The iPhone app ecosystem is preparing for one of its most significant changes since its inception in 2008. Apple’s app store is entering a major transformation process with the European Union’s (EU) Digital Markets Act (DMA). This new law changes Apple’s App Store’s position as the sole distributor of iPhone apps in European Union member states and allows third-party app stores for iOS for the first time. This important change will be implemented in March with the iOS 17.4 update.
Users in the EU and using iOS 17.4 will be able to download alternative app stores directly from their respective websites. However, these app stores have to go through Apple’s approval process before they can be used on iPhones. Once downloaded, users will be able to download the applications they want from these application stores, even applications that violate App Store rules. Users will even be able to set an app store other than the App Store as the default on their devices.
Developers are free to use or not use Apple’s payment services and in-app purchases. An additional 3 percent transaction fee will apply to developers who want to use Apple’s existing in-app payment system. However, Apple still plans to maintain strict controls during the app distribution process. All apps must be “approved” by Apple, and distribution through third-party marketplaces will be managed by Apple’s systems. Developers will be able to distribute a single version of their apps across different app stores and will have to comply with some basic platform requirements.
Regarding the new business model, developers may pay no commission to Apple based on how they distribute their apps in the EU. Apple is making changes to fee structures for newly distributed apps both on and off the App Store. Developers can choose to use these new terms of business or stay with the current model and continue distributing through the App Store.
Under the new terms, applications distributed through the App Store and choosing to use an alternative payment system will pay a 17% commission on digital goods and services (instead of the previous 30%). This commission rate drops to 10% for apps that currently qualify for Apple’s discounted “small business” rate. An additional 3% fee will apply to developers who choose to use Apple’s payment processing system.
Additionally, Apple is opening up NFC, introducing alternative web browser engines, and starting to offer game streaming services globally. As announced by the European Commission last week, Apple will allow developers in the European Economic Area to offer NFC payments in third-party applications.
These changes could be of great interest to developers who are critical of Apple’s control over iOS app distribution. For example, Spotify, a long-time critic of Apple’s 30% commission rate, has announced plans to bring back in-app purchases to its iOS app in the EU once the DMA comes into force. However, it is unclear whether the company would be willing to continue paying Apple a 17% commission if it uses an alternative payment processor.
The DMA, passed in 2022, is seen as the EU’s strongest attempt to rein in the alleged anti-competitive practices of big tech companies. The EU designated Apple as a “gatekeeper” last September, listing its App Store, Safari browser and iOS operating system as “essential platform services” that must comply with the DMA’s rules.
Ultimately, it remains to be seen whether these changes will please Apple’s most vocal critics, such as Spotify and Epic Games. But after years of theoretical debates and court battles, we will learn at least how much importance users in the EU care about alternative app stores and payment methods, or whether they will stick to Apple’s own internal solutions.