Sunday is here, as is your Strategic Bites issue. We’re your nightlight of the business world. We help make it not so scary.

Today we’re talking about Apple’s chokehold on the app market. It’s a monopoly hiding in plain sight.

The EU, however, noticed. And decided to take action.

NOTE: We’re gonna do a follow-up on the Vision Pro strategy. Just be patient, friends.

Let’s get into it.

Apple: Owning the superhighway to innovation

Apple is one of the few companies that has mastered the fusion between hardware and software. Think about it: a beautifully designed products, paired with incredible design. Sounds simple enough, but it’s the reason why this company is a trillion dollar force.

Actually, that’s not the only reason why.

Apple is also a services monster. From iCloud to Arcade to App Store. Revenue generated from services has more than doubled in the last 5 years, and it accounts for ~25ish% of total revenue (graph below).

And that’s what we’re going to drill down on today: App Store fees.

Apple and App Store fees

Here’s a simple breakdown of how Apple’s App Store collects fees:

• App Store takes 30% commission on digital sales, 15% after 1 year.

• Small developers under $1M sales get 15% commission permanently.

• Physical product sales exempt from commission.

That’s every app in the App Store. Most of us don’t realize that Apple takes a 15%-30% cut of every subscription service attached to your iPhone/iPad.

Bonus Note: Why can you only download Apps via the App Store and not from an independent app market place? Apple says it’s because of safety issues and keeping your phone free of any virus that could be pushed onto your phone via an unvetted 3rd party.

EU Regulations Imposed on Apple

The EU passed a regulation stating users can download apps outside the App Store now. This is a law that only applies to Europe...right now.

Here’s a little breakdown of what Apple is doing to comply:

1. Apple will still be closely involved with any apps offered outside the App Store

2. Apple is still intending a take a fee from non-app store apps.

3. Fees will be 17% for the first year and fall to 10% after that

Fine. Gimme the Zinger now…

There are 2 big implications here for Apple’s future:

1. Apple operates like a tech company but commands the margins of a luxury retailer. Regulations like the decentralization of the App Store could potentially eat into these margins. It’ll be interesting to see what kind of modifications they make to the App Store operating model over time.
   

2. The domino of regulation: Apple’s been such a great investment over the past two decades because the 1-2 punch of an amazing brand and an amazing product means incredible sales and margins. We’re not exactly anti-regulation, but increased scrutiny and regulations will affect the way some of these high margin products/services operate, maybe even cut into those fat margins, especially when the U.S. starts taking action.

What AI Made This Week

Sick Fits by Ahmed

Harry Styles. Honestly, we aren’t the biggest fans of all his outfits. But the flared pants and high waisted looks? It looks cool again. He’s grown on us.

Have a great week!

Ahmed and Peter