The Fall of the App Store Wall
Imagining how Apple will allow third-party iPhone app stores…
If Mark Gurman’s latest report is true — and with regard to anything Apple-related, it always seems to be — this sounds like a bombshell:
Apple Inc. is preparing to allow alternative app stores on its iPhones and iPads, part of a sweeping overhaul aimed at complying with strict European Union requirements coming in 2024.
Software engineering and services employees are engaged in a major push to open up key elements of Apple’s platforms, according to people familiar with the efforts. As part of the changes, customers could ultimately download third-party software to their iPhones and iPads without using the company’s App Store, sidestepping Apple’s restrictions and the up-to-30% commission it imposes on payments.
Since the dawn of third-party (native) apps alongside the original launch of the App Store in 2008, Apple has not allowed users to install any app outside of this mechanism. You would need to jailbreak your phone in order to “sideload” and obviously that’s very frowned-upon from Apple’s perspective and they make it next-to-impossible to do. While you’ve long been able to install Mac apps via the web, Apple’s stance has remained that in the name of security, iOS would be different. No sideloading for you.
This move points to a change. While perhaps not full distribution from the web, a new opening for the installation of apps. It seems like a major shift in position by Apple. At a high level, sure! But the proverbial devil will be in the literal details. And there are undoubtedly a ton of caveats here...
Yes, while this is perhaps only relevant to the EU right now, it seems pretty clear that this is also Apple reading the writing on the wall. They have to know that several elements of the App Store are now untenable and increasingly under assault from competitors (verbally, if not actually), regulators, and the like. Apple needs to change something in the model — a model which was created almost on a whim all those years ago — or have change forced upon them. Or have worse things forced upon them.
To be clear, this clearly isn’t Apple being magnanimous. As the report mentions, this is directly related to the EU regulatory changes set to take effect in 2024. But much like the (still just rumored) forthcoming USB-C change in iPhones, it’s hard to see Apple doing it so piecemeal. If for no other reason than they must know that enacting this change in Europe will kick US regulation into even higher gear. So why not just do it across the board? That’s the big question, of course. One which presumably Apple is thinking through right now.
And if you squint, you can see it. WWDC in (presumably) June 2023 will be the 15 year anniversary of said App Store. What better time and place than to announce the biggest changes yet? Apple will frame it as wanting to give customers and developers more choice and won’t mention the heavy hand of the EU here.¹ No one will buy it, but it won’t matter. Everyone will still buy iPhones. And perhaps even more so if they can now load third party app stores on the device.
This would also be Apple’s attempt to maintain some level of control. To that end, from Gurman’s report:
To help protect against unsafe apps, Apple is discussing the idea of mandating certain security requirements even if software is distributed outside its store. Such apps also may need to be verified by Apple — a process that could carry a fee. Within the App Store, Apple takes a 15% to 30% cut of revenue.
With such a carrot, there will undoubtedly come some sticks. And Apple has precedent for such a verification system with macOS apps. Those which are downloaded outside of the App Store require explicit user permissions — one of which is to only allow apps from “identified developers”. Presumably, Apple would run a similar gameplan with the iPhone. And yes, I’d bet they will find a way to charge developers for this. One way or another, Apple is going to get a cut from these third-party app stores.
But the larger element here may be that last bit: Apple’s own 15% — 30% cut in the App Store. To me, any changes here beyond the EU mandate would point to Apple’s attempt to hold on to this revenue for dear life. Revenue which can be directly tied to Nintendo creating physical videogame cartridges for Hudson back in the day. I’m serious, that’s where the 30% cut originated. It was a more reasonable 10% licensing fee, which got bumped another 20% for Nintendo taking on this manufacturing work. It should go without saying that Apple does no such work.² Yet 30% it remains. Because the iTunes cut also arose from this and Steve Jobs thought it made sense to keep it simple in those early days when no one had any idea what the App Store would become. It was meant to be a “loss leader”, remember? Yeah…
Anyway, Apple opening up to third-party app stores would take immediate pressure off of their cut in their own App Store. And assuming they do it the right way — probably naive — that feels like a better deal that what we currently have. In other words, Apple will have to compete on a better product and experience for their cut. Sure, they’ll have inherent advantages — namely, the App Store itself would still be pre-installed on iPhones — but it’s a decent enough first step towards actual competition.
You can almost hear it now:
“This month marks the 15th anniversary of the App Store, a revolutionary method of mobile application distribution which Apple ushered into the world. And developers have made billions of dollars as a result, creating businesses large and small while developing for the iPhone and iPad. But we’ve also heard from some of our developers that they’d like options when it comes to distribution, so today we’re going to give them some. Any app by a trusted developer can be distributed via a trusted third party app store partner. We believe our own App Store remains the most vibrant and easy-to-use store, but we’ll compete to prove that’s the case. Our philosophy is simple…”
Huge applause.
Left unsaid will be that becoming a “trusted” developer (and app store) will cost a fee, naturally. Less clear will be if Apple will also try to take a cut of any transaction handled through a third-party app store. Not 30%, but something that when added together with other necessary fees will probably get it close to that amount. And don’t be shocked if, in order to be available in a third-party app store, you also have to offer your app in the App Store. Again, in the name of competition, of course.
The key here is that while there will be some level of competition in name, there likely still won’t be too much in spirit. Again, Apple will lean on their inherent advantages as the creator of the operating systems and devices. And they’ll know that even if it were simple, a lot of people won’t bother to use another app store. And they undoubtedly won’t make it that simple…
Perhaps an even bigger deal would be:
Apple hasn’t made a final decision on whether to comply with a component of the Digital Markets Act that allows developers to install third-party payment systems within their apps. That would let users sign up for subscriptions to a travel app, for example, or buy in-app content from a game maker — without involving Apple.
There has been some level of thaw here in recent months, with Apple finally allowing developers to at least acknowledge that a world exists outside of their apps, and noting they can sign up for offerings on the web (even if they try to frighten users with such actions). But actually allowing other payment providers in-app would be a massive change. If they’re actually going to do the third-party app store change, I suspect they’ll stick with that at first and leave other carrots for later as pressures around their model and control inevitably build up again.
But regardless, Apple will figure out how to take a cut of all of this. Because that’s the business in which they now find themselves as they try to continue to grow revenue (and profit) from such a crazy base thanks to the success of the iPhone (and to a lesser degree, their other devices).
¹ While this would be a good change overall, the EU’s arbitrary rules around such things — this new act only applies to companies with “market valuations of at least €75 billion ($80 billion) and a minimum of 45 million monthly users within the EU” — remains problematic.
² Sure they do other things, such as screening apps, payment processing, etc. But I’m not sure anyone would argue they do 30% of revenue work. Which includes, of course, 30% of all the in-app payments.
