Starting in March this year, with the release of iOS 17.4, Apple will for the first time allow third-party app stores on iOS. It will also allow developers to abandon Apple’s internal payment system. This means that iPhone users will not be limited to obtaining apps exclusively from the Apple App Store, which marks a significant shift in the way apps are distributed on the iPhone. Apple made this significant change in response to the Digital Markets Act (DMA) in the European Union.
Apple confirms new royalty structure for EU developers
Prior to the introduction of DMA, Apple charged a 30 percent commission for most App Store purchases, such as app downloads and in-app items. However, small developers earning less than $1 million a year could only pay 15 percent.
In the EU, Apple is changing the fees for iOS apps. Developers can now choose between a 17 percent fee (plus 3 percent if they use Apple’s payment system) or a 10 percent fee (plus 3 percent) for small businesses, a significant reduction from the previous 30 percent.
In addition, there is a so-called Core Technology Fee (CTF) of €0.50 per annual installation for applications with a high volume of installations (over one million installations per year). The CTF is charged to each customer account for the first installation during the year. Most developers do not pay this fee because it applies to a small percentage of applications.
Developers can now distribute apps outside of the App Store, but the CTF still applies if they reach a certain volume, regardless of the market. There is no longer a monopoly on in-app purchases, and developers can use them if they pay a 3 percent fee. Alternative app markets must also pay CTF per download. In addition, Apple will also have a booth where app stores can place their apps on the App Store.
Nikita Beer, co-founder of social media startups Gas and tbh, says that if a developer earns $10 million in sales, Apple’s share under the new structure will be $6.2 million annually. After accounting for estimated expenses and taxes, the developer’s profit will be $2 million, which is only 20% of their sales.
Beer emphasized that for many apps, especially those that generate less than $0.57 per user, the new fee structure could result in negative profit, meaning the developer would owe money to Apple rather than making a profit. This led Beer to say that under such conditions they would refrain from launching the app in Europe.