Apple's EU fee for core technologies could bankrupt freemium app developers

Author: Julie Clover

App developers in the European Union who choose to accept Apple's new business terms must pay a “Core Technology Fee” or CTF of €0.50 for each app install exceeding one million installs. This model could potentially bankrupt developers of free or shareware apps.

Apple does not charge fees for the first million “first annual installs” per iOS account each year, but after that developers will start charging fees. A free or shareware app that goes “viral” and is downloaded more than a million times may be forced to pay astronomical amounts, o as evidenced by estimates provided by developer Steve Troughton-Smith.

Under Apple's new business terms, a free or shareware app that gets two million “first installs” annually will have to pay roughly $45,290 per month according to Apple's commission calculator, or more than half a million dollars per year even if no money is made.

This is an unsustainable model for free apps, and free apps need to generate at least €0.50 per user to break even with fees. A free app with thousands of installs from non-paying users could end up owing far more than what was paid for. Developers will likely have to charge an upfront fee to ensure their apps generate enough money to pay for the CTF, since offering an app as a free download can be risky if the number of downloads exceeds 1 million.

Freemium and Shareware Developers -free applications. however, may choose to adhere to the current Apple App Store business terms rather than opting for new terms. Nothing will change in this situation, and app developers will continue to pay Apple a commission of between 15 and 30 percent.

The €0.50 CTF applies to apps distributed both through the ‌App Store‌ and through alternative app stores if developers choose new terms of cooperation. In ‌App Store‌ developers are charged a €0.50 fee and must pay Apple a fee of between 10 and 17 percent. There are no commissions with an alternative app store. The size of the commission for existing and new conditions can be estimated using a special calculator that Apple has provided to developers.

Here is a list of available options:

• Current agreement with App Store. Developers pay Apple a commission ranging from 15 to 30 percent. Income of less than one million is 15 percent commission through the ‌App Store‌ Small Business Program, over $1 million results in a 30 percent fee. Subscriptions are subject to a 30 percent fee for the first year and a 15 percent fee for the second year and beyond.
• New terms, App Store distribution– The commission is reduced to 17 percent from 30 percent and to 10 percent from 15 percent. There is an additional 3 percent fee for using Apple's payment system, so the fee would be between 13 and 20 percent for a developer who opts in to the new rules and uses in-app purchases. The 3 percent fee does not apply to developers using alternative payment systems. Developers must also pay €0.50 per app install per user every year after 1 million app installs.
• New terms, alternative app store distribution – no fee, but developers must pay 0.50 euros. for installing an app per user annually after 1 million app installs.

According to Apple, the CTF applies to the first annual install, which is the first time an EU account installs an app in a 12-month period. After your first annual installation, you can install the app for free any number of times using the same account within the next 12 months.

Apple waives the fee for non-profit organizations, accredited educational institutions, and government agencies. organizations that are allowed fee waivers.

Apple's core technology fees can also be prohibitive for apps like Spotify, which have millions of users. An application whose sales in the ‌App Store‌ amount to 10 million US dollars. with 10 million “first installs” (price 0.99), Apple will have to pay more than 500 thousand dollars per month.

Under the new App Store fee structure for Europe, if you earn $10 million in sales, Apple's share is $6.2 million per year. Assuming you have no operating expenses and no payroll, your profit would be:
$2 million after taxes – or 20% of your sales. I will never launch an app in Europe. pic.twitter.com/MUCxVHcHOo — Nikita Bier (@nikitabier) January 25, 2024

Changes to the EU app ecosystem are included in iOS 17.4, and developers who opt for Apple's new system will have to start paying fees starting in March when the update arrives. for the public.

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