They were very open about it, going so far as to provide instructions on how to sign up at a lower price, or switch a more expensive subscription to a less expensive one. Generally it’s not a good idea to answer the question “how much does your service cost?” with, “it depends what device you buy it on,” but Spotify had already established a loyal fan base of millions, and could afford to muddy its marketing message a bit.

Spotify also has real costs. If you sell additional features in your dating app, or virtual currency in your game, the 30% commission probably won’t kill your business. If you sell subscriptions to a music service, and have to pay music labels for their artists’ most popular content, 30% might put your business underwater. An alternative to consider is building a companion website where your customers can transact and manage their accounts. While a companion website is great for avoiding the Apple tax, it adds a considerable amount of friction to any purchase flow. Attention spans are short, and if your slot machine gamer just spent his last virtual dollar and is jonesing for another pull, taking him out of your app to enter credit card information on a website will result in less money spent.

The moral of the story is to carefully consider your app’s user experience, margins, and brand loyalty before deciding whether to accept in-app purchases and pay the “Apple tax,” or not.

Screen shot 2018-06-03 at 7.39.55 PM

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