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Epic’s Lawsuit Reveals Apple Considered Cutting App Store Fees

Apple considered lowering the App Store fees once the store reached $1 billion in profitability.

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A top Apple executive has acknowledged the company had toyed with the idea of lowering the App Store fees on software and subscription sales as far back as a decade ago.

Surprise, Apple Did Consider Cutting App Store Fees After All

According to Epic’s opening slideshow showing internal emails between Apple’s top brass, that executive is none other than Phil Schiller who happens to manage the App Store. One of the emails reveals that Schiller himself floated the idea of cutting the App Store commission once the App Store hit $1 billion in profit.

From Schiller’s emails to Apple’s Eddy Cue, as reported by Bloomberg:

Do we think our 70/30 split will last forever? While I am a staunch supported of the 70/30 split and keeping it simple and consistent across out stores, I don’t think that 70/30 will last that unchanged forever. I think someday we will see enough challenge from another platform or web-based solutions to want to adjust our model (after Google gas rolled out a web in-app purchase model at 95/5).

Schiller was only right in that the App Store’s fee structure would become a point of contention in the future. He, however, failed to realize that the challenge would come from a games maker with an ambition to run its own App Store.

Shiller’s email continues:

If someday down the road we will be charing 70/30, then I think the question moves from “if” to “when” and “how”. I’m not suggesting we do anything differently today, only that whenever we make a change we do it from a position of strength rather than weakness. That we use any such change to our advantage if possible. And thinking about this long in advance can only help to look at an eventual change as an opportunity (with developers, press, customers, etc).

Then comes the proposal to cut the App Store fees once a profit threshold is reached:

Just as one thought, once we are making over $1 billion/year profit from the App Store, is that enough to then think about a model where we ratchet down from 70/30 to 75/25 or even 80/20 if we can maintain a $1 billion/yer run rate? I know this is controversial, I just tee it up as another way to look at the size of the business, what we want to achieve, and how we stay competitive.

An Epic-backed expert pegs the App Store profit at 78 percent, a figure Apple is disputing. Tim Cook claims Apple doesn’t have a separate profit and loss statement for the App Store. Epic Games, as you know, is dragging Apple to court not only over the App Store fee structure but also Apple’s rules that prohibit third-party app stores on the iPhone.

Related: What to Know Before Changing Your App Store Country

Epic would very much prefer if Apple allowed customers to download and install the Epic Games Store onto their iPhones. Furthermore, Epic is challenging Apple’s App Store rule requiring that all in-app payments use its tried and tested iTunes billing mechanism.

Phil Schiller Runs the App Store

Phil Schiller used to be Apple’s Senior Vice President of Worldwide Marketing for many years before becoming promoted to an Apple Fellow in August 2020. In this role, Schiller leads the App Store and manages the company’s public events, reporting directly to CEO Tim Cook.

Apple used to take 30 percent of all app and subscription sales going through the App Store, with 70 percent going straight to developers. The fee structure was updated in 2020 so that now developers who make less than $1 million in a calendar year are subject to a much lower 15 percent fee rather than 30 percent.

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