Sun. Dec 5th, 2021

Apple Inc.’s

AAPL -0.50%

annual conference for software developers began Monday. It arrived with something unusual for the iPhone maker: app developers unhappy about the terms of its App Store.

The weeklong Worldwide Developers Conference, which began with a keynote speech by Chief Executive Officer

Tim Cook

streamed on the company’s website, is normally a pep rally for the company and its acolytes.

This year’s event comes on the heels of Apple’s courtroom fight with “Fortnite” maker Epic Games Inc., which spotlighted the increasingly thorny relations some developers have with a company that controls access to the billion-plus iPhone users world-wide.

Last month’s trial, in which Epic accused Apple of improper monopoly behavior, capped a year of rare dissension among app developers. The period has included public sparring with

Facebook Inc.

CEO

Mark Zuckerberg

and Mr. Cook’s defense before Congress of Apple’s behavior. 

Documents supplied by lawyers for Epic Games were brought to court in the fight with Apple last month in Oakland, Calif.



Photo:

Brittany Hosea-Small/Reuters

At the heart of developers’ gripes is money. Some dislike new privacy rules Apple recently enacted that disrupted the digital-ad industry. Others loathe the commission, as much as 30%, that Apple takes on digital revenue generated through the App Store.

Apple has denied allegations that it is a monopoly and defended its commission as in line with rivals’ and fair for the value it has created. Apple has said Epic wants to get around paying its fair share for using the App Store.

Apple’s hardware, software and services work so harmoniously that the relationship is often called a walled garden. The idea is central to recent antitrust scrutiny and the Epic vs. Apple case. WSJ’s Joanna Stern went to a real walled garden to explain it all. Photo illustration: Adele Morgan/The Wall Street Journal

“The future of Apple’s take rate with developers is the elephant in the room at this year’s WWDC,” said

Gene Munster,

managing partner at Loup Ventures, a venture-capital firm specializing in tech research.

On Monday, Apple is expected to reveal its latest operating systems, including iOS 15, which may have additional privacy features, changes to notifications and new features for its messaging system, which competes against Facebook’s messaging app WhatsApp.

After the Epic lawsuit was filed in August, Apple lowered its commission to 15% from 30% for apps with $1 million or less in revenue, a decision that Mr. Cook said was connected to concerns for small businesses.

In a courtroom sketch, attorneys confer with Judge Yvonne Gonzalez Rogers during the antitrust trial.



Photo:

Vicki Behringer/Reuters

A small share of apps generate more than $1 million. Most App Store apps are free and don’t pay any commission. Free games generate money primarily through in-app advertising, for which Apple doesn’t collect a sales cut.

The year of discontent began at last year’s WWDC, when Apple said it planned to introduce new privacy tools in its iOS 14 mobile operating system. Developers, including Facebook, complained that it would disrupt their ad businesses. In-app ads are often targeted at users based upon data about their activity online, which is collected by apps. Developers spent months puzzling out new strategies to deal with Apple’s privacy-policy changes, which now require users to agree to being tracked.

Mr. Cook has forcefully defended the change as a way to protect users’ privacy and help them to control how their data is used. But, in January, Mr. Zuckerberg said Apple had every incentive to “use their dominant platform position to interfere with how our apps and other apps work.”

Amid the complaints, Apple has tried to highlight what Mr. Cook has called an economic miracle unleashed by the App Store.

Apple recently released a report that estimated that billings and sales facilitated by its App Store rose 24% to $643 billion last year compared with 2019, fueled by quarantined users looking to avoid in-person interactions. Investors were rewarded last year with shares almost doubling in value.

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The App Store is a big part of Apple’s so-called services unit, the part of the company’s business Mr. Cook is betting on to generate growth after previous years of slowing iPhone sales.

Nick Rodelli,

head of CFRA Legal Edge, an investment-research firm, estimates that app-store commissions, along with money generated from making Google the default search engine on its devices, account for 40% of Apple’s pretax income.

Since launching the App Store in 2008, the number of available apps has grown to about 1.8 million from 500.

The tensions make this year’s developer conference all the more consequential. Apple spends more than $50 million putting on the event, according to court testimony by

Phil Schiller,

Apple’s executive overseeing the App Store. In a typical year, 6,000 developers would attend in person and tens of millions more would watch online, he said. This year’s 200-plus sessions are being held virtually and posted online.

During the Epic trial, U.S. District Judge

Yvonne Gonzalez Rogers

—who is expected to rule on the case in the months ahead—confronted Mr. Cook with survey data that, she said, indicated that 39% of developers were either very dissatisfied or somewhat dissatisfied with Apple’s distribution services.

“How is that acceptable?” she asked.

In testimony Mr. Cook said he was unfamiliar with the document but noted that Apple rejects about 40% of apps submitted to the store each week. (An Apple lawyer later pointed to a 2019 internal survey that said 19% of developers reported dissatisfaction.)

“There is definitely some friction in the system,” Mr. Cook said, adding that the tough standards ensure users have good experiences in the App Store.

The suggestion that 39% of developers are unhappy with Apple is a striking figure for those who have closely followed Apple. “Apple is used to having 99% satisfaction with their customer base,” Ben Bajarin, principal analyst for Creative Strategies Inc., said.

Epic vs. Apple

Related coverage of the dispute, selected by the editors

Write to Tim Higgins at [email protected]

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