Apple's new App Store Small Business Program and Subscription Offer Codes
Putting more money into the pockets of small Apple devs
Apple announced the App Store Small Business Program which will reduce the App Store sales commission from 30% to 15% for qualifying developers. Developers who collected up to $1 million in proceeds (net of the App Store commission) will be eligible for the program when it is launched on January 1, 2021.
This is a big deal for small and independent Mac and iOS developers. They will effectively receive a 21% raise on any sales that were previously subject to the full 30% commission (subscriptions commissions after the first year had previously been reduced to 15%). Many developers were very pleased by the announcement.
While others were not as impressed.
Subscription Offer Codes
Apple also announced the introduction of subscription offer codes which allow developers to grant subscription offers to users, whether they are new, existing, or previous subscribers. These codes can be distributed digitally or physically and can be redeemed on the App Store, through the offer redemption URL, or within an app (when you implement the presentCodeRedemptionSheet API).
Thoughts
If you are (or are trying to become) a independent developer this is undeniably good news for you. Apple’s 15% commission is still a tough pill to swallow but it is a huge improvement from the 30% Apple has charged since the App Store was created in 2008. It will leave more cash in the pockets of small developers and could be enough to help many developers make the leap from treating their apps as a part-time side project to a full-time business.
The 15% commission also opens up possibilities for new business categories or models that were infeasible under a 30% commission, particularly for in-app purchases. Selling ebooks doesn’t really work well when Apple takes 30%, but does it work at 15%? Maybe the margins still aren’t good enough (and the big players will run into the $1 million limit anyways). Will some app categories shift away from an ad-based business model now that developers can keep a bigger share of in-app purchases? We’ll have to see but I expect this change will lead developers to reexamine a variety of product categories that didn’t quite work under the old commission structure.
It’s a fantastic public relations move from Apple. The vast majority of developers (97% of developer accounts earn $1 million or less per year, according to App Annie) will now be earning more money from every sale without any extra work. Apple did not become a $2 trillion company by giving money away so the biggest question is: Why now?
I can only speculate about the reasons but I believe Apple realized their relationship with developers was at a tipping point following the Hey app rejection fiasco leading up to WWDC this year. App Review is the most dreaded aspect for so many developers on Apple’s platforms because the rules are applied so inconsistently and a rejection can stop your entire business dead in it’s tracks. Paying 30% is bad enough, but paying 30% while also struggling to appease App Review can really make you consider developing for other platforms.
The last point to touch on is the dynamics of the $1 million threshold. Once a developer in the Small Business Program crosses the threshold they will pay the standard 30% for the rest of the year and will not be eligible for the program in the next year. In the next year, all of the developer’s earnings will be subject to the 30% commission. This actually creates a significant disincentive to cross the threshold, unless you plan to cross it by a lot. Here are two potential scenarios for Developer A and Developer B.
Developer A
Year 1
$1.1 million gross sales
- $0.165 million commission @ 15%
= $0.935 million net proceeds (eligible to remain in SBP in year 2)
Year 2
$1.1 million gross sales
- $0.165 million commission @ 15%
= $0.935 million net proceeds (eligible to remain in SBP in year 3)
Developer B
Year 1
$1.2 million gross sales
- $0.176 million commission @ 15%
- $0.007 million commission @ 30%
= $1.017 million net proceeds (ineligible to remain in SBP in year 2)
Year 2
$1.2 million gross sales
- $0.36 million commission @ 30%
= $0.84 million net proceeds (ineligible to rejoin SBP in year 3)
Developer A sold $2.2 million worth of software and takes home $1.87 million. Developer B sold $2.4 million worth of software and takes home $1.857 million.
A developer who sells $200,000 more software shouldn’t be taking home less money after two years. I hope Apple makes adjustments to handle this edge case in a more reasonable manner. They effectively have until January 2022 (the second year of the program) to sort it out.
If they keep the rules as they are now, some developers may find it makes more sense to forego revenues at the end of 2021 to avoid pushing them over the threshold and out of the Small Business Program in 2022. Developers could end up using the new subscription offer codes to give current subscribers a month or two free just to avoid being booted out of the program. Wouldn’t that be something? 😊