Phil Schiller Raises Concerns Over App Store Commissions on External Sales

Apple Fellow Phil Schiller, who oversees the App Store, testified in court on Monday that he had initially raised concerns about Apple’s plan to charge app developers a 27% commission on purchases made outside the App Store. He argued that the fee posed a compliance risk, could foster an “antagonistic relationship” with developers, and implied that Apple would need audit rights to track external transactions.

Apple typically takes a 30% cut of in-app purchases, but the 27% rate stemmed from the 2021 Epic Games-Apple ruling. The court ruled that while Apple was not a monopolist, it had to allow developers to link to external payment methods beyond Apple’s in-app purchases (IAP).

Apple’s Compliance Sparks Criticism from Developers

In response, Apple updated its App Store Guidelines, permitting developers to direct users to external payment options. However, it only reduced the commission by 3%, prompting criticism. Epic Games CEO Tim Sweeney accused Apple of “bad-faith” compliance, arguing that the company undermined U.S. District Judge Yvonne Gonzalez Rogers’ ruling, which aimed to increase competition.

The legal battle has since returned to federal court, where Rogers is reviewing whether Apple violated her initial order. Schiller’s testimony revealed that he had originally opposed charging commissions on external transactions.

Schiller expressed deep concerns about the App Store’s new role in collecting payments from developers, stating that he was particularly uneasy about transforming it into an entity responsible for pursuing unpaid commissions. He worried that this shift could turn the App Store into a “collection agency” with enforcement rules, including potential audits of developers who failed to comply.

He also feared that these changes would damage Apple’s relationship with developers.

Internal Debates Over External Purchase Commissions

The hearing revealed Apple’s extensive internal deliberations over whether to charge commissions on external purchases. Lawyers presented numerous documents and emails detailing discussions among Apple executives as they evaluated different compliance strategies.

Despite Schiller’s initial objections, a pricing committee—including CEO Tim Cook, former CFO Luca Maestri, Apple’s legal team, and Schiller himself—ultimately decided to impose the commission. The same 3% fee reduction applied to the Small Business Program, lowering its commission from 15% to 12% for external transactions.

Apple also analyzed how these changes would impact developers. One internal model assessed how the inconvenience of non-IAP payments might lead customers to abandon purchases, determining a tipping point where linking out would no longer be beneficial for developers, pushing them back to Apple’s IAP system. Apple also examined whether restricting the placement and formatting of these links could discourage developers from using them.

The company considered various timeframes for commission eligibility, initially proposing a 27% fee on transactions occurring within 72 hours of a link click, later extending the window to seven days when the policy took effect.

Documents also suggested that Cook played a role in shaping the warning message displayed when users clicked external payment links. An early version simply stated customers were “no longer transacting with Apple,” while a later version subtly implied potential privacy or security risks associated with web-based purchases.

During discussions on commissions, some Apple employees voiced concerns that charging for web transactions might be perceived as an attempt to tax the open internet. One meeting note specifically highlighted this issue, acknowledging the risk of negative perception.

Read the original article on: TechCrunch

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