Apple Wants 15% From Outside App Payments — It Could End Up With Zero

Apple has acknowledged that its commission from app purchases through alternative payment systems could eventually be eliminated entirely, as regulatory pressures continue to erode its control over App Store payments. In a recent regulatory filing, Apple indicated that developers utilizing alternative distribution and payment methods might result in the company earning lower commissions or no commissions at all, potentially impacting its revenue, profit margins, financial results, and stock price.

Apple has been engaged in legal battles with regulators worldwide to loosen these restrictions. The European Union mandated alternative app marketplaces and payment options under the Digital Markets Act, while Japan and Brazil have also implemented similar changes, allowing developers more avenues for app distribution and payment processing outside Apple’s ecosystem.

In the United States, a 2021 court injunction in the Epic Games v. Apple case required Apple to permit developers to direct users to external payment methods. Apple initially introduced a 27% commission for such payments, but it was subsequently blocked by a US District Judge for willful non-compliance. The Ninth Circuit later upheld the contempt finding, but suggested Apple could argue for a commission based on allowable costs.

Apple has now proposed a revised commission structure, with standard apps paying 15%, developers in certain programs paying 10%, and subscription renewals at 10%. The proposal, however, has yet to resolve the dispute, and Apple could still face a significantly reduced commission or even none at all. The company's Form 10-Q filing explicitly states that Apple may earn no commission when developers use alternative payment and distribution methods.

Furthermore, Apple acknowledges that it is currently restrained by a US court order from charging any commission or fee on certain purchases. The Ninth Circuit has instructed the lower court to modify the injunction to permit some form of commission, though the final structure remains uncertain. App Store commissions constitute a substantial portion of Apple's highly profitable Services business, generating $30.7 billion in revenue during the June quarter.

However, this figure fell short of Wall Street's expectations of $31.4 billion, and the company's Services gross margin of 75.6% also trailed market forecasts. Estimates suggest that Apple's US App Store commission revenue has declined by 18% so far this year, while consumer spending through the App Store in the US decreased by 6% in the second quarter.

Apple's filing warns that ongoing reductions in regulatory and court-imposed commissions could extend beyond App Store revenue, affecting the company's overall margins, financial performance, and valuation.