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Apple (AAPL) Cuts App Store Fees to Aid Small App Developers

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Apple (AAPL - Free Report) recently announced that it will reduce its App Store commission fee from 30% to 15% on paid apps and in-app purchases for small developers who earn less than $1 million in annual sales from their apps and those who are new to the store effective Jan 1, 2021.

As part of Apple’s new App Store Small Business Program, the new commission structure is aimed at supporting small and individual developers as businesses adapt to a virtual world during the coronavirus pandemic.

Markedly, app makers that exceed the $1 million threshold at any point in 2021 will automatically be removed from the program and be subjected to the standard 30% cut.

Meanwhile, if a developer falls back below the $1 million threshold in a future calendar year, they can re-qualify for the program and its reduced commission rate.

The new program is expected to attract more niche app makers, game developers, and other members of the iOS ecosystem. Markedly, despite the lower commission, smaller businesses will continue to have access to Apple’s development applications like Xcode, programming languages like Swift, more than 250,000 essential software building blocks called APIs as well as tools like HealthKit, ARKit, CoreML and others.

Apple Inc. Price and Consensus

Legal Battle, Antitrust Probe on App Store: A Key Factor

Apple’s App Store has been facing backlash from third-party developers over the past year for forcing them to pay a 30% commission and only use the company's own in-app purchasing system.

Starting with the launch of a European antitrust investigation into the App Store and Apple Pay, followed by a legal battle with Epic Games over the inclusion of Epic’s own in-app payment options in Fortnite, the array of controversies is expected to have triggered the cut in Apple’s commission charged to smaller businesses.

In April, Bloomberg News reported that the company allowed a handful premium subscription video providers — including Amazon (AMZN - Free Report) and Altice USA’s Altice One — the ability to charge consumers directly using their own payment systems without paying a commission to Apple.

Unfortunately, not all companies have the negotiation leverage of Amazon. Notably, Apple’s policy of charging commission (as high as 30%) on digital sales through its digital stores has been criticized by a number of developers like Spotify (SPOT - Free Report) , e-book distributor Rakuten and Match Group in recent times.

Further, Facebook (FB - Free Report) and Microsoft have also condemned the company and its strict app store policies for third-party software. Meanwhile, last month, a number of publishers and advertisers also filed an antitrust complaint against the company through France’s competition authority.

Starting in early 2021, Apple’s operating software will require apps to get opt-in permission from users to collect their advertising identifier, a key number used to deliver targeted ads and check how ad campaigns performed.

App Store Proves to be a Major Revenue Contributor

The App Store continues to draw the attention of prominent developers from around the world, helping the company offer appealing new apps that drive App Store traffic.

Notably, the App Store has emerged as a major revenue contributor to the company’s Services business.

As stated in a court filing, cited by a report from The Verge, Apple’s App Store currently has 27 million developers globally, encompassing users of the more than 1.5 billion Apple devices around the world in 175 countries and over 40 languages, with more than 180 local payment methods and 45 accepted currencies. The store hosts more than 1.8 million apps.

Moreover, per Apple, the iOS app ecosystem has created roughly 300,000 new jobs since April 2019 and supports more than 2.1 million U.S. jobs across all 50 states.

Further, growing number of AI-infused apps is expected to attract more subscribers on App Store. Notably, more than 30,000 third-party subscription apps are available on App Store and the largest of them accounts for only 0.25% of Apple’s total Services revenues. This Zacks Rank #3 (Hold) company now expects to reach its target of 600 million paid subscriptions before the end of calendar 2020.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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