Developers Find Ways to Bypass Apple’s Cut in In-App Purchases

Developers are creating new software for apps that allows businesses to bill their customers without paying Apple, which accounts for up to 30% of app sales.

They are bracing for new changes Apple must implement after a federal judge ruled in September that Apple must let app developers connect to other payment systems. The decision came following a legal battle between Apple and Epic Games, the maker of Fortnite.

The new software, if widely adopted by developers and users, could threaten Apple’s profit engine. The App Store is part of the services business of the company, which achieved revenue of $ 53.8 billion in fiscal 2020 with a gross margin of 66%, representing approximately 20 % of Apple’s revenue.

The developers are preparing several options because it is not known what they will have to do to comply with Apple’s new rules. Apple has not shared details of its plans to comply with the judge’s order, which takes effect December 7.

Paddle CEO Christian Owens said the move offered the opportunity to expand the billing business of his company’s Mac and Windows customers to the Apple App Store for iPhone. Paddle has built three different implementations of an iPhone payment product in the hope that the rules will be complied with.

“We would like to hear from Apple and officially get a description of what will be allowed versus what is not,” Owens said.

A version of Paddle’s SDK allows app makers to offer monthly or annual subscriptions with an “Upgrade Now” button. The button links to a web page hosted by Paddle in a Safari browser with several payment options, including Apple Pay and PayPal. The user is returned to the application after processing a payment.

RevenueCat, a company that creates tools for iOS developers to manage customer subscriptions, is also developing a browser-based payment system that developers can add to apps without having to build their own, said CEO Jacob Eiting. .

“The real magic is that developers will get a portable link that they can include in external marketing, or now in the app, which will unlock access instantly using our SDK,” Eiting said in a post. -mail.

“We assume that developers will still be required to use Apple’s IAP in their applications, but that you will now be allowed to reference and link to external paywalls,” Eiting said.

This is also what the CEO of Paddle thinks.

“I think if you want to offer an off-platform, in-app purchase mechanism, you have to offer Apple’s in-app purchase mechanism as well,” Owens said.

Apple hasn’t updated its App Store guidelines, the document that determines what developers can and can’t do in iPhone apps, since last month’s decision. All iPhone apps and updates go through a process called App Review, where Apple employees reject apps that don’t comply with Apple’s policies.

The judge’s ruling says Apple must allow customers to leave its ecosystem to buy virtual goods on the web. But that doesn’t stop Apple from making other policy changes to its store, such as developing a new way to charge fees for iPhone app transactions that occur outside the platform. It’s a possibility that Apple CEO Tim Cook raised in his testimony during the trial.

“If not for [in-app purchasing], we’ll have to come up with another system to charge the developers, which I think would be a mess, ”Cook said in May.

Apple declined to comment, but argued during the lawsuit that the App Store guarantees user privacy and security. Apple’s general counsel, Kate Adams, said in September that Epic Games’ decision was a “huge victory,” and the company praised the court’s finding that Apple is not a monopoly.

Some Wall Street analysts believe the impact on Apple will be small but real, potentially reduce Apple’s revenue by up to 4%, with off-platform billing used more often for expensive software subscriptions.

Eiting said Apple’s changes might not have a huge financial impact on developers. He argued that users will be less likely to make purchases if they need to access an external web page, even though apps can be linked to it. It could also be a nuisance for users, who will have to manage subscriptions individually rather than in iPhone settings.

“I think it’s good to let the systems compete, but I’m not convinced it’s going to be a boon to anyone,” Eiting said.

Alternative payment systems will charge developers less than Apple while offering a convenience like handling subscription cancellations and offering insight into sales trends.

Owens said Paddle will cut its gross purchases by 5% to 10%, which is less than Apple’s 15% to 30%, while also dealing with behind-the-scenes headaches like international taxes and customer support. These savings could be passed on to consumers.

Developers will feel pressured to lower prices if Apple requires apps with direct billing links to also offer in-app purchases. For example, a music service might charge users $ 9.99 per month if they subscribe from an app because Apple takes a share of those purchases, but only $ 6.99 per month if they click on an app. link to subscribe directly on the service’s website.

“What we’re trying to convey by building a competing solution for in-app purchases is the fact that even for the smallest transactions, we can do it for 10% of the value of those transactions and then lower the price. . from there, ”Owens said.

Tim Sweeney, CEO of Epic Games, whose lawsuit led to these changes, congratulated Paddle in a tweet Thursday.