While Europe’s Digital Markets Act (DMA) antitrust law forced Apple to allow developers to sell apps outside the company’s own App Store, there were a number of potential problems with the company’s terms and conditions – not least of which is that an unexpected viral hit could have bankrupted an indie developer.
Apple had already made a number of changes to its terms to reduce the risk, and has now added two more protections which should prevent that nightmare scenario …
The bankruptcy risk introduced by Apple’s changes
Apple originally offered developers in the EU the freedom to opt out of the App Store, but it came with some pretty crucial small-print. This included a ‘no backsies’ clause, which meant that if a developer opted out and then realized they were worse off, they didn’t have the power to change their mind.
Being worse off was a very real possibility thanks to another condition: a Core Technology Fee of €0.50 per install per app. The CTF only kicked in at a million installs in a year, but if a free app unexpectedly went viral then a hobbyist developer could face millions of Euros in fees without having a single cent in revenue.
Developers of ad-supported apps could also have found themselves in a situation where the fees they owed to Apple significantly exceeded their income. Suddenly a dream scenario – of an indie app taking off and being installed by millions of users – could turn into a nightmare.
AltStore creator Riley Testut directly raised this scenario with Apple during a public workshop hosted by Apple, pointing out that an app he created in high school would have bankrupted him if it happened today under these new terms.
So my question is if I was in high school today and I released the exact same app outside the App Store and I got the exact same download numbers, would Apple actually charge me and my family five million euros, knowing it would most likely financially ruin us?
Apple said it didn’t have a solution at the time, but it was something the company needed to figure out. It has now done this.
Apple introduces two new protections
Apple had previously announced a number of changes to its terms, including giving developers the option of returning to the App Store if that turned out to be better for them. It has now announced two new protections, which should eliminate the bankruptcy risk.
No fee for non-commercial developers
First, Apple will no longer charge the CTF in the case of non-commercial developers. So if a student or hobbyist developer creates a free app, and doesn’t generate any revenue as a result, then they won’t pay the CTF at all.
Apple has stressed that this only applies if the app generates no revenue at all, including anything earned outside of the app. For example, if an app is free but there is a subscription to use a related website, then the protection doesn’t apply.
It also applies to the developer, not the app, so a developer earning money from one app can’t claim the exemption for a separate non-commercial app.
Non-commercial developers will have to complete an annual declaration that they continue to generate no revenue.
Three-year ramp-up for fees
Second, to ensure that small developers have time to adjust to the launch of a commercially successful app, Apple has announced that there will be a ramp-up process for the first three years:
- Global revenue <€10M: no CTF
- Global revenue €10M-€50M: CTF capped at €1M
- Global revenue >€50M: normal CTF
This would protect against the case of an app which generates a lot of revenue, but little to no net profit. It would give developers enough time to spot the problem and adjust their business terms and cost structure to ensure that it is profitable – and would cover the CTF – by the time they start paying the fee.
Top comment by jimthing
It would give developers enough time to spot the problem and adjust their business terms and cost structure to ensure that it is profitable – and would cover the CTF – by the time they start paying the fee.
i.e. increase prices.
This protection applies provided that the app hasn’t previously crossed the one million installs threshold.
9to5Mac’s Take
We’ll await the reaction of the developer community, but Apple certainly appears to have come up with a solution which effectively addresses the problem.
Hobbyist developers generating no money will be completely safe, and any indie developer enjoying an unexpected viral hit with a commercial app will have time to ensure that their business model is sound, and can cover the cost of the CTF when it kicks in.
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