What is the “Apple Tax”?
In case you weren’t aware, Apple automatically takes a 30% cut of app revenue for all purchases. This “Apple Tax” has added up to nearly $275 billion in annual sales. It was originally introduced in 2011, but has gained a lot more attention lately due to increased scrutiny of “big tech” companies. In fact, the US Congress is now investigating allegations of anti-competitive behavior by big technology companies and this, in particular, raises some red flags.
Why is it in the News?
You may have heard about this because the maker of the popular game Fortnite basically started a war with Apple over the tax. The company Epic launched a legal challenge in the form of a 65-page lawsuit, stating how they considered Apple’s payment system illegal and monopolistic. Epic introduced their own payment system for in-game purchases. Which Apple responded to by throwing them out of the App Store.
Facebook got in on the fun as well, and accused Apple of stifling its plan to help struggling small businesses during COVID-19. Facebook just launched a new events feature that lets page owners create paid online events to try to help with some of the current challenges they are facing. However, when they asked Apple to wave the standard App store fee to allow business owners to keep more of the money they generate, Apple denied their request.
In response, the head of Facebook’s main app put out a statement saying “We asked Apple to reduce its 30% App Store tax or allow us to offer Facebook Pay so we could absorb all costs for businesses struggling during COVID-19. Unfortunately, they dismissed both our requests and [small businesses] will only be paid 70% of their hard-earned revenue,”. In addition to this public statement, Facebook also proposed adding a line to the checkout page stating that “Apple takes 30% of this purchase. Learn More.” to alert the consumer to this fact.
Are Android Users Safe?
Yes and no, Google also removed Fortnite from its Play store Thursday for the same reason. However, Android users are still able to download the game directly from the web and skip the Play store all together. Google put out a statement saying that their policies are fair to developers and they hope to continue discussions with Epic to bring the game back to the store.
What Does Apple have to say About it?
Right now, Apple seems to be standing their ground. They argue that they are actually cutting software developers a break. Apple points out that when software was sold in brick-in-mortar stores, 50-70% of the retail price went to the middlemen. They claim that Epic is a company who has found a lot of success utilizing the App store and is now seeking a special arrangement. Apple does and has always believed that all developers should have a level playing field, hence the tax on apps. Apple right now is on track to become the first 2 trillion-dollar tech company.
Fortnite made $34 million in revenue in July alone, making it one of the top 5 iPad and top 10 iPhone apps by gross revenue. Right now we don’t know if Fortnite will be back on the App store. However, one thing for certain is that both companies are aren’t afraid of conflict.