- A number of major apps such as Netflix and Spotify are reportedly making moves to stop paying Apple’s App Store fees.
- If the trend continues, Apple might have to consider issuing an “Apple Tax” reform, according to Amit Daryanani, an analyst at RBC.
- The App Store charges app developers 30% of their revenues from new sign-ups, and consumers have accused the tech giant of monopolizing the market for iPhone apps and causing them to pay more than they otherwise would.
- Watch Apple trade live.
Things may be going from bad to worse for Apple.
On Wednesday, the tech giant slashed its first-quarter revenue forecast, citing an unexpected slump in iPhone sales. In a letter to investors, CEO Tim Cook at least partly attributed the weakness to a slowdown in China’s economy amid trade frictions between the world’s two largest economies.
But that’s not all. Apple’s service business could also be under pressure. Now, a number of major apps such as Netflix and Spotify are reportedly making moves to stop paying Apple’s App Store fees, which will likely trigger an ‘Apple Tax’ reform, RBC says.
TechCrunch reported on Monday that Netflix, the App Store’s top grossing app, has stopped new users from signing up and subscribing through its iOS app, thus avoiding the “Apple Tax.” Currently, the Apple Store charges app developers 30% of their revenues from new sign-ups and 15% on subscription renewal.
Netflix tested this in select international markets in August 2018, and has now ditched the iOS signup ability across all global markets, TechCrunch said. Markets Insider was unable to sign up for a new account on the Netflix app downloaded from Apple stores in the US.
“While the near-term direct impact should be negligible (we estimate $US250 million annual revenue impact) given the move only impacts new customers, there is a rising trend of major apps trying to avoid app store fees on both Android and iOS,” said Amit Daryanani, an analyst at RBC.
According to RBC, Spotify allows users to sign up outside of the App Store and Amazon does not let users buy media through its iOS app. Meanwhile, Epic Games, maker of Fortnite, launched its own gaming store for PCs and Mac, and plans to roll out its store for Android later in 2019. Epic Games’ store takes a 12% cut from developers, which is lower than the 30% that Apple and Google charge.
If the trend continues, Apple might have to consider issuing an ‘Apple Tax’ reform, according to Daryanani. But there are many factors at play with regard to the adjustment of App Store fees, he added.
App Store guidelines prohibit apps from using alternate payment mechanisms, so Apple can bar apps that subvert this rule. But this punishment could probably only work for smaller apps as larger players usually have bigger bargaining power and seem to be getting away with bending the rules, Daryanani said.
Also at stake is the prolonged litigation Apple faced at the Supreme Court. Justices are reviewing a lower-court ruling in favour of consumers’ claims that the tech giant has monopolized the market for iPhone apps and has caused consumers to pay more than they would if it did not take a 30% cut of the sales price for apps.
“An ongoing litigation at the Supreme Court would determine if consumers can sue AAPL for charging high prices through the App Store, which further increases risks for the App Store model,” Daryanani said.
So, a possible “Apple Tax” reform could be that Apple lowers App Store fees, or establishes a mechanism wherein it negotiates lower fees with large developers while charging smaller apps higher fees, he concluded.
RBC has an overweight rating and $US220 price target for Apple – 54% above where shares were trading on Thursday.
Shares tanked as much as 9.5% to $US142.95 a piece on Thursday, and were down 16% in the past year.
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