How Apple is opening up the iPhone to comply with the EU’s new Digital Markets Act (DMA) and why Apple is taking a 30 percent cut from every purchase
For more than a decade, iPhones have acted like tightly controlled supermarkets. Developers can’t just wander in and sell their wares. Instead, their app needs to pass a vetting process to sit on the shelves of Apple’s lauded App Store. If they want to sell something within their app to Apple users? That is fine. But for the biggest developers, Apple is going to take a hefty 30 percent cut of every purchase.
Apple is finally opening up the iPhone to sideloading and alternative app stores — at least in the European Union. It’s also allowing developers to use third-party payment processors in their apps. This is all part of Apple’s efforts to comply with the EU’s new Digital Markets Act (DMA), and at the surface, these changes make it seem like Apple is giving in to regulatory pressure.
Critics of Apple’s practices have already begun complaining about the 50 euro cent fee. Epic CEO Tim Sweeney obliquely referred to them as “junk fees.” Spotify CEO Daniel Ek seemed to be teasing out whether it was worth bothering with the new scheme in a post on X (formerly Twitter). He wanted to know if there was an active base of hundred million users.
Apple’s fee might stop competition from arising altogether. Amazon currently pays no cut to Apple for purchases through its app because it only offers physical goods. It would cost tens of millions of dollars to open an app store and only a small chance of success on the other side. There should be no surprise that the first big app store announcement is from a company with a title that is missing from the App Store. That means no entrenched install base to migrate.
The EU seemed like it was finally going to succeed in its mission on January 25, when Apple announced that they were going to allow EU citizens to download apps from alternative app stores onto their phones and tablets. Developers will also be able to use third-party payment providers inside apps offered by the Apple App Store for free, and will pay a reduced commission of up to 17 percent for in-app goods and services, the company said.
There is an incredibly back-of-the-napkin math here. Facebook has 408 million monthly users in Europe and all over the world. iPhones make up about one-third of the mobile phone market in Europe. Meta would be paying Apple 67.5 million a year just for the Facebook app if one-third of users installed it. And there’d be another fee for WhatsApp, another for Instagram, another for Messenger, and so on. The number is only for active users. Meta would have to pay for people who install the app years ago and never open it, but still get automatic updates.
There are two difficulties in this: a company has to launch a third-party app store, and developers have to migrate their users to that store. Users can’t shift from one Apple store to another without Apple’s help. If a user wants to uninstall the old version of the app they downloaded from the App Store, they need to install the new app store first.
As for the €1,000,000 letter of credit, Testut tells The Verge that it’s a “reasonable” ask from Apple. Testut says that it does raise the barrier for entry, but that running an alternative marketplace comes with a strong responsibility to protect users. The risk of fraudulent marketplaces taking everyones money and leaving is reduced by requiring proof of credit.
Testut believes that this is positive for the platform. “For the first time ever, entirely new classes of apps can exist on iOS, which I believe will push the platform forward.”
There are potential drawbacks to Apple’s guidelines that aren’t stopping people from adopting them. AltStore plans to officially launch its app store in the EU as part of their plans to make the store available in other countries. According to Testut, the company is working to meet Apple’s requirements so it can let users download AltStore directly from their website. Testut says developers will be able to publish their apps for free on AltStore, and that they’ve added “deep Patreon integration so that developers will be able to distribute Patreon-exclusive apps to just their patrons.” AltStore doesn’t plan to charge a commission on Patreon-exclusive apps, either.
Nikita Bier, the founder of the Gas app that has since been acquired by Discord, used Apple’s fee calculator to show just how much Apple will take from apps subject to the Core Technology Fee. The post on X details how an app with $10 million in sales and 10 million downloads will be charged $515,962 a month by the App Store payment processor. That adds up to around $6.2 million paid to Apple per year — compared to $250,000 per month or about $3 million a year under the existing terms.
The Coalition for App Fairness, a nonprofit organization spearheaded by Epic and focused on fostering mobile app competition, had a similar response. The plan doesn’t achieve the goal of increased competition and fairness in the digital market – it’s not fair, reasonable or non-discriminatory, according to the executive director. Either stick with the terrible status quo or opt into a new convoluted set of terms that are bad for developers and consumers alike.”
The co-founder of Basecamp says the new guidelines will discourage developers of big apps from using alternative app stores. “This poison pill is therefore explicitly designed to ensure that no second-party app store ever takes off,” Heinmeier Hansson writes in a post on his blog. “Without any of the big apps, there will be no draw, and there’ll be no stores. All of the EU’s efforts to create competition in the digital markets will be for nothing.”
Four years ago lawmakers inBrussels began listening to complaints from companies likeSpotify about how Apple’s tax was smothering competition and limiting consumer choice in the App Store. The EU had a law called the Digital Markets Act. The idea wasn’t to break up Big Tech, former French digital minister Cédric O explained in a press conference in 2022. Instead the law was designed to break these platforms open.
The new fees and restrictions reinforce Apple’s hold over its ecosystem, said Andy Yen, the founder and CEO of Swiss encrypting email and file transfer provider, Proton.