If Spotify were selling their products through retail they would probably lose about 50% of their margins.

Retail margins are famously low (very low single digits).

The problem is that Apple and Google are exploiting their mobile content distribution oligopoly so aggressively that they are practically begging for a regulatory crackdown.

I wonder why companies are getting carried away with this kind of profit destroying greed again and again. They are killing their own golden goose.

Could simply be that they dont know what the world will look like in 5 years so they might as well cash out while they can. No use playing the long game when the next big game changer could be around the corner?

Anyhow, they have so much money that even when regulation comes, their business will still be secured.

The margins and costs include more than the wholesale price of the product. The correct question is how much does a farmer get paid for a gallon/liter of milk and how much is that same gallon/liter sold for at the shop. Farmers in the US are getting roughly $1.00 per gallon for whole milk. How much is it selling in the store? Roughly $3.50.

Anytime people talk about “greed,” I tune out because that’s the sign of a person who doesn’t actually know what goes into running the thing they claim a company is greedy with. Take the Apple 30% fee for example. If you ran payment processing yourself through Stripe, you might pay 3%. So let’s take Apple’s remainder to 27%. Apple handles chargebacks/disputes for you. So each dispute using Stripe would cost you $15 unless you win the dispute. We also have fraud prevention and management, which Apple provides. An app developer never has to deal with fraud on the App Store. An fraud is a significant issue, especially selling globally.[1] How much is fraud worth? I would say that it’s worth at least 5% to never have to deal with it. So now the App Store commission is 23%.

Next you have to deal with a CDN for delivery of the purchased app. Where do you store the file? How do you secure it? Who pays for the bandwidth of distributing it? Who maintains that system? With the App Store you don’t have to deal with any of that. I would say that’s worth at least 5%. You can’t have any downtime or you lose money. You can’t have casual security or you’ll lose product. So that system has to be well maintained, robust, and able to handle scale, and be fast and easy for your customer.

Now we are at 18% of Apple’s commission remaining. For every product you sell worldwide, you have tax consequences worldwide, assuming you care about following the law. For every sale you get, you potentially have to remit taxes, taxes that vary by individual jurisdiction. Apple does all of that for you. They also provide a localized and internationalized store front for almost any country in the world. Want to sell your App in Vietnam? Is your infrastructure set up to reach those customers? How about your Vietnamese skills when a potential customer has a purchasing issue? How about your payment processor? Are they set up to handle how Vietnamese people like to pay for things? Can a Vietnamese person go buy a gift card and use it on their device to buy your product? With the App Store, you get all of that capability built-in. And you get that capability for pretty much every connected country. Including market exposure via App Store search and discovery. Let’s combine this point with the next, a product website. If you want to sell on your own you have to build and maintain a website to sell your app. You need to integrate payment processing, the download, security, and maintain it. While most of us have the skills to do that, you also have to ensure it’s updated, you have to pay to host it, translate it into worldwide languages (or not.) However if you actually want to sell your app, you’ll also need to worry about SEO, online marketing and attracting users to your app. Just a simple webpage isn’t going to make a dent in search results from the open web since your “premium music player” keyword will take years to rank.

So the App Store gives you the ordering system, access to many more markets than you’d likely normally be able to handle yourself as well as the aforementioned search and discovery. There is also the trust factor: why would I download some random music player from some random site off the internet? That concern is going to create a high barrier to getting large numbers of people to download the app. Not so on the App Store.

I would say all of that is worth at least 8%.

So that leaves our “greed percentage” at 10%. However, we have another aspect as well. Not only do you sell a paid version, you also have a free version you use as a marketing tool to expose people to how great your app is. That free version has ads that you insert while people are listening to music on your music player. You get 100% of the revenue from the ads, Apple has nothing to do with that. However, all of the stuff we’ve described above — Apple gets 0% for free apps — and your free users download and use the store infrastructure by the millions. Millions of downloads that never touch your system. Who pays for that bandwidth? Not you, at least not directly. So Apple has 10% of that fee unaccounted for. Handling all of your free users is probably worth at least 5%. Also we haven’t talked about an update. If you release an update, how do all of your millions of users get the update? Apple handles that for you as well.

On your second year of a subscription, the commission drops to 15% because many of those above listed expenses aren’t as relevant. However, taxes, update infrastructure, payments, declined cards, collections, etc.. that’s still being handled.

Making an argument that Apple is “greedy” is ill-informed. Besides, you don’t even have to pay Apple 30%. Users could go to your website and pay there. Then Apple is handling all of you download/update infrastructure for practically free. That 30% is only applicable when users pay within the App Store context. So Apple handles the distribution of potentially millions of downloads even though they aren’t necessarily making much money from your subscriptions you sell outside the store. Maybe it’s greedy to expect Apple to manage millions of your downloads for just a $99 per year developer fee? Apple expecting a cut of transactions they manage isn’t unreasonable.

[1] https://stripe.com/guides/2017-global-fraud-report

> Apple handles chargebacks/disputes for you.

In many cases they forward the complaint on to you as the developer for "does not perform as described".

> If you ran payment processing yourself through Stripe, you might pay 3%. ... We also have fraud prevention and management, which Apple provides. An app developer never has to deal with fraud on the App Store.

You're double dipping. You already subtracted some money for Stripe, unless you're implying they _don't_ have fraud protection and management?

> Next you have to deal with a CDN for delivery of the purchased app. Where do you store the file? How do you secure it? Who pays for the bandwidth of distributing it? Who maintains that system? With the App Store you don’t have to deal with any of that. I would say that’s worth at least 5%.

Or Cloudflare for $20/mo?

> So the App Store gives you the ordering system, access to many more markets than you’d likely normally be able to handle yourself as well as the aforementioned search and discovery. There is also the trust factor: why would I download some random music player from some random site off the internet? That concern is going to create a high barrier to getting large numbers of people to download the app. Not so on the App Store.

> I would say all of that is worth at least 8%.

Sounds like an artificial barrier to me. "Insert roadblock, charge for roadblock, say I'm doing you a favor". I'm also not sure how you think you magically don't have to do any SEO or marketing just because you're in the Apple Store, let alone that it's automatically worth "8%".

No-one is saying that the Apple Store doesn't add value or manageability.

But I am questioning your magic calculations that just happen to reduce Apple's tax to effectively nothing.

Apropos of anything else, developers handling "millions" of downloads are in the single percent range. And can also afford economies of scale to support things themselves, CDNs, merchant accounts and the like. But instead they have to pay Apple's flat rate.

So I am fully aware of everything you're saying and I agree with most of it in principle. I do disagree on the numbers you're using. But we are both inevitably ill-informed in the sense that neither of us has the hard numbers required to work out the true cost of running the App Store.

We do know a couple of things though:

1) The App Store is profitable. Apple has said so. Most analysts reckon that it has high and growing margins. Everything Apple says about its services business makes me believe that these analysts are correct.

2) There are only two relevant mobile app stores (perhaps 2 1/2 if you count Amazon).

3) Both charge exactly 30%

This is not a well functioning market by any definition. Dysfunctional markets like these rarely charge too little. So the assumption that they charge too much seems not too far fetched.

To me, charging 30% for every app, irrespective of its price, seems completely implausible, not just the percentage but also the structure. Any plausible pricing structure would include a fixed fee plus a percentage.

I'm not using the word "greed" in a moral sense (as is often the case). I'm using it because it is clearly an act of self harm to extract high margins in an obviously oligopolistic and dysfunctional market.

They are begging to be regulated and why would they do such a stupid thing?

I'm quite sure technically (at the size of the Apple Store) a digital marketplace could charge 1% and still make a profit after the operational costs.

1% instead would be $383 million a year. You think that wouldn't be sufficient to run a digital store (including the things mentioned)? Pretty sure you can do it with far less than that.

[1]: https://www.forbes.com/sites/chuckjones/2018/01/06/apples-ap...

Mobile platforms are dysfunctional markets. That's why they can charge 30% and that's why regulators will step in sooner or later.

But take a look around and you will find that there is no digital shop that acts as a merchant of record internationally for anywhere close to 1%. It's impossible and completely unrealistic even before accounting for the entire software development and distribution side.

I agree with that. 30% is not a plausible rate in a well functioning market. But it's not 1% either, I can guarantee you that. So what is the right revenue share?

Paddle charges 5% to act as a merchant of record for you (i.e as a reseller). That's what Apple does as well and I haven't seen that service offered for much less.

On top of that, Apple provides all the software distribution and discovery functionality. I'm not sure what the cost of that is, but it's not nothing.

So by my estimate, a realistic revenue share for Apple in a well functioning market could be in a range between 8% and 15%. But on the lower end that might mean higher fixed fees for free apps and worse support.

What they should do first of all is change the pricing structure to charge a fixed fee plus a percentage. That would allow them to cover their per transaction cost and take a far more realistic revenue cut on top of that.