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Alternate in-app purchase options unlikely to impact Apple's App Store revenue

Alternate in-app purchase options unlikely to impact Apple's App Store revenue

Most iOS users are unlikely to go for payment options outside of the Apple ecosystem given the increase in phishing and cyber-attacks.

Even before the court ruling, Apple had introduced changes to its App Store, in agreement with US developers, towards the end of August. Even before the court ruling, Apple had introduced changes to its App Store, in agreement with US developers, towards the end of August.

With Apple's gross revenue amounting to $70 billion from the App Store alone last year, the new ruling in the US in the Epic vs Apple case has been widely looked upon as a possibility that can upset Apple's revenue. Apple collects commissions between 15-30 per cent from in-app purchases, and the ruling restricts Apple from forcing developers to use its payment system in apps.

"This verdict, while (it is) not fully in favour of Epic, its importance should not be underestimated. This can have far-reaching impact on Apple's App Store revenue in the US, and give a good starting point and impetus for other countries to look at anti-trust cases against app stores from Google and Apple," says IDC's research director Navkendar Singh.

However, even before the ruling by Judge Yvonne Gonzalez Rogers in a permanent injunction in Epic v Apple case, Apple had introduced changes to its App Store, in agreement with US developers, towards the end of August. The new changes allow developers to share purchase options outside of their iOS app, letting users choose between the options provided by the developers or Apple for in-app purchases.

While app developers pay a commission of up to 30 per cent for app-related transactions on iOS, Apple had reduced the commission for businesses earning less than $1 million annually to half (15 per cent) in November last year.

The ruling by Judge Rogers is being looked upon as a big win for app developers. Echoing the sentiment, Indus App Bazaar CEO and co-founder Rakesh Deshmukh says, "We have always maintained that choice is crucial. But the industry needs to understand and now focus on giving developers more 'app distribution' channels on mobile platforms."

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However, most iOS users wouldn't be bothered and are unlikely to go for payment options outside of the Apple ecosystem. Unlike Android, iOS is a closed platform and iPhone users have no other option of downloading apps other than the App Store. This has helped Apple offer a smooth experience and has managed to keep malicious apps and malware out of the App Store. Also, given the increase in phishing and cyber-attacks, most of the iOS users would continue to use the secure iOS platform over visiting a not-so-secure hyperlink.

"The security concerns cannot be ruled out completely since this allows for a hyperlink to the developer's payment link, which bypasses the Apple's payment system and famed security umbrella," says IDC’s Singh. Even if iOS users were to pay a premium to Apple, they are likely to stick to the Apple App Store primarily because of data security and to hold somebody liable in case of a breach.

Apple did not respond to Business Today’s query on how the verdict will impact App Store revenue. Instead, Apple SVP and General Counsel Kate Adams said, "We are very pleased with the Court's ruling and we consider this a huge win for Apple. This decision validates that Apple's "success is not illegal," as the judge said. As the Court found "both Apple and third-party developers like Epic Games have symbiotically benefited from the ever-increasing innovation and growth in the iOS ecosystem."  

Apple is still analysing the decision (180-pages long) but says that the headline is -- Apple's App Store business model has been validated. "The Court correctly rejected Epic's "artificial" view of the competitive environment in which Apple operates and determined that "developers like Epic Games have benefited from Apple's development and cultivation of the iOS ecosystem, including its devices and underlying software," Adams said.

Recently, app store operators have been in the news for antitrust cases across the world over in-app payment methods. Believed to be a verdict that will be used as a benchmark for lawsuits filed in other countries as well, Singh adds, "It will surely be used by other developers and countries like India, EU, Australia to open anti-trust cases etc following the precedent laid out by this ruling and Korea's ruling on app stores a few days back."

While Apple is likely to be hit with an antitrust case in India, South Korea has also passed a bill banning the likes of Google and Apple from forcing app developers to use their in-app payments and pay commission.

(CORRECTION: The story erroneously mentioned ‘$70 million’ instead of ‘$70 billion’. The error has been corrected.)

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