Overhauling Apple’s App Ecosystem: EU’s Digital Markets Act Impact
By: Alexander Michaelson
This article is based on the insights provided by Jon Porter and David Pierce in their piece titled “Apple’s plan for the EU means the iPhone is about to change forever” published on The Verge. Their in-depth analysis and reporting laid the foundation for this exploration of Apple’s response to the European Union’s Digital Markets Act, highlighting the significant shifts in the iPhone’s app ecosystem. We acknowledge and credit their journalistic expertise in shedding light on this transformative development. For the original article: Link.
In a groundbreaking move set to reshape the landscape of iPhone app distribution, Apple has unveiled a series of significant changes in response to the European Union’s Digital Markets Act (DMA), set to take effect in March. This marks the most substantial transformation in the iPhone’s app ecosystem since the inception of the App Store in 2008. Apple’s iOS 17.4, scheduled for release in March, will introduce alternative app marketplaces, breaking the long-standing monopoly of the Apple App Store as the exclusive distributor of iPhone apps.
Termed “alternative app marketplaces” by Apple, these third-party platforms will offer users in the EU a new dimension of choice. Individuals on iOS 17.4 will have the liberty to download these marketplaces directly from their respective websites. However, Apple’s stringent approval process is a prerequisite for these marketplaces to function on iPhones. Users must explicitly grant permission for app downloads from these approved marketplaces. Once installed, users gain the freedom to download apps, even those that might violate App Store guidelines. Additionally, users can set a non-App Store marketplace as their default, providing a more customizable experience.
Developers, too, will witness a paradigm shift in their operations. They can now opt to use Apple’s payment services and in-app purchases or integrate third-party payment systems without incurring an additional fee to Apple. Apple has introduced a 17% commission (down from 30%) on digital goods and services for apps using alternative payment systems. This rate further decreases to 10% for apps eligible for Apple’s reduced “small business” rate. An extra 3% processing fee applies if developers choose Apple’s in-app payment system.
Apple remains vigilant in overseeing the app distribution process. All apps must undergo Apple’s notarization process, and the distribution through third-party marketplaces is still managed by Apple’s systems. Developers are restricted to distributing a single version of their app across different app stores and must adhere to basic platform requirements, including malware scans.
Looking at the broader changes in the cost structure, developers now have the flexibility to pay no commission to Apple in the EU, depending on their chosen app distribution method. Apple has restructured its fee system, introducing a new Core Technology Fee. This fee, €0.50 per annual app install, applies only after a million annual installs in the EU. Apple estimates that over 99% of developers will either reduce or maintain their fees under the new terms, with less than 1% incurring the Core Technology Fee.
Beyond app distribution, Apple is extending openness in other facets of the iOS ecosystem in the EU. For the first time, alternative browser engines to WebKit will be allowed, giving users a choice of alternative browsers when opening Safari for the first time on iOS 17.4. Furthermore, the App Store will now permit global game streaming services, a significant departure from previous stringent policies. As announced by the European Commission, developers in the European Economic Area will be allowed to offer NFC payments in their third-party apps.
These transformative changes are expected to resonate with developers critical of Apple’s control over iOS app distribution. Spotify, a vocal critic of Apple’s 30% commission rate, has already announced plans to reintroduce in-app purchases to its iOS app for EU users after the DMA comes into force. However, whether developers will accept a 17% commission from Apple when using an alternative payment processor remains uncertain, given previous criticism of Apple’s proposed 27% commission on alternative payments in the US.
Passed in 2022, the DMA is the European Union’s robust attempt to curb alleged anticompetitive practices by major tech companies. Apple, designated as a “gatekeeper” by the EU, faces stringent rules for its App Store, Safari browser, and iOS operating system. The DMA’s provisions encompass enabling users to install third-party apps or app stores, uninstalling stock apps, changing default services, fostering interoperability among large messaging services, and preventing gatekeepers from favoring their products over third-party rivals in app stores.
As Apple embraces these changes to comply with the DMA, the company joins other tech giants like Meta, Google, and Microsoft, which have also announced modifications to their services in response to the regulation. The DMA ushers in a new era of app distribution and payment systems in the EU, and its implications may extend beyond the borders of Europe, influencing the global tech landscape. As Apple navigates these transformative shifts, only time will tell how users, particularly in the EU, respond to the newfound freedom of alternative app stores and payment methods or choose to adhere to Apple’s established options.