Apple’s 27% App Store Fee Trying to Comply With Law, Exec Says
Apple Inc.’s attempts to justify the 27% fee it charges developers for purchases outside its App Store backfired as a skeptical federal judge questioned an executive about a company-commissioned study showing half that rate would be reasonable.
(Bloomberg) -- A senior Apple Inc. executive told a US judge that the iPhone maker’s new 27% fee on purchases made outside its App Store are a good-faith attempt to comply with the law.
“We are trying to enable what the law requires,” Apple Fellow Philip Schiller said Friday during the fourth day of a hearing focused on Apple’s compliance. “There was mentioned in the order about if Apple has a right to a fee even without” developers using its in-app payment system.
Schiller, a long-time executive who helped develop the App Store, is the most senior executive to testify at the hearing before US District Judge Yvonne Gonzalez Rogers in Oakland, California. She is deciding whether Apple’s new fees comply with her 2021 order that the iPhone maker must allow developers to provide links to cheaper payment options online.
Schiller, who took the stand late Friday for about 90 minutes, said he was one of the three senior Apple executives who decided to impose the new fee in January along with Chief Executive Officer Tim Cook and Luca Maestri. Under questioning by Gary Bernstein, a lawyer for -maker Epic Games Inc., Schiller said he isn’t opposed to the link requirement despite prior public comments that it would “detract from the user experience.”
‘Safe’ Solution
“The world has changed and linking out is being required,” he said. “I do not have a preference against link-out. I want to make the solution safe for our customers. That’s what I’m focused on.”
Earlier in the hearing, Apple’s attempts to justify the 27% fee backfired as Rogers questioned another executive about a company-commissioned study showing half that rate would be reasonable.
Carson Oliver, senior director for business management for the App Store, testified that Apple hired economic consulting firm Analysis Group Inc. to help create a new commission rate for purchases.
But Rogers repeatedly chastised Oliver for statements about how Apple decided it would charge developers 27% for purchases of digital goods or services made outside its App Store, given that the lowest end of the range in the Analysis Group study is 12.3%.
“How did you justify the other 15% you are charging?” she said.
Services to Developers
Apple provides a number of services to developers including discovery of apps, distribution, developer tools and platform technology, along with additional privacy, user trust and safety that aren’t comparable to other platforms, Oliver testified. He said Apple estimates the true low-end was 17%.
Analysis Group estimated what each of those categories was worth by comparing them to what is charged by platforms including Microsoft Corp., Alphabet Inc.’s Google, Etsy Inc. and Shopify Inc.
The Analysis Group study found the value of those services would amount to between 12.3% at the low end or 92% at the high end depending on factors like the size of the developer, Oliver said.
“And you are charging 27%,” Rogers interjected.
Oliver said Apple executives believe the effective rate of the commission is lower than that.
“That’s a big assumption,” the judge replied. “Your assumptions are just that — they are assumptions. There’s no data for it.”
“That’s not true,” Oliver said.
Schiller is expected to continue his testimony on May 22 when the hearing resumes.
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