Comment & Opinion

Apple’s Small Business Program is now open. Will it change anything?

AdColony's Liz Waldeck-Pinckert discusses the new perks for iOS developers

Apple’s Small Business Program is now open. Will it change anything?

Guest post written by Liz Waldeck-Pinckert, publishing, North America and Europe, AdColony

When Apple announced its Small Business Program, whereupon app developers making under $1 million in gross revenue could qualify to pay 15 per cent (vs. 30 per cent) on their paid app and in-app purchase revenue, it was a feel-good moment - a way for Apple to express support for indie developers and make sure they have every chance of succeeding. Even the use of “Small Business” in the name of the program indicated the intention.

How many “small businesses” are there really?

Plenty! SMBs (According to analytics company Sensor Tower, about 9 out of 10 businesses are earning less than $100,000, with 23 per cent making less than $10,000 and about half making less than $1,000 annually in playing spending.

But here’s the key stat: these small publishers generated just 5 per cent of the App Store’s total revenue last year. So for Apple, the “lost” revenue they will incur starting January 1, 2021 is not even a drop in the bucket.

Moreover, within the Games category, the revenue share for small publishers is declining. In 2018, it was 3 per cent, and in 2019 it was 2.3 per cent of all player spending. And the number of small games publishers has shrunk too: From 98 per cent in 2018 to 97.3 per cent in 2019. What does this mean? Indie developers are not a dying breed by any means, but it’s certainly clear that survival is becoming increasingly difficult.

Will this encourage more IAP?

Apple seems to understand that the 30 per cent cut is too high for small players to be able to survive, and this move is designed to remedy that - think of it like a course correction, a way to change the economics in order to slow the current trend.

However, there’s another trend that could be influenced by this: mobile app advertising.

Apple’s fees were motivating publishers to move away from direct audience revenues like subscriptions and in-game purchases and focus more on digital ads, where they did not have to pay a 30 per cent commission on their earnings. By reducing the commission, Apple is making IAP more enticing as a revenue stream, which may decrease the reliance on advertising for these small publishers for revenue, but it’s unlikely publishers will continue to leave money on the table, especially now they’ve gotten so good at high quality rewarded ad integrations in some examples.

What about the One and Two Percenters?

When the vast majority of your revenue comes from big business, it’s bound to cause some consternation over your supposed support of SMBs. The parallel here is clear - larger publishers who are making not just over $1M, but net billions (e.g., Tencent, Supercell, and yes, Epic Games), are the top one-percenters.

Complaining about the 30 per cent “tax” is like a billionaire complaining about having to pay more because they are in a higher tax bracket.

In reality, this reduction in “tax” doesn’t work like taxes at all! If you exceed the $1 million threshold at any point in 2021, you are automatically removed from the program for the rest of the year. From my understanding, that means all of your revenue after that point is subject to the 30 per cent cut - unlike the tax code, which would effectively just tax your incremental revenue at a higher bracket’s rate.

Who else is mad at Apple?

This move is geared toward supporting smaller publishers, many of whom are in the Games category and make their money from one-off purchases. But much of the mobile app ecosystem runs on subscriptions. News organisations like The New York Times, NPR, ESPN, Vox, Bloomberg, and many more depend on subscription revenue, as do apps like those owned by Basecamp, Match Group, Spotify and Tile.

These publishers claim that Apple is forcing their users to use its payments processing system, but rather than charge 2-3 per cent or $0.30 per transaction, it’s 10X that amount. Epic Games, in its lawsuit against Apple, essentially claims the same thing - that Apple is not providing enough value to warrant charging that much, and that they should be allowed to operate as a platform-within-the-platform and transact with their users themselves. We all know how Apple feels about that… and what they did about it.

So what does this mean for 2021?

Even though mobile phones are no longer used primarily for making phone calls, they’re not classified as general computing platforms in the eyes of the law, so the argument that app developers should be able to distribute their software for free (no malware/spyware of course) and use their choice of payment processors doesn’t work.

Granted, over the past 5-10 years, there have been a lot of changes in legislation and the way that we look at and treat personal technology and platforms. Take privacy, for instance. What started with GDPR and Europe has now spread to the federal and individual state level (CCPA), and it’s only going to spread further. And what started with some small gestures by Apple has now turned into big moves. Expect Google to follow suit.

When the big players make decisions like these, everyone is affected. But while the big companies – the “billionaire citizens” of the Apple ecosystem – have the resources to shift and adapt, the smaller companies and solo developers usually do not. Code changes require manpower. I think we’re going to lose many small developers who are not able to keep up with massive shifts like what is coming with AppTrackingTransparency. Apple may say they support the little guys, but in the end, SMBs will once again suffer the most from the shifting tide.


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