Apple Agrees To Change App Store To Settle Antitrust Lawsuit; App Store Profits Could Plummet

Apple Inc. AAPL has been battling an antitrust lawsuit in California federal court since 2019. However, the company has now agreed to change App Store policy to allow developers more freedom in exchange for ending the suit. 

What Happened: Apple has long been criticized for its App Store, as opponents claim that the App Store monopolizes the app development market. Developers can only sell applications by meeting requirements set forth by Apple to gain a listing on the App Store. 

As a result of this sentiment, a class of almost 70,000 app developers brought a lawsuit against Apple in 2019. The case sought relief for the claims that Apple has made app distribution "supracompetitive" by charging developers $99 annual fees and 30% commissions.

To resolve these claims, after almost two years of litigation, Apple has agreed to change seven aspects of the App Store to help smaller developers succeed in the marketplace. 

A major change includes allowing developers to ​​"use communications, such as email, to share information about payment methods outside of their iOS App." Additionally, developers will now be allowed to "expand the price points developers can offer for subscriptions, in-app purchases, and paid apps," and Apple will be creating a "new fund to assist qualifying US developers."

In addition to these changes, Apple must also pay $100 million to the affected developers. The lawsuit's payment structure allows developers to receive anywhere from $250 to $30,000 individually. 

Why It's Important: The App Store currently hosts 4 million apps and produces an average of $64 billion in annual sales. These new changes would allow developers to seek payment from users independent of the App Store. Potentially, Apple would no longer receive a cut of some transactions. 

Additionally, part of the agreement asserts that Apple will continue to use a "Small Business Program." This program allows developers who earn less than $1 million a year to pay only 15% in commission instead of the usual 30%. This program will continue for at least three years, and according to a SensorTower report, almost 98% of all developers will qualify. 

However, more practically, this new set of policies will not drastically change the App Store. Developers can now share information about payment methods that Apple cannot profit from, but most consumers will find it easier to continue purchasing through the app store. 

Additionally, although 98% of all developers qualify for a reduction in their commission rate, these developers only make up 5% of the App Stores' total revenue. Apple's concession of making these changes is more symbolic of the growing criticism towards Apple's App Store and other Big Tech companies for practices that could be considered monopolistic.