<p><img src="https://static3.businessinsider.com/image/58786cf9f10a9ac1348b7dcc/ap717124541149.jpg" border="0" alt="Tim Cook" data-mce-source="AP Photo/Richard Drew" data-mce-caption="Tim Cook"></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><p>Apple is well known for its attention to detail, right down to its fanatical insistence that its logo never be replicated by business partners in ways not approved by Apple. <a href="https://www.businessinsider.com/steve-jobs-apple-photos-2017-1">Steve Jobs</a> famously failed to extend the same courtesy to others, however. An Apple executive once explained to me how Jobs would fiddle with the brand guidelines and color schemes of other companies when he designed keynote presentations for Apple's big product-launch events. "He always ended up doing a white logo on a black background," the executive saidjust like Apple's partly bitten fruit. </p><p>The story stuck with me for years for its deeply telling lesson: If you want to do business with Apple you play by its rules. End of subject.</p><p>Yet today mighty Apple is facing more pushback than ever to its rules, and in what once would have been considered an unlikely corner of its empire. The scrape is over its App Store, the digital shop built onto a billion Apple devices where software developers, game makers, publishers, and the like sell their wares. The store is the foundation of Apple's $54 billion services business. And because a handful of sellers in that storenotably music streamer Spotify, gaming giant Epic, and a bevy of news and entertainment companiesare pissed off enough to challenge Apple's prices and policies, their gripes have painted a target on Apple's back for antitrust regulators at home and abroad.</p><p>Apple doesn't scare easily, and any serious hits to its business are in the future. But already there are faint signs the $2-trillion giant is a bit concerned. It should be because the fracas jeopardizes a golden-goose business that in the span of just a few years has gone from bit player supporting a pricey hardware business to an even higher-margin revenue stream representing a fifth of its salesall while the market for Apple's devices face the twin threats of commoditization and saturation.</p><p>The App Store typically takes a flat 30% slice of sales on digital products. Sellers have long grumbled about the cut and Apple's general high-handedness as a gatekeeper. But they play along for the unparalleled access to iPhone, iPad, and Apple Watch users. First Spotify and then Epic, maker of the hit game Fortnite, <a href="https://www.businessinsider.com/fortnite-epic-games-apple-lawsuit-explained-2020-8">objected publicly to Apple's commission</a>. Epic in particular wants to be able to offer iPhone customers its own store, in which it would charge lower prices. </p><p>When Epic tried this summer to<a href="https://www.businessinsider.com/epic-fortnite-ceo-2-am-apple-email-declaring-war-2020-8">encourage customers to pay outside the App Store</a>, Apple kicked Fortnite out. Epic suedthe trial is set for Maybut in the meantime Fortnite is effectively banned from iPhones. "It seems to me that Apple does whatever it thinks it can get away with," Tim Sweeney, Epic's CEO, told me this week. "Thirty percent is a bad deal that only exists because of a lack of existence of other stores." He calls Apple's commission a "tax,"cleverly likening Apple to the governmentand paints his company's willingness to suffer Apple's fury as <a href="https://www.businessinsider.com/epic-games-tim-sweeney-fight-with-apple-civil-rights-struggle-2020-11">an act of civil disobedience.</a></p><p><img src="https://static1.businessinsider.com/image/5f872497ea23a5001903d586-2400/GettyImages-1155583310.jpg" border="0" alt="Tim Sweeny, CEO of Epic Games" data-mce-source="Rachel Luna / Stringer" data-mce-caption="Tim Sweeny, CEO of Epic Games"></p><p>Fights about commissions are nothing new. In a 2013 blog post the venture capitalist Bill Gurley likened marketplace commissions to the "rake" a casino operator takes for hosting the game. A good casino, he argued, knows how to find the right balance. "A sustainable platform or marketplace is one where the value of being in the network clearly outshines the transactional costs charged for being in the network," he wrote. The subtext then was the 25% commission being charged to drivers by Uber, <a href="https://www.businessinsider.com/report-bill-gurley-to-leave-uber-board-2017-6">in which Gurley had invested</a>. Today, Uber has a "take rate," its portion of overall billings, of about 22% on rides and 13% on food deliveries. Etsy, the craft marketplace, charges sellers 5%, up from 3.5% a few years ago, but has an effective take rate of around 17% because of other upsold charges.</p><p>Once upon a time Apple thought a blanket 30% fee was low. After surveying what retailers charged software sellers, back when software was sold in boxes, it simply settled on what it saw as the low end of the range. What the store costs Apple never was much of a consideration. "I don't think Apple views it as, 'This is what's required to cover our costs,'" says Toni Sacconaghi, the Bernstein analyst and astute Apple watcher. "I think Apple views it as, 'We're giving you a platform to a billion devices, and that's pretty valuable, and therefore you should give us 30%.'"</p><p>Apple aimed for simplicity. But the digital world is messy, and the company started making exceptions. It allowed book sellers, for instance, to let users who bought books on their own sites read them on Apple devices, the so-called "reader rule." It declared that in the second year of a subscription purchase Apple's take would be 15%. This fall, after Epic filed its suit, Apple also <a href="https://www.businessinsider.com/apple-cuts-app-store-fees-smaller-developers-in-app-payments-2020-11">cut the commission in half for developers</a> whose annual App Store sales are less than $1 million. It was a shrewd move in that those developers, 98% of the total, account for about 5% of App Store revenue.</p><p>Whether or not the move hurt Apple, its antagonists smell blood. The Independent Book Publishers Association issued a statement on Dec. 2 calling for Apple to halve the e-book commission for its 3,600 members, 70% of whom have annual revenue of less than $100,000. Last week a company called Cydia, which ran an early, independent version of the App Store before Apple introduced its own, sued Apple, alleging anticompetitive behavior that all but destroyed the smaller company. </p><p>And just yesterday Apple suffered two more blows. Facebook, which has been <a href="https://www.businessinsider.com/facebook-apple-privacy-battle-ads-how-users-interact-with-tech-2020-12'r=kc-sub">feuding with Apple over upcoming privacy restrictions</a> that could cripple Facebook's mobile ad business, said it would help Epic make its antitrust argument. And the Coalition on App Fairness, an anti-Apple group founded by Epic, Spotify, Match and others, added to its membership a group of primarily news publishers called Digital Content Next. (Business Insider owner Axel Springer is a member.) Notable trade group members include Disney and Major League Baseball, important Apple partners.</p><p>Apple very likely may make additional concessions, but it also is readying its defense. It <a href="https://www.analysisgroup.com/globalassets/insights/publishing/apples_app_store_and_other_digital_marketplaces_a_comparison_of_commission_rates.pdf">commissioned a study</a> showing the many digital stores that charge comparable commissions. It argues that the vast majority of app developers in the App Store pay nothing at all, that it never has raised the commission, and that its expenses to operate the store are vastly greater than its opponents assume.</p><p><img src="https://static1.businessinsider.com/image/5f429d0942f43f001ddfe879-2400/AP20226783359251.jpg" border="0" alt="Tim Cook, Apple CEO" data-mce-source="AP Photo/Marcio Jose Sanchez" data-mce-caption="Apple CEO Tim Cook speaks during an announcement of new products at the Apple Worldwide Developers Conference in San Jose, California on June 4, 2018."></p><p>There was a time Apple wouldn't have fought so hard about the App Store. As recently as early 2016 services accounted for a mere 7% of sales, and their purpose was to sell iPhones and iPads. Today, the App Store and other services are a business unto themselves, accounting for 20% of sales.</p><p>There's one place, by the way, that Apple follows someone else's rules, and that is when it discloses risks to the Securities and Exchange Commission. Here, in the driest of language Apple has acknowledged being a bit worried. In 2018 and 2019 it warned in its year-end securities filing, using identical language each year, that if developers reduced their use of the App Store the company would have lower sales. This year it added a new sentence to its risk factors: "If the rate of the commission that the company retains on such sales is reduced, or if it is otherwise narrowed in scope or eliminated, the company's financial condition and operating results could be materially adversely affected."</p><p>The language isn't exciting. But the message is impossible to ignore. </p><p><em>Adam Lashinsky is a Business Insider contributor and former executive editor at Fortune Magazine, where he spent 19 years. He is the author of two books: <a href="https://www.amazon.com/Inside-Apple-Americas-Admired-Secretive-Company/dp/145551215X'tag=bisafetynet2-20" data-analytics-module="body_link" data-analytics-post-depth="100" data-uri="83ca71ee8964e80b75d41a51ad526ec6">"Inside Apple"</a> (about Apple) and <a href="https://www.amazon.com/Wild-Ride-Inside-Ubers-Domination/dp/0735211396'tag=bisafetynet2-20" data-analytics-module="body_link" data-analytics-post-depth="100" data-uri="642441059cfcc6b6134a530cabec2cf1">"Wild Ride"</a> (about Uber).</em></p><p><strong>SEE ALSO: <a href="https://www.businessinsider.com/the-shape-shifting-startup-tom-siebel-c3-ipo-2020-12" >Tom Siebel is crashing Silicon Valley's IPO party. But what exactly is he selling'</a></strong></p><p><a href="https://www.businessinsider.com/apple-my-way-or-highway-rules-under-threat-worst-time-2020-12#comments">Join the conversation about this story »</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/what-its-like-make-beer-with-picobrew-c-home-brew-2020-3">We tested a machine that brews beer at the push of a button</a></p>
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