Under scrutiny, Apple halves fees for smallest developers

Apple will halve the fee it charges to the smallest software developers to access the App Store, the company said Wednesday in a possible move to fend off antitrust scrutiny over the cut it takes from app sales.

Apple said it will start a program that will allow developers with less than $1 million in annual net sales to pay a 15% commission rather than the standard 30%.

The program is an unanticipated departure from the tech giant's position that its fees, called exorbitant by some developers, are essential to security and is a fair trade-off to reach a wide user base of consumers in 175 countries. It might be a preemptive move from Apple to mollify critics who say it's stifling competition amid intense antitrust scrutiny from lawmakers and companies frustrated with what they have called an "app tax."

Epic Games, which is suing the iPhone maker over its 30% commission on in-app purchases, said the company's "patchwork of special deals" reinforces claims it's engaging in anticompetitive conduct.

"This would be something to celebrate were it not a calculated move by Apple to divide app creators and preserve their monopoly on stores and payments, again breaking the promise of treating all developers equally," chief executive Tim Sweeney said in a statement following Apple's announcement of the new rates.

Apple said in a statement it's rolling out the program starting in 2021 to help small companies during an "unprecedented global economic challenge."

"Small businesses are the backbone of our global economy and the beating heart of innovation and opportunity in communities around the world," Apple chief executive Tim Cook said in a news release. The program will help "developers fund their small businesses, take risks on new ideas, expand their teams, and continue to make apps that enrich people's lives," he continued.

Capitalizing on a congressional antitrust probe into big tech, Epic Games sued Apple in August over its App Store policies. It alleged Apple Inc. abuses its monopoly power as the sole facilitator of a marketplace for apps by offering developers no alternatives to the App Store, where it exacts a 30% fee on all sales and forces consumers to use its own payment processing option.

The maker of Fortnite, a massively popular online battle royale game, will not qualify for the discount. It sued Apple in Australia on Wednesday under the same claims it advanced in its lawsuit in the Northern District of California federal court. Epic Games, Inc. v. Apple Inc., 20-cv-05640 (N.D. Cal., filed Aug. 13, 2020).

Companies which made less than $1 million from all of their apps in 2020 will automatically get the cut rate. If they go over the net sales threshold, the standard 30% fee will be applied for the remainder of the year, Apple said.

It's unclear to what degree the change will impact Apple's finances, but it appears it will affect a significant number of developers without having a huge impact on Apple's bottom line.

Roughly 98% of developers who accounted for slightly less than 5% of the App Store's revenue will qualify for the program, according to analytics firm Sensor Tower.

The App Store accounted for $15 billion of the company's $46.2 billion total revenue in 2019.

In unrelated litigation over allegations it purposely slowed older iPhones so consumers would buy new ones, Apple settled claims from 34 states and five counties for $113 million. California will receive roughly $25 million of the deal, which includes terms that will "provide transparency to consumers and deter future misrepresentations regarding Apple's battery capability," state Attorney General Xavier Becerra said in a news release Wednesday.

A separate settlement of up to $500 million for the same claims in federal court appears to be in danger of not being approved as objectors decry nearly $90 million in attorney fees and alleged failures in the notice program.