App Store Tax Leads to Lawsuits

August 15th, 2020

App Store Tax Leads to Lawsuits
David Quinn

by David Quinn

VP of Strategy & Partnerships at Gummicube, Inc.

Every time a user makes an in-app purchase or buys an app from the App Store or Play Store, Apple or Google takes a portion of the revenue. This App Store Tax has caused complaints for some developers, but with Apple and Google in the middle of antitrust hearings, tensions are continuing to grow.

This all came to a head with Apple removing Epic’s Fortnite from the App Store. Epic has frequently tried to find ways to circumvent the App Store Tax for some time, going so far as to refuse selling Fortnite on the Google Play Store until April.

Now the mobile game is unavailable on either store as Epic sues Apple and Google. The result of this case could have an impact on how apps are sold within the stores.

App Store Tax

The App Store and Google Play Store profit from sales made on other developers’ apps. Typically, they take a 30% cut of all sales, including in-app purchases and subscriptions, although that can occasionally go as low as 15% if users stay subscribed for a year.

In the case of apps that are extensions of other subscription services, such as Netflix or Spotify, this can seem unfair. After setting up an account, users can pay the same fee to resubscribe through the App Store or directly through the service’s website and the company will receive a different amount based on which way they pay.

This has led app developers for these companies to try different tactics. Netflix made it so users can only renew their subscriptions through their website, while Spotify tried charging users extra for paying via in-app purchases rather than the website.

Although the subscriptions are used for functionality outside of the mobile apps, this has caused some contention with the App Store Guidelines, which states that “ Apps may not use their own mechanisms to unlock content or functionality, such as license keys, augmented reality markers, QR codes, etc.”

Epic vs App Stores

The latest attempt to bypass the tax came from Epic’s Fortnite, which announced a permanent 20% discount on in-game purchases made outside of the mobile game. The company explained it couldn’t extend the same discounts to mobile players due to the 30% cut that Apple and Google would take.

At the same time, Fortnite players on mobile devices were given a way to pay directly within the apps without using in-app purchases. In doing so, it broke the rules of the stores. Apple’s App Store Guidelines section 3.1.1 states:

“If you want to unlock features or functionality within your app, (by way of example: subscriptions, in-game currencies, game levels, access to premium content, or unlocking a full version), you must use in-app purchase... Apps and their metadata may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.”

As such, Apple removed Fortnite from the App Store. Google Play also removed Fortnite for identical reasons, stating:

“The open Android ecosystem lets developers distribute apps through multiple app stores. For game developers who choose to use the Play Store, we have consistent policies that are fair to developers and keep the store safe for users. While Fortnite remains available on Android, we can no longer make it available on Play because it violates our policies. However, we welcome the opportunity to continue our discussions with Epic and bring Fortnite back to Google Play.”

The Lawsuits

In response, Epic has filed lawsuits against Apple and Google. The legal complaint against Apple states:

“Apple unlawfully maintains its monopoly power in the iOS App Distribution Market through the anti-competitive acts described herein, including by imposing technical and contractual restrictions on iOS, which prevents the distribution of iOS apps through means other than the App Store and prevents developers from distributing competing app stores to iOS users.”

Epic also launched an online campaign to get fans of Fortnite to express their support. This was accompanied by a video parodying Apple’s iconic “1984” commercial.

Epic’s lawsuit against the Google Play Store makes similar allegations. Although app developers can distribute Android apps outside of the Play Store, as Epic attempted in the past, the company states:

“Notwithstanding its promises to make Android devices open to competition, Google has erected contractual and technological barriers that foreclose competing ways of distributing apps to Android users, ensuring that the Google Play Store accounts for nearly all the downloads of apps from app stores on Android devices.”

Potential Impacts and ASO

While these lawsuits have just been filed, how they play out can potentially have a lasting impact on the App Store and Play Store. This could set a precedent that allows other app developers to manage in-app purchases and subscriptions through outside channels, or it could further cement the stores’ policies.

The fact that this occurs at the same time as Apple and Google, along with several other tech companies, are facing antitrust allegations is probably not a coincidence. During the antitrust hearings, Rep. David Cicilline described the 30% fee as “highway robbery” that impacts small developers the most by significantly cutting into their profits. The close timing of these cases could influence their results.

Until this is resolved, Fortnite will be unavailable on the App Store or Google Play Store. This creates opportunities for competing app developers to improve their own rankings in the keywords Fortnite targeted. Mobile games such as shooting games can launch updates focusing on relevant keywords to take advantage of the change in competition.

Looking at the App Store, we can even see competitors like Call of Duty targeting the “Fortnite” keyword in Search Ads.

App Store Tax

If Fortnite does return to the stores, it will need to begin targeting keywords and building its rankings anew. In that time, competitors will have had the opportunity to improve their own rankings and positioning. This presents an opportunity for mobile game developers to widen their reach and target former Fortnite players or users interested in similar games.

How this will impact app pricing, sales and in-app purchases has yet to be seen. Whether developers will continue to pay a 30% App Store Tax or not, they will still need App Store Optimization in order to thrive.

Want to learn more about App Store Optimization? Contact Gummicube and we’ll help get your strategy started.

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