Apple to developers: Heads I win, tails you lose (part 4)

See also: Apple to Developers: Heads I win, tails you lose parts one, two, and three

Apple updated its terms for apps distributed in the EU yesterday. As I covered in Apple to Developers: Heads I win, tails you lose (part 3), Apple had devised a wholesale overhaul of its App Store developer guidelines before the EU’s Digital Markets Act (DMA) went into effect. As part of this change, Apple introduced an entirely new set of guidelines — what it called Alternative Business Terms — that developers could adopt, which offered lower commissions on App Store purchases and allowed for new distribution opportunities on alternative app marketplaces and through “link-out” but imposed a “core technology fee” that applies to install, updates, and re-installs over 1MM in a given year. Developers in the EU have the choice of accepting the alternative business terms or continuing to be governed by the existing, legacy terms. For a full overview of Apple’s proposed compliance with the DMA, see the piece linked above.

In June, the European Commission (EC) reached the preliminary conclusion that Apple’s new App Store policies were not compliant with the DMA, as I described in Apple’s DMA compliance and the EC’s folly. The changes that Apple has introduced to its App Store guidelines in the EU seem to be in response to that preliminary finding. The updated guidelines introduce one principal change: “link-out,” or the ability of a developer to link to destinations outside of the app that can facilitate transactions for in-app content, has been introduced to the legacy terms, meaning that all developers — no matter which terms they accept — may utilize it.

Additionally, for link-out in the EU, Apple has dropped many of the stringent restrictions that it introduced in App Store guideline 3.1.1(a) related to link-out with the StoreKit External Purchase Link Entitlement (see above). Now, with link-out:

• More than one static link can be utilized;
• Users may be directed with these links to any number of landing pages on an external website or product (including other apps and alternative app marketplaces);
• Special offers or terms available with external transactions can be promoted and advertised within an app;
• Link-out links can include parameters, so long as they aren’t used for advertising or tracking.

Additionally, these links can now be opened within the app inside of a web view (instead of being launched in the user’s default browser).

Link-out must still be preceded by a disclosure sheet under the new terms, but users may opt out of seeing the disclosure sheet more than once by un-selecting a “Show this next time” setting. Link-out under these new terms is activated when an app developer signs an addendum for whichever terms they’ve accepted in the EU (legacy terms or alternative business terms), registers for the relevant link-out entitlement, and publishes or updates their app.

Alongside this added link-out functionality, Apple has introduced a new fee structure that applies to link-out, both under the legacy and alternative business terms. This fee structure is comprised of two separate fees that are applied in tandem:

• An initial acquisition fee applies to all transactions that occur within 12 months of a user’s first installation of an app. Notably, this fee applies to transactions that occur on any platform. This fee only applies to installations that occur after the app has been updated with the new link-out entitlement;
• A store services fee applies to all transactions that occur within 12 months of a user’s installation of an app, including app updates and re-installs (meaning: the store services fee timeline resets each time the user updates or re-installs the app). Again, the store services fee applies to transactions that take place on any platform following the user’s initial installation of the app following its adoption of the relevant link-out entitlement.

The size of these fees depends on the terms to which the developer agrees: see the full addendum for legacy terms here and for the alternative business terms here. The fees are as follows:

Legacy terms:

• Initial acquisition fee: 5%
• Store services fee: 20% (7% for apps in the Small Business Program and for recurring subscriptions past year 1).

Alternative business terms:

• Initial acquisition fee: 5%
• Store services fee: 10% (5% for apps in the Small Business Program and for recurring subscriptions past year 1).

These fees — which stack — don’t compare favorably to the standard commission rates charged under the legacy terms given the added conversion friction incurred with link-out. For instance, a developer that isn’t in the Small Business Program would pay a combined 25% in link-out fees for all non-recurring subscription transactions undertaken by a user within 12 months of their initial installation of an app (and 20% thereafter) under the legacy terms.

And, consistent with Apple’s previous rules governing link-out, developers that utilize the tool are obligated to track the purchases that take place subsequent to a link-out and report them to Apple. This reporting exercise is no trivial matter: developers must attribute transactions across all platforms for 12 months (a timeline that recurs for the store services fee) for any user who clicks a link-out link following an installation of the app.

In pursuing DMA compliance, Apple’s changes to link-out, in aggregate, don’t make its more use feasible: it’s another example of a “Heads I win, Tails you lose” proposition from the company. The new fee structure, to my mind, erodes the commercial benefits of the new, less-restrictive link-out rules. Developers only save 5% relative to App Store payments on transactions for the first year after a user’s installation, and fees apply to transactions that take place on any platform. The user-level attribution burden and reporting requirements alone render the 5% savings unattractive, not to mention the conversion friction inherent with (admittedly, less intimidating) disclosure sheet and off-platform transaction process.

And most payment processors, like Stripe, charge a fixed fee in addition to a variable fee on the transactions that they process. That fixed fee creates a problem for low-priced in-app purchases. Apple’s link-out fees are charged against the gross purchase price of in-app purchases and not the net price after payments processors have been paid; as a result, the aggregate cost of the fees, including a payment processor’s fixed fees, could substantially exceed the App Store commission. Consider the link-out fees for a €0.99 pack of in-game (or TikTok) coins:

• Stripe fees: €0.20 + 1.5% = €0.26
• Apple Initial Acquisition fee: 5% * €0.99 = €0.05
• Apple Store Services fee: 20% * €0.99 = €0.20
• Total fees: €0.51 (52% of IAP price)

Note that this fee schedule would apply to an app that isn’t in the Small Business Program and for an in-app purchase that is not a second-year recurring subscription, and for the first-year after initial install (afte rwhich the “Initial Acquisition fee” is dropped).

But how could an app developer grapple with these fees? Why would they go to the effort? It’s admirable that Apple dropped the exacting restrictions on link-out related to parameters, the use of one link, and the direction to a single page on the developer’s website (and, in fact, link-outs can now point to alternative app stores and other apps). But implementing link-out requires a considerable amount of effort — like building a web store, developing the link logic and structure, integrating with a third-party payments processor — which is hard to justify in light of this new fee structure. And the fees apply to transactions from any platform, not just iOS, with the Store Services fee effectively applied in perpetuity for retained users. The size of the fees as well as their applicability timelines undermine the utility of link-out relative to native App Store payments.