Apple’s most profitable business comes at a huge cost. It’s about to pay the price

Looking back, the App Store might be the smartest innovation ever. That it came after the fact, and only in response to the pressure that you couldn’t install third-party apps on the iPhone, makes it all the more incredible.

Some analysts have estimated that the iOS App Store has a profit margin of almost 80%, which means that after the fact, it turned out to be Apple’s most profitable business. To be fair, Apple disputes this characterization, but given Apple’s most recent quarterly results which show the company’s overall profit margin to be just over 40%, it’s probably not far off.

I don’t think there is any doubt that the App Store is its most profitable business. While the company doesn’t break down App Store revenue separately, of the $ 17 billion Apple generated in services in the last quarter, a good chunk came from in-app transactions, app subscriptions, and downloads. .

Regarding “the smartest innovation”, of course you could sell software to consumers before. The iOS App Store, however, has opened the doors to a platform that Apple says now includes more than 1.5 million apps and more than one billion users.

Sometimes it’s hard to think of the App Store as separate from the iPhone, despite the fact that the original App Store plan didn’t even include third-party apps. Apple cites research that shows the App Store generates more than $ 600 billion in economic value through the App Store.

Of course, Apple has good reason to brag about all the money it helps developers make. All of the success of the App Store comes at a huge cost, too, especially since many of those same developers have voiced criticism of the way Apple is handling its platform, especially the 15 or 30 percent commission that it takes. ‘Apple perceives.

Now, it looks like the company is paying the price for the control it has over the app ecosystem. This developer criticism began to pile up, leading Congress to take action.

This week, a group of senators introduced the Open App Markets Act, with the aim of limiting Apple and Google’s control over their respective App Stores. I’m not sure if anyone could honestly argue that the biggest tech companies don’t have inordinate control over the day-to-day lives of their users. You can even argue that they have too much control.

Whether Congress can actually do anything to fix the problem by passing legislation to fundamentally change how smartphones work is a whole other question.

As for the legislation itself, it’s pretty straightforward. Basically, Apple (and Google) would be prohibited from requiring developers to use their in-app payment systems and would be required to allow third-party app stores on their platform. They would also be required to provide API access to third-party developers to the same extent as proprietary applications.

The law states that platforms can impose guidelines designed to protect user privacy and ensure security, but clearly the bar is high. If adopted in its current form, there is no doubt that it would dramatically change the business model of the App Store – and not necessarily in a good way.

By the way, the fact that the company doesn’t seem to see the damage it is causing is another issue. Much of Apple’s current dilemma probably could have been avoided if the company had been kinder to developers over the past decade. Instead, he tightened control over developers in a way that only seems to serve to boost Apple’s bottom line.

For example, the company has targeted developers who don’t offer in-app listings. Last year, Apple was embroiled in a controversy with the developers of the Hey messaging app because the app didn’t allow users to register. Apple also rejected updates to other apps on the grounds that developers had to add registrations to the app, even in cases where the apps were free.

And, of course, the company is involved in a high-profile lawsuit with Fortnite maker Epic Games. A decision is expected in the case over the summer.

There are many moves by Apple that appear to be aimed at ensuring that the iPhone maker gets a share from as many developers as possible. This does not mean that Apple does not have the right to make a profit, or that it does not deserve a commission. I’m not even claiming that Apple hasn’t created a whole app economy that benefits millions of developers. This is not the point.