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Apple Tweaks EU Core Technology Fee to Avoid Bankrupting Unexpectedly Viral Apps

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Apple today announced that it is tweaking the terms of the 0.50 euro Core Technology Fee (CTF) that apps distributed using the new EU business terms must pay, introducing a solution that would keep small apps that go viral from being bankrupt.

App Store vs EU Feature 2
First, independent and small developers who earn no revenue at all will not have to pay the CTF. Students, hobbyists, and freeware app developers who distribute free apps and earn no money will not be charged the fee. Developers will need to declare their non-commercial status on an annual basis, and to maintain this status, developers must have no revenue in or out of the App Store for their app product.

Second, to address fears of the CTF causing outrageous fees for an app that suddenly goes viral, Apple has implemented a three year on-ramping process for small developers. The three year period begins when a developer agrees to the new ‌App Store‌ business terms, and during this time, if an app goes viral and exceeds the one million annual install threshold that triggers the CTF, the CTF won’t be charged if the developer earns less than 10 million euros in global business revenue, and the fee is reduced after that.

  • Under 10 million euros: No CTF during the three year period.
  • Between 10 million and 50 million euros: CTF must be paid, but it is capped at one million euros per year for the three year period.
  • Beyond 50 million euros: Benefit is no longer available, and the full CTF has to be paid.
  • After three years: Developers will pay for each first annual install after the initial one million first annual installs per year.

Note that this ramp up period is only available to small developers who have not previously exceeded one million first annual installs, and it is calculated based on global business revenue rather than just ‌App Store‌ revenue.

Apple says that 99 percent of developers will not be subject to the CTF to begin with, but the new ramp up period will go further to make sure that small developers who get a breakout hit will have time to scale their businesses before having to pay fees.

Back in March, developer Riley Testut spoke with Apple officials at a workshop on the Digital Markets Act, and he asked what would happen if a young developer had an app go viral and unwittingly racked up millions in fees. Testut asked the question because when he was a high school student, he released GBA4iOS outside of the ‌App Store‌. It was unexpectedly downloaded more than 10 million times, and that would have bankrupted him had he been subject to the Core Technology Fee.

In response, Apple VP of regulatory law Kyle Andeers said that Apple was working on a solution because the company is not trying to stifle innovation. Apple believes that a free app going viral and being subject to exorbitant fees will be a rare occurrence, but the changes will keep that from happening. The CTF update will also be a welcome change for those who want to release entirely free apps outside of the ‌App Store‌.

The CTF is only applicable to apps that have opted in to the new ‌App Store‌ business terms in the European Union. Apps in the EU are now able to be distributed through alternative app stores and developer websites without having to rely on the ‌App Store‌.

Apple has more information about the new changes to the CTF on its updated CTF support page.

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Apple Working on Solution for EU Core Technology Fee Possibly Bankrupting Apps That Go Unexpectedly Viral

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Since Apple announced plans for the 0.50 euro Core Technology Fee that apps distributed using the new EU App Store business terms must pay, there have been ongoing concerns about what that fee might mean for a developer that suddenly has a free app go viral.

App Store vs EU Feature 2
Apple’s VP of regulatory law Kyle Andeers today met with developers during a workshop on Apple’s Digital Markets Act compliance. iOS developer Riley Testut, best known for Game Boy Advance emulator GBA4iOS, asked what Apple would do if a young developer unwittingly racked up millions in fees.

Testut explained that when he was younger, that exact situation happened to him. Back in 2014 as an 18-year-old high school student, he released GBA4iOS outside of the ‌App Store‌ using an enterprise certificate. The app was unexpectedly downloaded more than 10 million times, and under Apple’s new rules with Core Technology Fee, Testut said that would have cost $5 million euros, bankrupting his family. He asked whether Apple would actually collect that fee in a similar situation, charging the high price even though it could financially ruin a family.

In response, Andeers said that Apple is working on figuring out a solution, but has not done so yet. He said Apple does not want to stifle innovation and wants to figure out how to keep young app makers and their parents from feeling scared to release an app. Andeers told Testut to “stay tuned” for an answer.

What we are trying to do is tear apart a model that has been integrated for 15 years. And so for 15 years, the way we’ve monetized everything was through the commission. It covered everything from technology to distribution to payment processing, and the beauty of that model is that it allowed developers to take risks. Apple only got paid if the developer got paid, and that was an incredible engine for innovation over the last 15 years. We’ve seen it go from 500 apps to more than 1.5 million.

To your point, we’ve seen kids everywhere from 8-year-olds, 9-year-olds, 10-year-olds, to teenagers come up with some amazing applications and it’s been one of the great success stories of the App Store. In terms of the Core Technology Fee and our business model, we had to change. The mandates of the DMA forced us to tear apart what we had built and price each component individually. And so we now have a fee associated with technology, tools, and services, we now have a fee associated with distribution and the services we provide through the App Store, and then we have a separate fee for payment processing if a developer wants to use it.

To your point – what is the impact on the dreamer, the kid who is just getting started. It could be a kid, it could be an adult, it could be a grandparent. We want to continue to encourage those sorts of developers. We build a store based on individual entrepreneurs, not so much catering to large corporate interests. And so we really wanted to figure out how do we solve for that.

We haven’t figured out that solution here. I fully appreciate that. We looked at the data. We didn’t see many examples of where you had that viral app or an app just took off that incurred huge costs. That said, I don’t care what the data said. We don’t care what the data said. We want people to continue to feel… and not be scared… some parents… hey, I’ve got four kids who play around with this stuff. I don’t have five million euros to pay. This is something we need to figure out, and it is something we’re working on. So I would say on that one, stay tuned.

It is not clear when Apple might come up with a solution or what that solution might be, but it sounds like the company might soon have some kind of option for these rare fringe cases when an app goes unexpectedly viral.

The 0.50 euro Core Technology Fee (CTF) that Apple is charging applies to all apps created under Apple’s new business terms, both those distributed in the ‌App Store‌ and those distributed outside of the ‌App Store‌ in the European Union. The CTF must be paid for every “first” app install over one million installs.

A free app that is distributed outside of the ‌App Store‌ and downloaded over a million times will owe 0.50 euros for every subsequent “first” install, aka the first time a customer downloads an app on a device each year. The fee is incurred whether or not an app charges, creating a situation where an app developer could owe Apple money without ever making a dime.

As it stands, the CTF is a major unknown for any kind of freemium or free app built under the new business terms that might go viral, effectively making it very risky to develop a free or freemium app outside of the ‌App Store‌. A free or freemium app that gets two million annual “first installs” would need to pay an estimated $45,290 in fees per month, or more than half a million dollars per year, even with no money earned. That’s not a sustainable model for free apps, and freemium apps would need to earn at least 0.50 euros per user to break even.

App developers are able to continue to use Apple’s current ‌App Store‌ business terms instead of adopting the new terms, paying just 15 to 30 percent commission to Apple with no change. That prevents distribution outside of the ‌App Store‌, and it prevents developers from using third-party alternative payment solutions in the ‌App Store‌. Adopting any of the new features that Apple has implemented because of the Digital Markets Act requires opting in to the updated business terms.

Apple has been tweaking the app ecosystem rules that it introduced in the European Union based on developer feedback. Developers can now opt back in to the current App Store rules after trying out the new rules, though this is only available one time. Apple also recently did away with an app marketplace restriction that required alternative marketplaces to offer apps from any third-party developer that wanted to participate.

Third-party app stores are now able to offer apps only from their own catalog, and developers will soon be able to distribute apps directly from their websites as long as they meet Apple’s requirements. Note that all of these changes are limited to the European Union, and the ‌App Store‌ is operating as before in the United States and other countries.

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