Apple recently announced a significant overhaul to its iPhone app store, aimed at complying with upcoming European regulations and breaking down competitive barriers. These changes will offer consumers and app developers more choices within Europe, although they may raise concerns about privacy and security.
Starting in early March, Apple will make concessions that it had previously resisted, such as lowering the fees it collects from developers in Europe. Most notably, iPhone users within Europe will be able to use app stores other than Apple's own store that comes pre-installed on the device. This move will also allow developers to offer alternative payment systems, potentially increasing their revenues and potentially reducing prices for users.
The decision to open up the iPhone to alternative app stores and payment systems, however, is not without risks. Apple expressed concerns about the increased chances of consumers being exposed to hackers and other security threats outside of its proprietary system. Nonetheless, Apple is taking this step to comply with the European Digital Markets Act (DMA), which goes into effect on March 7.
To implement these changes, Apple will release an iPhone software update, iOS 17.4, in 27 European Union countries. A test version of the update will be distributed to app developers beforehand to ensure compatibility.
In order to align with the DMA, Apple will decrease the commission it charges on in-app transactions in Europe, which ranges from 15% to 30% in the rest of the world. In Europe, developers who choose to remain within Apple's payment-processing system will see their commission reduced to 10% to 17%. Apple will not collect any commissions on in-app transactions completed through alternative payment systems.
This contrasts with Apple's approach in the United States, where it will continue to charge between 12% and 27% in commissions for in-app transactions completed outside of its system. The in-app commissions have been a significant source of revenue for Apple's services division, generating $85 billion in revenue in the last fiscal year.
While the changes in Europe may affect Apple's revenue, investors did not appear concerned, as Apple's shares remained relatively stable after the news. However, these changes in Europe could potentially embolden regulators and lawmakers in other major markets, including the United States, to push for similar decreases in app store fees.
Apple's revisions in Europe have already drawn a response from critics, including Tim Sweeney, CEO of Epic Games, the company behind the popular video game Fortnite. Sweeney described Apple's actions as 'a devious new instance of malicious compliance.' Epic Games previously took Apple to court in 2021 over the iPhone commission system in the United States, resulting in the ruling that prompted changes in the payment-processing system.
Meanwhile, Spotify, the world's largest music streaming service and a competitor of Apple, has pledged to continue advocating for changes outside of Europe. Spotify believes that consumers in markets outside of Europe would benefit from greater freedom. The company called on other governments to pass laws similar to the European DMA in order to level the playing field.
In addition to the app store overhaul, Apple will also make it easier for consumers to switch to different default options for browsing, aside from its own Safari browser, in order to meet the upcoming European regulations. These changes mark a significant shift in Apple's approach to its app store model and could have broader implications for the company's global operations.
