New App Store business terms for the EU: Should they be adopted or not?

January 25, 2024, was an unexpectedly historic day for the mobile community, as Apple announced numerous (and long-awaited) updates to iOS, Safari, and the App Store in the European Union. The long list of updates is due to Apple's need to comply with the DMA imposed by the European Union. The changes are primarily aimed at providing developers with new options for app distribution and payment processing within the EU. The number of changes and new conditions may appear overwhelming, so we analyzed the new terms, focusing on the most significant differences, and determined which conditions will be most profitable for EU developers.

Alternative Marketplaces for iOS

One of the most significant changes for the EU is the ability to create and use alternative app marketplaces for distributing iOS apps. Apple introduces a new framework and APIs for creating alternative stores to be used by marketplace developers (a completely new role), as well as new APIs and tools for app developers who may want to publish their apps on these marketplaces.

It appears that Apple is being overly generous in releasing all of the frameworks and tools required to create direct competitors to the App Store, and it is, to put it mildly, unrealistic. According to Apple, the new possibilities introduce new risks for EU users, which Apple cannot be held responsible for or eliminate.

Alternative app stores and app developers willing to publish apps there will have to deal with the following:

iOS app notarisation is a mandatory review that applies to all apps, regardless of distribution channel, with an emphasis on platform integrity and user protection. Notarization implies both automated and human verification.
App installation sheets that use Notarization data to provide concise app descriptions, developer details, screenshots, and other important information for users to review before downloading.

Authorization for marketplace developers means that they must be approved by Apple and meet certain criteria.

Additional malware protection that prevents malicious iOS apps from launching after they have been installed on a user's device.

To make a long story short, you can create and use alternative stores, but they must be approved and monitored by Apple. As icing on the cake, Apple emphasizes that, due to safety concerns, App Tracking Transparency will continue to work even with apps distributed outside of the App Store, which is a major disappointment for the marketing community. Of course, all App Store features such as Family Sharing and Ask to Buy will be incompatible with apps downloaded from other stores. And if you still want to start your own indie store with iOS apps, check out the full list of requirements for becoming a marketplace developer.

Important Notes for Future Alt Store Users:

You will not be able to set up an alternative market outside the EU.
If you use an alternative store and decide to leave the EU, your apps will no longer receive updates after 30 days. You can continue to use and manage your installed apps, but updating or installing new ones will require you to return to the EU.

Apps installed from an alternative market may cease to function if you delete the store app or it ceases to function in general.

App Store third-party payment options

Developers are finally able to use various payment service providers (PSPs) within their apps to process payments for digital goods and services. They're also given new payment processing options via link-out (complete transactions on an external website), as well as the ability to promote discounts and special offers available outside of their apps.

Such freedom, of course, comes with some unpleasant requirements that app developers must follow due to safety concerns:

App Store pages for such apps must include labels informing users that they use alternative payment processing.
The app must have a special in-app disclosure sheet to let the user know they are being redirected to transact with an alternative payment processor and not Apple.
When submitting an app for review, developers must clearly communicate that it uses alternative payment methods.

Alternative payment methods, like alternative stores, do not support the previously mentioned Family Sharing, Ask to Buy, and other App Store-only features. The same is true for refunds and customer support. Furthermore, dealing with third-party external payment processors requires users to use their credit cards, which may be less secure than purchasing directly from the App Store.

If all of the aforementioned shortcomings do not deter you and you still believe you can gain an advantage in the field of external payments, be prepared for the most significant disadvantage that comes with the new business terms you must agree to in order to use such payments.

New business terms for app developers in the EU

No one is prepared for this trick. To use all of the aforementioned innovations, the app developer must agree to new business terms that apply only to the EU region. The emphasis in these terms is on the fact that, as a kind provider of alternative stores and alternative payment methods, Apple must continue to create the best mobile infrastructure in the world, regardless of which channels and payments iOS users use. That is why app developers must pay fees and commissions when using new technologies.

The commission for purchasing any digital goods and services from iOS apps on the App Store will be reduced to either 10% (for most developers and subscriptions after the first year) or 17%. However, using the App Store's processing will cost you an additional 3% Payment processing fee. This approach encourages developers to use third-party payment service providers or direct users to their websites to process payments at no additional cost from Apple.

But the most interesting part is the Core Technology Fee, which means that iOS apps distributed through the App Store or another app marketplace will have to pay €0.50 for each first annual install over a 1 million threshold. The amount of fees that a large app developer or publisher may have to pay is difficult to imagine.

There are a few things to consider here:

The first annual install refers to the first time an app is installed by an account in the EU in 12 months. After the first annual installation, the app can be installed any number of times by the same account for the next 12 months at no additional cost.
First annual installs may also include re-installs, updates, the use of app clips, and several other scenarios.

Developers who register as educational institutions, government agencies, or nonprofits under the alternative terms will not pay the CTF.
Developers of alternative app marketplaces will be required to pay the CTF for each first annual install of the app (!) without waiting for the 1 million threshold.

Keeping track of all the fees and commissions can be overwhelming, so here's an overview of all the available options for iOS app developers:

Important note: Apple stated that it is possible to accept the new EU business terms and then revert to the old ones if "unexpected business changes" occur. Although this can only be done once, it's preferable to nothing.

Apple appears to be optimistic about its new business terms, forecasting a positive outcome for the majority of developers who agree to them.

Finding the most profitable terms

Previously, the developer paid Apple a 15% or 30% commission, sold apps exclusively through the App Store, and used Apple in-app purchases (IAPs). They now have several more options. In addition to the current scheme, which is still available, they can agree to the new business rules and then choose between three options:

Sell on the App Store and use Apple IAPs. In this case, they will be required to pay a commission of 13% or 20% plus $0.54 (€0.50) for each first installation exceeding $1 million per year. This includes a new, 3% payment processing fee.
Sell on the App Store and accept external payments. In this case, there will be a 10% or 17% commission plus $0.54 (€0.50) for each first installation exceeding $1 million per year. Furthermore, there will be an external payment commission; 3% is considered good (Stripe takes 2.5% + €0.25)
Sell through alternative stores and accept external payments. In this case, Apple will only charge $0.54 (€0.50) for each first install that exceeds 1 million per year. But there will undoubtedly be additional payments and store fees.

Option 2 does not appear to be very profitable from the start: the commission for external payments is nearly identical to the Apple IAPs commission, but the drop in user conversions will most likely wipe out any profits.

Option 3 has the potential to be highly profitable, but it is dependent on external commissions and user conversions. It also includes the potential safety risks we mentioned previously.

Option 1 appears interesting, so let's see which is more profitable for an average app: sticking with this variant or sticking with the old terms. The main difference here is that the payment was previously only tied to revenue, but it is now also linked to installations. That is, the efficiency of ARPI (Average Revenue Per Install) becomes a critical metric for determining what to do.

We took a small randomized sample of apps from the database and examined their relationship between revenue in the EU and installations over a one-year period, calculating the average app. Next, we calculated the commissions and established the revenue-commission relationship.

The bottom line is that, for the average app, upgrading to the first option right now can be profitable, as long as you don't earn more than $400k per month in Europe. There are very few applications in the EU that generate more than $400k per month, so it appears that almost everyone should accept the new rules and continue to use Apple's infrastructure without considering alternative stores or payment methods.

It's important to note that app efficiency can vary greatly, and in the case of your app, it can be worse or better than average, with differences of up to tens of times. We can see that some of our customers will save tens of thousands of euros in commissions per month, while others will not.