Tim Cook at WWDC21 on June 7, 2021.
Developers are creating new software for apps that enables companies to bill customers without paying Apple, which accounts for up to 30% of app sales.
They’re preparing for new changes Apple must implement after a federal judge ruled in September that Apple must allow app developers to connect to alternative payment systems. The verdict was the result of a legal battle between Apple and Epic Games, the maker of Fortnite.
The new software, if widely used by developers and users, could threaten Apple’s profit making machine. The App Store is part of the company’s services business, which had fiscal 2020 revenue of $ 53.8 billion on a gross margin of 66%, accounting for about 20% of Apple’s revenue.
The developers are preparing several options as it is unclear what to do in order to comply with Apple’s new rules. Apple has not disclosed details of its plans to comply with the judge’s order, which will take effect December 7th.
Paddle CEO Christian Owens said the ruling provides an opportunity to expand his company’s Mac and Windows customer billing business to Apple’s iPhone App Store. Paddle has made three different implementations of an iPhone payment product in the hopes of complying with the rules.
“We’d love to hear from Apple and get a description of what exactly is allowed and what isn’t,” said Owens.
A version of Paddle’s Software Development Kit (SDK) enables app makers to offer monthly or yearly subscriptions with an “Update Now” button. The button links to a webpage hosted by Paddle in a Safari browser with multiple payment options, including Apple Pay and PayPal. The user is returned to the app after processing a payment.
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Paddle gives developers the ability to link from their apps to a payment screen.
RevenueCat, a company that creates tools for iOS developers to manage customer subscriptions, is also developing a browser-based payment system that developers can add to apps without creating their own, said CEO Jacob Eiting.
“The real magic is giving developers a portable link that they can put in third-party marketing or now in the app that instantly unlocks access using our SDK,” Eiting said in an email.
“We assume that developers will still need to use Apple’s IAP in their apps, but that they are now allowed to point and link to external paywalls,” said Eiting.
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RevenueCat plans to offer a product that will allow app developers to sign up new subscribers through a link in their app.
The CEO of Paddle believes that too.
“I think there will be a situation where if you want to offer a platform independent in-app purchase mechanism, you also have to offer the Apple in-app purchase mechanism,” said Owens.
Apple hasn’t updated its App Store Guidelines, the document that sets out what developers can and can’t do in iPhone apps, since the ruling last month. All iPhone apps and updates go through a process called App Review, in which Apple employees reject apps that don’t comply with Apple rules.
The judge’s decision states that Apple must allow its customers to leave its ecosystem to buy virtual goods on the Internet. But it doesn’t stop Apple from making other policy changes to its store, such as developing a new way of charging iPhone app transactions that occur off-platform. It’s a possibility that Apple CEO Tim Cook raised as a witness during the trial.
“If not for [in-app purchasing]”We’d have to come up with a different system of invoicing developers, which I think would be a mess,” Cook said in May.
Apple declined to comment, but argued during the process that the App Store ensures users’ privacy and security. Kate Adams, Apple’s general counsel, said in September that Epic Games’ ruling was a “big win,” and the company welcomed the court’s finding that Apple is not a monopoly.
What it means for Apple and consumers
Apple announces the new iPhone 11 Pro at a launch event on September 10th. .
Some Wall Street analysts believe the impact on Apple will be limited but real, potentially reducing Apple’s revenue by as much as 4%, with off-platform billing more often used for expensive software subscriptions.
Eiting said Apple’s changes may not have a huge financial impact on developers. He argued that users are less likely to make purchases when they have to go to an external website, even if apps can link to it. It could also annoy users who have to manage subscriptions individually rather than in the iPhone’s settings.
“I think it’s good to have systems compete, but I’m not sure it’s going to be a godsend for anyone,” said Eiting.
Alternative payment systems will charge developers less than Apple while providing convenience such as subscription cancellation management and insight into sales trends.
Owens said Paddle will take a 5% to 10% cut in gross purchases, undercutting Apple’s 15% to 30%, while still tackling behind-the-scenes headaches like international taxes and customer support. These savings could be passed on to consumers.
Developers will be drawn to lower prices if Apple requires apps with direct billing links to also offer in-app purchases. For example, a music service might charge users $ 9.99 per month when they subscribe through an app, as Apple is reducing those purchases, but only $ 6.99 per month when they click a link to subscribe directly to the website of the service.
“What we’re trying to get across by building a competing solution for in-app purchases is the fact that even the smallest transactions we can do for 10% of the value of those transactions and then cut the price from there,” Owens said .
Tim Sweeney, the Epic Games CEO whose lawsuit led to these changes, congratulated Paddle in a tweet on Thursday.