Netflix, Fortnite Developers Look to Circumvent 30% App Store "Tax"

August 24th, 2018

Netflix, Fortnite Developers Look to Circumvent 30% App Store "Tax"
David Quinn

by David Quinn

VP of Strategy & Partnerships at Gummicube, Inc.

When you pay for an app on the Apple App Store or Google Play Store, or when you make an in-app purchase, the App Stores take a cut of the purchase. For small micro-transactions, that 30% cut is only a few cents per purchase, but the numbers start rising when you look at highly successful apps. Some of them are tired of seeing Apple and Google take up to a third of their profits, and they’re trying to find a way out. Companies, app developers and video game makers such as Netflix, Valve and Epic Games are seeing billions in profit thanks to in-app purchases alone. However, a good portion of that profit is going to Apple and Google – initially it was 30 percent, although that number can now go as low as 15 percent on regular subscription payments. These apps and games create a large portion of the billion-dollar app economy, but the developers feel that Apple and Google’s cut is more like a tax than anything else.

What Are They Doing?

While the developers are trying to convince Apple and Google to lower their cut of the profits, they’re also taking efforts to work around the in-app purchases. Netflix, for instance, has begun directing users to its website to renew their subscriptions. When users pay through their iPhone or iPad’s in-app purchasing system, Apple receives 15-30 percent of the profit, but if they go to an external website to pay, it all goes directly to Netflix. They’ve already made Google Play billing unavailable, so users must renew their subscriptions directly through Netflix. However, Netflix may encounter legal trouble with Apple for doing so. As per section 3 of the App Store Submission Guidelines, developers that use in-app purchases must do so through the App Store. It states that “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 purchases,” so directing users to their website may be a violation of their terms. Spotify tried a similar tactic in 2016. At first it charged users $13 a month if they paid with in-app purchases, compared to $10 for those who signed up through the website. Recently it decided that users can no longer sign up through the app, so subscribers must go directly to the website before they can properly use it. While apps such as Spotify and Netflix can sell subscriptions through their own platforms without needing to give Apple a cut, they are not allowed to inform customers of this within their apps. They can still sell subscription services outside of the app itself, since the services they provide can be used outside of the app, which makes these loopholes possible. Similarly, Fortnite developer Epic Games has decided to work around Google Play by not making the game available on the Google Play Store in the first place. Instead, users who want to play Fortnite will have to go to Epic Games’ website and download it directly from there. Fortnite While this does let Epic Games avoid Google’s 30 percent fee, it also limits its discoverability to only those who visit the site to download it in the first place. Discoverability within the App Stores is important for increasing an app’s reach and finding new customers, but that’s simply impossible for an app not available on the store. While iOS users may find Fortnite when browsing the App Store’s top-rated games, Android users will have to make a conscious decision to seek out Fortnite, go to the website and download it directly from there. Yet Fortnite is currently one of the most successful digital games, earning millions of dollars a day through mobile revenue. It is a name known by hardcore and casual gamers alike, so there will undoubtedly be fans going to the website so that they can play it on their Android devices. It will likely lose out on many potential users who would otherwise download it if they came upon it in passing or searching for feature-based keywords in the Play Store, but Epic Games has decided the potential loss there does not outweigh the profits that Google would otherwise take. While this is possible on Android devices, iOS apps do not have that option – iPhone apps can only be installed if they come from the App Store. Jailbroken phones can run third-party apps without installing them from the App Store, but jailbreaking a phone goes against Apple’s terms of service. Google does allow for users to directly install APKs on Android devices, so Epic has the option to bypass the Google Play Store in that way. While smaller app developers may not be able to afford taking the risk that Epic Games is, they’re still looking for loopholes or ways to work around paying Apple and Google for their in-app purchases. It seems unlikely that either company will be changing its policy.

What’s the Response?

If Google and Apple were to lower their commission percentage, the impact on their profits would be huge. 2020 – a very significant sum, considering both are expected to earn more than $50 billion each that year alone. Neither company has expressed any interest in changing its policies or lowering their commissions. They cite several reasons why the app stores are still essential, including quality assurance, security, the ability to find and filter fake apps, to distribute legitimate apps widely, their safe handling of identity and payment information and the increase in sales that comes with in-store promotions. Only the most popular and largest of online services can afford to take the risk of bypassing the app stores. No matter what an app’s size or popularity, the best way to maximize installs (and therefore profits) on the app stores is through App Store Optimization. With ASO, apps and mobile games can maximize their visibility, find new users and increase installs – even if Apple and Google take a piece of the profits, a successful app with great discoverability can still make a fine profit.

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