New App Store business terms for the EU: To adopt or not to adopt?

January 25, 2024, unexpectedly became a 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 caused by Apple having to comply with the DMA induced by the European Union. The changes are mainly aimed at developers finally getting new options for app distribution and payment processing in the EU. The number of changes and new conditions may seem overwhelming, so we’ve analyzed the new terms, paying attention to the most significant peculiarities, and found out which conditions will be the most profitable for the EU developers.

Alternative marketplaces for iOS

One of the main changes for the EU is the possibility of creating and using 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 brand-new role), as well as new APIs and tools for app developers who may want to publish their apps on such marketplaces. 

It seems kind of too nice of Apple to release all the frameworks and tools that are needed to create direct competitors to the App Store and it fairly is too good to be true. According to Apple, the new possibilities create new risks for the EU users that Apple cannot be responsible for, nor cannot eliminate them. So the only way out is to reduce them, i.e. have control of the whole process. 

Here’s what alternative app stores and app developers willing to publish apps there will have to deal with: 

• iOS app Notarisation – an obligatory review applicable to all apps, regardless of their distribution channels, emphasizing platform integrity and user protection. Notarization implies both automated checks and human reviews.
• App installation sheets that leverage data from the Notarization process, offering concise app descriptions, developer details, screenshots, and other vital information for users to review before downloading.
• Authorization for marketplace developers – which means they must be approved by Apple and meet certain requirements.

Additional malware protection that prevents the launch of iOS apps containing malware after installation on a user’s device.

So to cut a long story short – you can create and use alternative stores but they must be approved and moderated by Apple. As the icing on the cake, Apple stresses that due to safety concerns, App Tracking Transparency will continue to work even with apps distributed outside of the App Store, which is a huge letdown for the marketing community. And of course, all the App Store features like Family Sharing and Ask to Buy will not be compatible with apps installed from alternative stores. And in case you still plan to build your own indie store with iOS apps – take a look at the full list of requirements to qualify as a marketplace developer (spoiler: it requires €1,000,000 in your bank account). 

Important notes for future users of alt stores:

• You won’t be able to install an alternative market outside the EU.
• If you use an alternative store and decide to leave the territory of the EU, your apps will stop receiving updates 30 days later. You’ll still be able to use and manage your installed apps, but to update them or install new ones, you’ll have to go back to the EU.
• The apps installed from an alt market may stop functioning if you delete the store app or it ceases to operate in general.

App Store third-party payment options

The developers are finally given opportunities to use different payment service providers (PSPs) within their apps to process payments for digital goods and services. They’re also given new options for processing payments via link-out (completing transactions on an external website) with the possibility to promote discounts and special offers available outside their apps. 

Such freedom of course comes with a few unpleasant necessities app developers have to abide by due to safety concerns:

• App Store pages of such apps must have labels informing users that the app uses 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.
• The developers must accurately communicate that the app uses alternative payment methods when submitting the app for review.

As in the case of the alternative stores, alternative payment methods do not support the aforementioned Family Sharing, Ask to Buy, and other App Store-only features. The same goes for refunds and customer support. Moreover, dealing with third-party external payment processors requires users to use their credit card, which can be not as safe as purchasing directly from the App Store.

If all the mentioned shortcomings don’t scare you off and you still think you can gain the advantage in the field of external payments, get ready for the biggest downfall that comes with the new business terms you need to consent to use such payments. 

New business terms for app developers in the EU

This is the trick no one’s been prepared for. To use all the aforementioned innovations, the app developer needs to agree to new business terms applicable only to the EU region. The emphasis in these terms is put on the fact that Apple, being a kind provider of alternative stores and alternative payment methods, still needs to keep on creating the best in the world mobile infrastructure, regardless of which channels and payments iOS users utilize. That’s why, using new technologies requires fees and commissions paid by app developers. 

The commission for purchasing any digital goods and services in iOS apps on the App Store will be reduced to either 10 percent (for most developers and subscriptions following their first year) or 17 percent. However, using the App Store’s processing will require you to pay an additional 3 percent Payment processing fee. Such an approach encourages developers to use third-party payment service providers or link users to their websites to process payments for no additional fee from Apple.

But the most interesting part here is the Core Technology Fee that implies that iOS apps distributed from the App Store or an alternative app marketplace will have to pay €0.50 for each first annual install per year over a 1 million threshold. The amount of fees a huge app developer or publisher might pay is painful to imagine.

There are also a few things to note here:

• The first annual install is considered the first time an app is installed by an account in the EU in 12 months. After each first annual install, the app may be installed any number of times by the same account for the next 12 months with no additional charge.
• Re-installs, updates, using app clips, and several other scenarios may also fall under first annual installs (!)
• Developers registered as educational institutions, government agencies, or nonprofits on the alternative terms will not pay the CTF.
• Developers of alternative app marketplaces will have to pay the CTF for every first annual install of the app (!) without having to wait for the 1 million threshold.

Having your head around all the fees and commissions may be overwhelming, so here’s a general view of all the available options for iOS app developers:

Important note: Apple stated that it’s possible to accept the new business terms for the EU and switch back later to the old ones in case you experience “unexpected business changes”. Although this can be done only once, it’s better than nothing.

Apple seems rather optimistic about its new business terms and forecasts a positive outcome for most developers who decide to agree to them.

Let’s take a closer look at how these terms could work in theory and see if Apple’s vision has any truth to it.

Finding the most profitable terms

Under the old rules, the developer paid a 15% or 30% commission to Apple, sold apps through the App Store, and used Apple in-app purchases (IAPs) only. Now they have a few more options. In addition to the current scheme, which is still available, they can agree to the new business rules and then choose to go in one of three ways:

1. Sell on the App Store + use Apple IAPs. In this case, they will have to pay a commission of 13% or 20% + $0.54 (€0.50) for each first install over 1M per year. This includes a new Payment processing fee of 3%.
2. Sell on the App Store + use external payments. In this case, there will be a commission of 10% or 17% + $0.54 (€0.50) for each first install over 1M per year. Plus, there will be an external payment commission, 3% is considered good (Stripe takes 2.5% + €0.25)
3. Sell through alternative stores + use external payments. In this case, Apple will only charge $0.54 (€0.50) for each first install over 1M per year. But there will definitely be additional payments and store fees.

Option 2 doesn’t look very profitable from the start: the commission for external payments is almost the same as the Apple IAPs commission, but the drop in user conversions will likely kill any profits.

Option 3 theoretically can be very profitable, but it depends on external commissions and user conversions. It also includes possible safety risks we mentioned earlier.

Option 1 looks interesting, so let’s see what would be more profitable for an average app: sticking with this variant or keeping the old terms. The main thing here is that previously the payment was exclusively tied to revenue, but now it’s also tied to installations. That is, the efficiency of ARPI (Average revenue per install) becomes a super important metric for understanding what to do.

We took a small randomized sample of apps from the database and looked at their relationship between revenue in the EU and installations for one year and derived the relationship for the average app. Next, we calculated the commissions and built the revenue-commission relationship.

The bottom line is that for the average app, it can actually be profitable to upgrade to the first option right now, as long as you don’t make more than $400k per month in the EU. There are very few applications that make more than $400k per month in the EU, so looks like almost everyone should accept the new rules and keep using Apple’s infrastructure without thinking of alternative stores or payment methods.

It’s important to note that the efficiency of apps may differ drastically, and in the case of your app it can be worse or better than average, and the difference here can even be tens of times. We can see that some of our customers will be able to save tens of thousands of euros per month on commissions, while others won’t save anything.

You can find out the figures for your app and evaluate the situation using our service: check the installs and revenue graphs and select Europe as a filter to exclude the countries outside the EU.

So shall I agree to the new terms or not?

Apple is called a tech giant for a reason, they’re incredibly difficult to stay against. The new updates turned out not what developers and users were expecting. Instead of slightly loosening its monopoly grip, Apple brought even more bureaucracy and control masked under goodwill. Although the new terms may seem confusing and unclear, there’s a great chance you can use them to your advantage.

Our calculation shows that on certain conditions, the new terms for the EU developers can be more profitable. You should consider agreeing to the new terms only if the following conditions are met:

• You have no plans to use third-party payment methods or alternative stores;
• You still choose to sell your apps on the App Store and keep using Apple IAPs;
• Your revenue in the EU is no more than $400k per month;

You should remember that many factors may influence your success with the new terms, like the size of the app, the niche, seasonality, etc. But you can always switch back if things go South, hopefully until the damage is done. 

Since the updates turned out to be rather controversial, we’d like to remind you that even in the current state of things you’ve got all the opportunities to effectively grow your app revenue and bring new users with the help of Adapty. Learn more about new ways of targeting and paywall personalization.

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