Technology

Apple conflict with developers escalates ahead of conference

Third-party developers say group wields monopoly power by imposing ‘tax’ on payments

Tim Cook, chief executive officer of Apple, waves before speaking during the Apple World Wide Developers Conference in San Francisco

Patrick McGee San Francisco
Javier Espinoza Brussels
Mon Jun 22 2020 - 12:37

The Worldwide Developers Conference hosted by Apple each year is like a rock concert. Fans who pay $1,600 (€1,420) a ticket come ready to admire the product developments and livestream themselves as they wander around the packed event.

"A lot of times, people think of Apple as a cult," said Carolina Milanesi, tech analyst at Creative Strategies, "and WWDC is the best example of that."

But this year the usual expectation has been marred by both coronavirus – which has meant it will be streamed online for free – and a tangle of escalating disputes in recent weeks between Apple and third-party developers.

Though WWDC is still set to be a big event – with the company expected to announce it is shifting away from Intel to use its own chips based on Arm designs, along with a host of new software features – the disgruntled developers are most likely to generate headlines.

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They allege the company wields a monopoly power, particularly in levying the 30 per cent “Apple tax” on in-app purchases, and imposing restrictions that make it difficult to compete with Apple Pay.

Such complaints have a long history. When Apple introduced the 30 per cent fee in 2011, the apprenticeship group Treehouse said: "Apple just dropped a nuclear bomb on all of us."

The reading app iFlow Reader went out of business as its chief complained to Apple that the “draconian new rules” had made it “impossible for anyone but Apple to sell books at a profit on iOS”.

‘Roadkill’

Apple co-founder Steve Jobs, in an internal email later cited by US prosecutors, had little sympathy for the small developer. He told other Apple executives: "Bottom line – we didn't have a policy and now we do, and there will be some roadkill because of it. I don't feel guilty."

Today's complaints might not be dismissed so easily. Last Tuesday, Brussels launched two formal antitrust probes into the iPhone maker.

One looks at whether App Store payment policies put rivals at a disadvantage, the other asks whether Apple is undermining competitors by limiting access to near-field communication for contactless payment in stores.

Brussels was swayed in part by Canadian ereader group Kobo, which would like to let users conveniently buy books through its app – but avoids doing so because that would mean giving away nearly a third of its revenue to Apple. Apple Books, a rival, does not face this dilemma.

Just hours after the investigation was announced, Apple seemed to highlight the very problem Brussels was addressing. It threatened to expel a new email tool – Hey from developer Basecamp – from the App Store, because Hey does not offer users a way to pay within the app but instead redirects them to its own website.

David Heinemeier Hansson, chief technology officer at Basecamp, launched a tirade on Twitter in which he accused Apple of taking an unwarranted cut of revenue comparable to a mafioso shakedown.

“If we get a customer on the web, we pay a rate for payment processing that, in a fiercely contested market, ranges from 1.8 to 2.4 per cent. To suddenly go from that to ‘Apple wants 30 per cent’ – it’s just obscene,” he said in an interview with the Financial Times.

David Cicilline, chairman of the US House antitrust committee, agreed, telling The Verge that Apple's 30 per cent fees were "exorbitant rents – highway robbery, basically".

Last Thursday Phil Schiller, Apple's senior vice-president of worldwide marketing, told TechCrunch that there were "not any changes to the [App Store] rules that we are considering" in relation to Basecamp's complaint.

‘Baseless complaints’

All this could set a dark stage for WWDC. But an Apple executive told the FT that the issue had been overblown, arguing that anyone wanting to use Hey could pay for it outside the App Store, and that Apple simply demanded that a payment option be embedded for anyone who discovered it that way.

Apple said earlier in the week that the App Store facilitated more than half a trillion dollars of commerce each year, with relatively few complaints. It later added that Brussels was advancing “baseless complaints . . . from a handful of companies who simply want a free ride”.

This irked Match Group, the online dating company behind Tinder and OkCupid, which called the definitions Apple used to determine which sort of apps must pay fees, and which do not, arbitrary and inequitable.

It added that the tech group “squeezes industries” for almost a third of their revenue and then insulted them as free-riders if they complained.

Where Match sees Apple being inconsistent is that it does not demand payments from companies that have a clear business outside the digital realm. Sometimes this distinction is clear: Uber connects riders and drivers in real life, so is not subject to the “Apple tax”, whereas Spotify is digital media, so it is.

But other times it is blurry: Airbnb is treated like Uber, but Tinder is treated like Spotify, even though both Airbnb and Tinder connect people in the real world.

Even Microsoft, which a US judge in 1999 ruled a monopolist for Windows' restrictions on rival internet browsers such as Netscape, has taken aim at its longstanding rival.

"If you look at the industry today, I think what you'll find is increasingly you're seeing app stores that have created higher walls and far more formidable gates . . . than anything that existed in the industry 20 years ago," Brad Smith, Microsoft's president said at a Politico event on Thursday.

He added: “I do believe the time has come . . . for a much more focused conversation about the nature of app stores . . . and whether there is really a justification in antitrust law for everything that has been created.”

Some developers, however, are content with Apple's approach. Nathan Forster, founder of NEOU, a connected fitness platform, said he considered the 30 per cent fee a marketing cost. "We drive traffic through the App Store," he said. "It's seamless, it's one-click. Apple has all the eyeballs so you pay to play, right?"

Daniel Flax, analyst at Neuberger Berman, an investment manager, noted that millions of developers relied on Apple's infrastructure to get their software on to 1.5 billion devices. If most were unhappy, that would hurt Apple, he said.

“It’s in Apple’s interests for them to flourish,” he said. – Copyright The Financial Times Limited 2020

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