Subscriptions and the Customer Relationship in the iOS App Store

15 Jun 2021

In addition to locking in fees as high as 30% of an app’s revenues, Apple owns “the customer relationship between all iOS users and each app they choose to use.”

Analysis of courtroom arguments in the Epic Games v. Apple case focused mainly on the fees of up to 30% taken by Apple from developers. Pricing power is one characteristic of a monopoly, but another important factor influencing a company’s ability to compete is ownership of the relationship with its customers.

As Marco Arment, one of the best known indpendent app developers for the iOS platform, pointed out in a recent blog post -

Apple further extends the value argument, and defends their justification for forced commissions, by claiming responsibility for and ownership of the customer relationship between all iOS users and each app they choose to use.

The customer relationship is central to all types of economic transactions, but it’s even more important for subscription commerce which introduces a time component into the mix. To give a couple examples of the “time value” of subscriptions:

• a subscriber expects to be able to customize a service as its needs change.
• a service provider benefits from a more predictable revenue stream and opportunities to “upsell” additional services.

So when Apple controls the customer relationship and all data associated with a subscription, it again raises the question of what exactly one is subscribing to - the product experience or the means of delivering the experience.

Apple’s actions demonstrate that it sees the iOS platform as the primary deliverer of customer value. Arment takes the opposite position:

But in the common case — and for most app installations, the much more common case — of searching for a specific app by name or following a link or ad based on its developer’s own marketing or reputation, Apple has served no meaningful role in the customer acquisition and “deserves” nothing more from the transaction than what a CDN and commodity credit-card processor would charge.

It isn’t the App Store that has enabled all of the commerce on iOS — it’s the entire world of computing and modern society, created by a symbiotic ecosystem in which Apple played one part alongside many others. The world was already moving in this direction, and had Apple not played its part, someone else would’ve. The App Store is merely one platform’s forced distribution gateway, “facilitating” the commerce no more and no less than a web browser, an ISP or cellular carrier, a server-hosting company, or a credit-card processor.

It will be fascinating to see which perspective Judge Gonzalez Rogers leans toward in her ruling expected in the coming months.