Unauthoritative Pronouncements

The past two weeks have provided a steady stream of news all related to Apple’s Services revenue. The company announced their earnings, where Services takes up an even bigger slice of the earnings pie chart. The Google anti-trust trial will probably impact the biggest component of Apple’s services revenue because it’s coming from anti-competitive behavior (on Google’s part). Apple revised it’s European Union super-special rules again, with an amazing section on how they’re entitled to a percentage (coincidentally the same percentage they keep insisting on) of income generated by a company through a digital transaction even if it didn’t take place inside an app from the App Store, as long as the customer just happened to have the app downloaded. Then, Patreon announced that it was going to have to change its business based on a 30% fee Apple is suddenly demanding from Patreon. Finally Spotify won the right to release a version of its app in the EU that told customers how much the plans cost outside the App Store.

All of this is connected to the same root issue: Apple believes they they are financially involved in any transaction that’s iPhone adjacent.

It is absolutely laughable to assert such a thing when we live in a world where people routinely buy things on the internet (remember when we called that eCommerce?), and other operating systems that aren’t as tightly controlled — like Apple’s own macOS.

Money For Nothing

Judge Mehta’s decision in the Google antitrust case is pretty straight forward, and logical. He walks through all the facts of the trial, and the conclusions he drew from them. The assistant attorney general for antitrust, Jonathan Kanter, talked about how the DOJ defined the general search market to analyze in the trial, and they succeeded. I’m skeptical they’ll be able to do the same thing with Apple and the iPhone with the legal tools that are there, but I wouldn’t be writing this kind of post if I didn’t think that something needs to curtail Apple’s behavior.

The remedies phase will reveal what this all means in practice, as will the appeals process to our (corrupt-as-fuck) Supreme Court.

Apple receives tens of billions from Google that enables Google to have a pipeline to Apple’s customers. Apple talks about innovative new ways to protect the privacy of its customers, but the shine wears off the first time someone picks up an iPhone to search the web. The Google search results page prompts people to sign in to their Google accounts. Google showing relevant ads to Apple’s customers is in Apple’s own interests. Balancing Apple’s financial interests in services, Safari, privacy, etc. is no easy task. A balancing act that mostly disadvantages companies that don’t happen to pay Apple money, like Microsoft, and Meta.

Pulling out this bit from Judge Mehta’s decision:

a. Current ISA Terms The parties entered into the current ISA in 2016, JX33, and in 2021 extended it for a period of five years until 2026, JX97 at 357. Apple can unilaterally extend the agreement by two years until 2028. JX97 at 357. After that point, the agreement can be further extended until 2031 if the parties mutually agree to do so. See Tr. at 2501:17-25 (Cue). Neither party has the right to unilaterally terminate the ISA prior to its current termination date. JX33 at 800 (“The parties expressly amend the existing ISA Agreement to remove the right of either party to terminate at will[.]”). The ISA also requires both parties to cooperate to defend the agreement, including in response to regulatory actions. Id. at 801. Two provisions of the ISA are at the heart of the parties’ dispute: (1) the default and revenue share provisions and (2) restrictions on Apple’s product development.

That’s 10 years Google and Apple operate under these terms, with 2 more if Apple decides it’s beneficial. This all started in the early 2000s with a In 2022 it was $20 billion, which was “nearly double” 2020. I’d need more data to figure out what kind of trend this could mean by the time we get to 2028, but it’s pretty easy to guess the total value of the search agreement could be around a quarter trillion depending on a variety of factors. It’s a corrupting amount of money.

Lauren Feiner at The Verge, quoting Mehta:

Mehta rejected Google’s arguments that its contracts with phone and browser makers like Apple were not exclusionary and therefore shouldn’t qualify it for liability under the Sherman Act. “The prospect of losing tens of billions in guaranteed revenue from Google — which presently come at little to no cost to Apple — disincentivizes Apple from launching its own search engine when it otherwise has built the capacity to do so,” he wrote.

It doesn’t logically follow that Apple would offer its own search engine to compete with Google, or sign a deal with anyone else. Judge Mehta specifically cites Eddy Cue’s refusal to cut a deal with Bing for the default search engine slot. Even if Apple invested in creating their own general search competitor right now Apple would be subject to the same regulatory concerns as other areas of their business.

One of the remedies might be that Apple can collect some revenue from Google clicks, but that it can no longer pay to be default. A selection screen of search engine choices might not be mandatory, but it’s not impossible to see a future where Apple lists search engines that sign a similar revenue share on ads.

Eddy: “I know! We’ll have a search engine marketplace.”

Phil: “Yeah, yeah, with a core search fee.”

They’re drunk on commissions for not doing anything.

EU Can’t Do That

I know I’m not alone as describing Apple’s behavior in the EU as that of a disobedient child trying to weasel out of doing what it has been asked to do. They keep tweaking terms to roughly arrive at generating the same amount of income they were making by shifting things around. The EU regulators never said Apple can’t make money from its gatekeeper position, so without any kind of financial restriction it’ll just be a never ending cavalcade of formula adjustments.

From Benjamin Mayo at 9to5Mac:

Apple is introducing a two-tiered system of fees for apps that link out to a web page. There’s the Initial Acquisition Fee, and the Store Services Fee.

The Initial Acquisition Fee is a commission on sales of digital goods and services made by a new app user, across any platform that the service offers purchases. This applies for the first 12 months following an initial download of the app with the link out entitlement.

On top of that, the Store Services Fee is a commission on sales of digital goods and services, again applying to purchases made on any platform. The Store Services Fee applies within a fixed 12-month period from the date of any app install, update or reinstall.

Effectively, this means if the user continues to engage with the app, the Store Services Fee continues to apply. In contrast, if the user deleted the app, after the 12 month window expires, Apple would no longer charge commission.

Bananas.

The part I’ll never understand is the assumption that the App Store is the reason a developer, or corporation, was able to acquire a sale. The days of people browsing the App Store are long gone. People hear about, or encounter ads for, apps and services in the real world or online and then have to download the app. The App Store serves as a hosting venue for static code. It’s Tucows. It’s not doing anything.

Developer Jeff Johnson on Mastodon:

Third-party software sells Apple hardware, not just directly to developers but indirectly to consumers who use the software. “Should Apple give away its developer tools for free?” is a dumb, ignorant question. The fundamental developer tool is an Apple Mac, very far from free.

Back when Mac OS X cost $129, Xcode was included among the install discs. Again, not free.

Developer tools are not charity. Apple platforms would never have achieved their current success without 3rd party software.

Continued:

“But how will Apple monetize its IP?!?”

Apple monetized its IP to the tune of $60 billion in hardware sales last quarter. Anyone who fails to acknowledge this is a complete idiot.

This is very true (and Jeff keeps going). It is impossible for Apple to show that it would suffer irreparable harm if it suddenly stopped IAP and subscription fees.

However, conversely, if apps weren’t on iOS, then Apple’s iPhone hardware loses it’s value. The assumption is that developers wouldn’t do that because they would hurt themselves.

The App Store is where people are at and you need to meet your customers there, despite any onerous fees, right?

However, Netflix jettisoned IAP. It wasn’t something they did lightly, and now they don’t have a great relationship with Apple, but now they have a super app that can distribute games, credit cards on file, everything. If developers look around at this mess, and they’re creating a new app, then what math are they going to do on starting with payments outside the app store? Is Apple counting on only big players like Netflix being able to do it?

The Gang Taxes Artists

The real cherry on top for me is the Patreon debacle. Patreon is, in essence, a digital storefront. A person can have a Patreon where they distribute digital goods, or it just functions as kind of a tip jar where there is no (or weak) direct compensation at all.

This means Patreon is a middle man that extracts value, like Apple does, and it’s been involved in its own scandals over payments, promotion, and fees.

For Apple to pop up on the scene and make Patreon look like the generous soul is kind of a feat to behold.

Hey Patreon creators, what if there was another middle man? Also that middle man didn’t do anything but collect 30%, which is even more than Patreon collects? Patreon will provide you with services in exchange for their fee but the App Store will … uh … process payments that could be processed using the web system that Patreon needs to have anyway. So … uh …

Apple provides the platform for Patreon’s subscribers to access shrug whatever it is those Patreon creators do. Images or audio or something? Maybe you write some blogs? It doesn’t matter, the App Store is how those subscriptions were acquired!

Surely no one purposefully set out to subscribe to a Patreon because they liked that creator based on something produced outside of the App Store, or the Patreon app itself. That would be silly. Did they find the creative output of a person on social media? Preposterous. It certainly was because of the Apple Ecosystem. Pony up the cash, Picasso!

This has drawn pretty much universal condemnation, not because the other App Store skimming is less bad, but because there is clearly no business relationship between the value of the platform (individuals creating things) and the App Store.

The closest you could come to it is that Apple offers podcast subscriptions in the Apple Podcasts app, and some people with Patreon have podcasts, but there’s so little overlap there that exists as a threat to Apple (which has a vastly inferior product).

Apple offers no “Creator Store” that competes with Patreon, nor do I think anything like that is on the horizon.

Your Payment Processor Is In Another Castle

Today Spotify’s app was finally released that lets them show the prices of their plans in their app. They can’t link to the plans. From Jess Weatherbed at https://www.theverge.com/2024/8/14/24220105/spotify-iphone-app-pricing-information-eu-update:

One thing that’s missing is the ability to click a link to make those purchases from outside the Apple App Store. Spotify says it’s opting into the “music streaming services entitlement” that Apple introduced after being served a €1.84 billion (about $2 billion) EU antitrust fine in March for “abusing its dominant position” in music streaming, rather than accepting the complicated new developer terms Apple outlined last week. Unlike the entitlement, the latter would allow EU developers to link to external payment options with Apple taking a cut of off-platform sales. Spotify clearly doesn’t want to do that, saying that Apple is demanding “illegal and predatory taxes.”

A lot of the time Apple relies on animosity towards their foes in these situations — that Spotify is not a good company, and that they don’t pay artists well. That’s whataboutism though, and doesn’t cover Apple’s ass. Apple doesn’t donate the money they want to extract from Spotify to poor, starving artists. It is an anticompetitive fee. They’re just interested in money for themselves.

Are We the Baddies?

Yes, Apple, you are absolutely the baddies. You’re making other fee-extracting middlemen look good! You’re doing things that will hurt your relationship with creatives and consumers (who are also creatives) and it’s for relative pennies.

Apple’s growth in Services revenue should be because it offers great services. Jason Snell made a very salient point on Upgrade this week that in the era of illegal mp3 downloads, the iTunes Store was still able to succeed because it was just a better experience that was worth paying for.

The fees Apple collects should not be because it can rig a system in very specific ways to benefit them, but because without any artificial barrier it’s simply the best experience. They absolutely can’t say that right now.