App Store Fees: A Battle Between Big Tech and Small Developers

In 2013, when the Association for Competitive Technology released its first State of the App Economy in Europe, mobile app-based software businesses were generating roughly €10 billion and sustaining more than 700,000 jobs. In 2022, they were generating more than €290 billion annually (2,900 percent growth) and sustaining 1.8 million jobs (250 percent growth). The transformative success of curated online marketplaces like app stores has reshaped how technology is used in our daily lives.

But a handful of billion-pound mobile app companies, from gaming to online dating to streaming music, want to change the conditions that made them successful in the first place, pulling up the ladder behind them. In ad campaigns, in closed-door lobbying meetings and even at big media events, they call on regulators to redesign the system so that it benefits them, not consumers and small businesses.

They argue that the fees the app stores charge are exorbitant, completely sidestepping the fact that only the largest pay. In fact, the vast majority of small developers pay nothing. And yet, the billionaires’ ‘solution’ is to break the mobile ecosystem by removing security checks and restrictions on third-party app stores and sideloading.

A handful of billion-pound mobile app companies, from gaming to online dating to streaming music, want to change the conditions that made them successful in the first place, pulling up the ladder behind them.

The Competition and Markets Authority (CMA) is right to look at broadening the ways that developers can create new products and serve their customers. Regulators, however, must resist the call to completely reshape the structure of the widely successful mobile ecosystem.

Greater flexibility for developers to serve their customers with new products, services and purchasing options could benefit small businesses. However, those benefits will only be realised if the security, privacy and consumer trust that underpin the current marketplaces are maintained. Consumers willingly download, pay for and subscribe to apps developed by companies they have never heard of because of the trust they have in the mobile ecosystem.

For developers, access to app stores is a major competitive advantage. With almost no investment or overhead, a founder can create an account, upload their app and start earning customers. It’s such a positive arrangement that in the UK, the app economy generates more than £76.9 billion annually and sustains more than 400,000 jobs. In fact, almost all of the apps on the biggest app stores are developed by small and medium-sized enterprises (SMEs).

What does it cost for an individual to be able to publish an app to an app store? For Google Play, it’s a one-time fee of $25, and for Apple’s App Store, it is an annual fee of $99. And what do they get for that?

Offloading overhead costs like maintaining secure payment processing.

Instant access to a global marketplace.

Built-in consumer trust, which allows small businesses to compete with global brands.

This system has worked well for the vast majority of businesses that operate on the app stores. In fact, it worked well for the now billion-pound brands that want to use regulation to break it apart because they don’t want to pay their share.

Let’s take a look at just one of the app stores, Apple’s App Store. First off, 95.8 percent of all apps are free and pay no commission at all. Ninety-eight per cent of all registered developers are small or independent and qualify for the reduced 15 percent commission on the first $1,000,000/year. Who then, you ask, pays the 30 percent the billion-pound brands are complaining about? The very same billion-pound brands that are lobbying to pull the ladder up on the ecosystem that they used to get big.

In the UK, the app economy generates more than £76.9 billion annually and sustains more than 400,000 jobs.

And what are commissions charged on? In both Apple’s App Store and Google Play, paid app downloads (such as games), in-app purchases of digital goods (such as access to premium features) and purchases of digital services (such as podcast and streaming services) are subject to a commission.

Free apps, in-app advertising and in-app purchases of physical goods (food, concert tickets, custom 3-D printed game pieces) or services (landscaping, haircuts, food delivery) are all commission-free. We don’t want that to change.

This system means that the vast majority of developers pay nothing or little beyond the annual registration fees, yet benefit from a huge range of development tools and services. This is a good deal for small UK developers.

Now let’s tackle the claim that the app stores are anticompetitive because of the limits they place on how and from where apps are downloaded.

Reform the rules where necessary, but don’t undermine the ecosystem that has enabled thousands of small businesses to innovate, compete and grow.

The integrated app store ecosystem dramatically reduces startup and overhead costs (both in time and money). Apple’s App Store and Google Play have continuously expanded and improved the tools and services developers have access to because the two stores are competing not just for consumers, but for developers. Most of the three million apps across the stores wouldn’t exist without independent and small developers.

The CMA should fix what needs fixing, not break what already works. Trusted, secure app stores have helped create one of the world’s most successful startup ecosystems, giving British developers access to a global market from day one. Where there are genuine problems, they should be addressed. But in doing so, the CMA must ensure that UK startups do not become collateral damage in a commercial battle between billion- and trillion-pound multinational corporations. Reform the rules where necessary, but don’t undermine the ecosystem that has enabled thousands of small businesses to innovate, compete and grow.

We oppose the changes billion-pound brands are calling for because they are bad for small tech companies. They will damage the reliability and trustworthiness of the app stores, and they will raise costs for startups. The CMA’s goal of enabling greater flexibility for small businesses is appropriate, but only if their methods preserve the foundational trust and security that enable small businesses to thrive and compete on a global stage.