Apple’s Historic Compromise on Third-Party Downloads

Historical compromise by Apple on third-party app downloads

Apple users now have the option to download apps from marketplaces other than the App Store. This significant concession by Apple marks a historical change since the App Store’s inception in 2008. There’s also a piece of good news for developers staying with the App Store: they have to pay a lower “Apple tax” now. The commission has dropped from 30% to a maximum of 17%, nearly a “halving” of the cost. However, the catch is that these reforms are entirely to accommodate EU regulations. Hence, they’re currently available only in EU territories.

Major Overhaul

Since the launch of the Apple App Store in 2008, Apple has charged software developers a commission of up to 30%. This policy has led to widespread dissatisfaction among developers. On January 26, Apple officially announced that it would comply with the Digital Markets Act (DMA) in the EU, leading to several changes for iOS, the Safari browser, and the App Store. These include “over 600 new APIs, expanded app analytics, support for alternative browser engines, and new options for app payments and distribution of iOS apps.”

The DMA is the EU’s largest-ever digital regulatory package. Last year, the EU identified several tech giants, including Apple, as part of the first group of services to be regulated under the DMA, which imposes responsibilities on these companies to prevent the abuse of market dominance to suppress or acquire competitors and to link up with rivals.

According to statements released by Apple, users in EU territories will now be allowed to download apps from outside the Apple App Store, utilize alternative payment systems, and switch to new default web browsers more easily. Additionally, Apple has permitted other companies to create their own app store systems within iPhones, which can be offered to customers in Europe. However, companies must apply to Apple for authorization to do so.

The most notable change is that “developers can now offer iOS apps for download from app markets outside the App Store,” signifying for the first time that Apple users can download apps onto their devices without using the App Store.

Industry forecasts suggest that Apple is expected to roll out updates “in the coming weeks” to provide sideloading capabilities to iPhone and iPad users in Europe. Consequently, the App Store would be split, with one version for EU countries and another for the rest of the world—i.e., iOS apps.

There have been numerous calls for the opening up of sideloading before, including potential US legislative action. Apple officials, however, have repeatedly claimed that sideloading on iPhones raises security risks, such as exposing users’ sensitive personal data to fraudsters and cybercriminals due to downloading apps from third-party sources that could compromise Apple’s privacy and security measures. Some Apple executives have cited the Google Android system as an example, claiming that it is rife with malware due to it allowing sideloading. Others argue that Apple has exaggerated these security concerns.

Paulo Trezentos, CEO of app store alternative Aptoide, said, “We had heard some rumors, but never imagined Apple would make such a thorough change. It’s definitely a positive move, but the fees are still too high. We’re preparing to send formal feedback to the European Commission.”

Commission Reduction

In addition to the sideloading opening, Apple has also adjusted the commission it charges in the EU. Apple stated in a press release that the fee for digital goods and services transactions for iOS apps distributed through the App Store has been reduced to 10% or 17%. Apple anticipates that under the new terms, 99% of developers will reduce the fees they pay to Apple.

However, alongside the fee reduction, Apple has introduced two additional costs in the EU: a “payment processing fee” of 3% for software using Apple’s in-app purchase system, and an “installation fee” of €0.50 for software installed more than one million times.

Zhang Xiaorong, Director of the Deep-Technology Research Institute, said that Apple’s changes were inevitable following the introduction of the EU’s new Digital Markets Act. This official announcement is the “other shoe dropping.” The historic reforms are largely due to the pressure of the DMA.

Zhang explained that the DMA represents the most significant attempt by the EU to date to curb the monopolistic practices of large tech companies. Its broader regulations include enabling users to employ third-party programs or services and prohibiting officials from prioritizing their own products within app stores over competitors.

Thus, Apple is not the only company affected. The EU has also named Amazon, Meta, Microsoft, ByteDance (TikTok’s parent company), and Google’s parent company Alphabet. However, internet analyst Yang Shi Jie pointed out that Apple is indisputably the most impacted. Google’s Android operating system also requires changes but less so compared to Apple.

Regulatory authorities have also responded to Apple’s move. On January 27, EU Internal Market Commissioner Thierry Breton said that if the changes to the app store do not comply with the forthcoming EU regulations, Apple would face stern enforcement actions. Breton told the media, “The DMA will open the big gate of internet competition, making the digital market fair and open. Change is already happening.” He added that assessments of Apple’s proposals would begin on March 7, based on feedback from third parties.

Breton emphasized that they would not hesitate to take strong action if the solutions proposed by Apple are not satisfactory. Critics argue that Apple’s changes are insufficient because its in-app charging structure remains unfair and potentially in violation of the DMA.

Domino Effect

Apple’s dissatisfaction has been clear, as this change touches one of its largest revenue streams. Despite undergoing such a transformation, Apple is still appealing the DMA’s regulations via the EU courts.

The “Apple tax” is a major source of income for the company. Market research firm Sensor Tower suggests that Apple collects about $22 billion annually from app developers. In reports submitted to the EU, Apple has also declared that if the commissions it earns from the App Store decrease, this could have a significant negative impact on its business operations and financial condition.

On the other hand, communication expert Ma Jihua believes that if other countries and regions begin to demand similar actions from Apple, as the EU has, Apple might have no resistance, potentially resulting in the collapse of its entire mature business model and profoundly affecting the company. Apple’s control over the entire ecosystem would decline, developers would become less reliant on Apple, and Apple’s central position in the whole “fruit chain” would be challenged.

“This situation demonstrates that Apple’s closed ecosystem model might find it difficult to sustain in today’s society. It’s not just about the app store; its integrated hardware and software systems can no longer continue down the closed path. Opening up and collaborations in various aspects will likely be the next steps Apple must consider,” Ma Jihua said.

Veteran consumer electronics writer Chris Smith commented that the EU might be the first to open up sideloading on iPhones, but it certainly won’t be the last. Japan and the United States are contemplating similar legislation. “I wouldn’t be surprised if the version of the Apple App Store that Apple is preparing for the EU eventually becomes available globally,” he said. Media reports suggest that Japan is drafting regulations that would require tech giants like Apple and Google to allow third-party app stores to handle payments on their mobile operating systems to curb their abuse of market dominance in Japan.

Reporters: Fang Binnan and Zhao Tianshu, Beijing Business Today

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