Why Europe’s efforts to open up the iPhone won’t hurt Apple too much | Popgen Tech


The EU's Digital Markets Act challenges Apple's revenue

When reporters or analysts ask appeal On a thorny, contentious overseas issue facing the iPhone maker, CEO Tim Cook often says that Apple follows the law in every country where it operates.

Now Apple is reportedly working to pursue a law that could force major changes to the iPhone and disrupt Apple’s lucrative app distribution model.

Apple is developing software to comply with new European Union requirements scheduled to take effect in 2024, according to Bloomberg News. Nothing is final, but Apple is considering changes, including allowing third-party browser engines, allowing wallet apps to access the phone’s NFC chip and switching the charging port to USB-C from the company’s own Lightning connection, according to the report.

These changes will address long-standing consumer complaints and will give third-party apps — including mobile wallets like PayPal‘s Venmo and mobile browsers like Google Chrome – a better chance to compete against Apple’s built-in apps. Changing the USB-C charger will mean most people can pack one charger for their phone and laptop.

But the biggest reported change is that Apple is working to allow direct downloads, or “sideloading,” of apps from the web, including potentially third-party app stores, on iPhones.

Currently, the iPhone’s App Store is the only way to download software on iPhones.

At first glance, it appears to address the biggest antitrust complaint Apple has faced in the past decade. Apple makes a huge amount of profit from its App Store, taking a cut of up to 30% of digital sales made by any app it distributes.

Many companies, including Coin baseepic games, fit in, Meta, Microsoft, Spotify and Twitter, grumbled about Apple’s fees and the fact that Apple can delay updates or remove an app for violations of App Store policy. Match and Spotify shares jumped on the Tuesday report.

But developers should wait to check the fine print in an official announcement before celebrating.

For starters, the changes could only take effect in Europe, according to Bloomberg News.

It’s not a small market, but Europeans spend less on iPhone apps than Americans. Of the estimated $85 billion the Apple App Store has earned so far this year, spending on iOS apps in the EU has accounted for about $6 billion, according to an estimate by Data.ai, a firm that tracks app downloads and spending. According to the same estimate, the US store was responsible for about $29 billion.

In the highly unlikely worst-case scenario for Apple, if alternative app stores in Europe result in a total loss of App Store sales in the region, it will only hurt Apple’s services business by about 4%, its total revenue by about 1%, and its earnings per share by 2.5%, according to a Morgan Stanley estimate published on Wednesday.

Apple reported $394 billion in total sales, with $78 billion coming from services, in its 2022 fiscal year, which ended in September.

The US has proposed similar legislation, the Open App Markets Act, which is currently being debated in Congress.

How Apple could still make money from apps

Even if the EU law forces Apple to break the App Store’s hold on distribution, the company can still find a way to take fees from apps distributed by other means.

In a hearing with Epic Games last year over App Store policies, Apple representatives argued that App Store fees pay for intellectual property — the software tools developers use to make iPhone apps — and not just distribution. Applications distributed over the web will presumably still use Apple’s programming interfaces.

Apple has also argued that the App Store is important for customer security, because software that Apple has not vetted can steal personal data or payment information. So if Apple does open up the iPhone to third-party apps or app stores, there are likely security requirements for developers.

For example, Apple may require developers who want to distribute apps outside the App Store to apply for apps to gain access to the specific programming interfaces that enable them, or to certify that they meet certain security requirements. It may also require those app makers to display a warning popup if their apps are not distributed by Apple.

Apple CEO Tim Cook speaks during Apple’s annual Worldwide Developers Conference in San Jose, California, June 6, 2022.

Peter Dasilva | Reuters

Apple’s actions in South Korea provide an instructive example. Earlier this year, a court ruling forced Apple to allow apps distributed through the App Store to bill their customers directly, instead of using Apple’s own payment system.

But Apple still found a way to collect fees there. Apple required apps that took advantage of the new policy to pay a 26% commission, only a slight discount from the standard 30%.

Apple did this by requiring app makers to provide a report in spreadsheet format detailing each in-app transaction during the month, then collecting a cut of those purchases. Apple reserves the right to audit developer books.

Apple was able to enforce its system because it still controlled the App Store for distribution, and developers had to agree to its terms of service to get any distribution at all. In this case, app makers had to apply to Apple for the “right” to enable their own payment processing, agreeing to the spreadsheet and billing system that Apple came up with. (South Korea is investigating Apple to see if its system violated its new law.)

Apple also required apps that took advantage of this policy to display a message saying “This app does not support the App Store’s private and secure payment system.”

If Apple uses similar tactics in Europe, it could lead European consumers to believe that the App Store is the safest and best place to get iPhone software. Or developers may conclude that pursuing alternatives is too much trouble.

“Apple’s customers have long prioritized the security, centralization and convenience that the App Store brings,” Morgan Stanley’s Erik Woodring wrote in a note Wednesday.

The details of how Apple will ultimately implement these changes will depend on how its lawyers interpret the Digital Markets Act. Apple also typically uses every single legal remedy available when it comes to challenges to its App Store model, including appeals, according to the Morgan Stanley note.

Apple declined to comment.


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