You can’t spell Apple without “app”.
All kidding aside, with the uncertainty surrounding the tech juggernaut’s app store business model, there may be some uncertainty about what happens to its services revenue.
And it is the service sector, with all its moving parts, that will determine the company’s long-term fortunes.
We got a glimpse of the importance of this position in the company’s latest earnings report at the end of the month.
See: Apple Services, Wearables and 5G Devices Drive Record Quarter That Defied Supply Chain Issues
App Store Economy
The App Store has paid more than $260 billion to developers selling digital goods and services through its platform, with 2021 setting its own new record.
Apple’s services ecosystem grew 24% to $19.5 billion in revenue last quarter, which in turn accounts for 15.7% of consolidated revenue. We note that this is more than the 14.2% increase observed last year. It is therefore evident that services, on the whole, are gaining ground. In slightly more granular detail, the segment contributed $14.2 billion to gross margins, more than a quarter of gross profit, compared to just over 24% last year. So it’s obvious that relatively high-margin services can do a lot to improve operating margins.
But as reported this week, the Senate Judiciary Committee passed a technology competition bill that targets the Google and Apple app stores and the restrictions they place on developers. Among the changes, these companies — and in general, companies that have app stores with more than 50 million users — would be prevented from requiring developers to use companies’ payment systems for their products and services. are delivered to end users.
We’ve seen at least a few changes here, where the company has lowered the rates for the company’s Dutch App Store payments, lowering the commission to 27% from the previous 30%. The move follows an order last month from the Dutch Authority for Consumers and Markets. There are now three choices for payments: through Apple’s own in-app purchase system, if developers choose they can use a third-party payment system within the app, or they can include an in-app link. app that sends users to the developer’s website, where they can complete their purchases.
Read also: Apple lowers rates for Dutch App Store payments
Here in the US, of course, there’s always controversy over whether developers should use the company’s integrated payment systems.
Epic Games, as widely reported, appealed a 2021 ruling that Apple’s App Store rules and restrictions did not violate antitrust law.
See also: Epic Games launches new appeal in case against Apple
As Karen Webster wrote long before today’s legal troubles, before the App Store became a focal point of case law, “consumers don’t (and won’t) choose apps based on the operating systems that enable them, but rather the use cases they support – and the many connected devices that power them.And that can make it difficult to keep consumers in the Apple ecosystem (especially the payments component), where services are an increasingly critical component.
Read more: Why Me-Too Services Can’t Save Apple