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App Store Small Business Program Will Reduce Commission to 15 Percent for Developers Earning up to $1 Million Per Year

Apple, announcing the new App Store Small Business Program:

While the comprehensive details will be released in early December, the essentials of the program’s participation criteria are easy and streamlined:

  • Existing developers who made up to $1 million in 2020 for all of their apps, as well as developers new to the App Store, can qualify for the program and the reduced commission.

  • If a participating developer surpasses the $1 million threshold, the standard commission rate will apply for the remainder of the year.

  • If a developer’s business falls below the $1 million threshold in a future calendar year, they can requalify for the 15 percent commission the year after.

The App Store’s standard commission rate of 30 percent remains in place for apps selling digital goods and services and making more than $1 million in proceeds, defined as a developer’s post-commission earnings.

This isn’t going to make everyone happy, but it’s a good change for everyone involved. But with the structure Apple has announced, there are some counterintuitive incentives for developers whose earnings would fall right around the $1M threshold.

Let’s say a new developer enters the program (and thus qualifies for the 15 percent commission) and their apps are on pace to generate $1.2M in sales. At 15 percent, $1.2M in revenue would generate $1.02M in earnings — putting them over the threshold, so their entire earnings the next year would face a 30 percent commission. If their sales remain flat the next year, the same $1.2M in revenue would earn them only $840K at 30 percent. They’d have to generate $1.5M in revenue to earn the same profit that $1.2M in sales brought them the year before. Basically, if the end of the year draws near and a developer in the Small Business Program has revenue approaching $1.2M, they’re incentivized to pull their apps or reduce their prices to keep from going over the threshold.

These odd incentives could be eliminated if Apple applied the commission more like marginal tax rates, where you never lose money by earning more income. I would suggest tweaking these rules so that each year, developers who qualify for the program would get the 15 percent commission until they reach $1M in revenue, then get charged 30 percent for sales over that threshold. Let developers stay in the Small Business Program even as their sales grow.

We won’t know the details until December, but I think this system where developers need to apply and get approved to enter the program is just about a vetting process to prevent fraud (e.g. a developer with 10 apps setting up 10 different shell companies to try to get them all commissioned at the 85/15 split).

Wednesday, 18 November 2020