Two different mobile phones purchase members on Tencent Video and Netease Cloud Music at different prices. For example, Tencent Video buys monthly subscription members on Android phones for 26 yuan, but it becomes 30 yuan on iPhone; On Netease Cloud Music, there is also a difference of 4 yuan for members who have consecutively paid for the season.
This is not the result of big data killing, but the result of high Apple tax rate. Moreover, Chinese developers and consumers bear the highest Apple tax rate in the world - up to 30%.
The so-called Apple tax is that Apple users pay to download apps through the app store (usually the App Store), or purchase digital goods or services in the app. They need to pay the money to the Apple payment system similar to the cashier, and then Apple leaves a certain proportion of the fee according to each transaction, and then transfers the rest to the app developers. This ratio is the tax rate of Apple Tax.
In the App Store, for apps with an annual income of more than $1 million, Apple charges 30% of the share of digital content consumption within the app, while for small and medium-sized developers with an annual income of less than $1 million, the share is 15%. Apple adopts this general tax rate in China.
However, in major markets such as the United States, the European Union, Japan, South Korea and India, the tax rate of Apple tax is lower, and it is different from Apple's slightly loose policies in these markets - in China, Apple still completely prohibits users from downloading applications from third-party app stores or websites, and from trading or using third-party payments outside of applications.
Apple tax encounters resistance in the world
Many people can't imagine that the Apple tax originated from the App Store has changed from a derivative of Apple's pursuit of user experience to a destroyer of Apple's ecology.
Walter Isaacson, a well-known American biographer, once wrote the Biography of Steve Jobs. In his book Innovators: How a Group of Technology Maniacs and Genius Programmers Change the World, he wrote:
"At the very beginning of the introduction of Apple II computer, Steve Jobs firmly believed that Apple's hardware and operating system must be closely integrated. Jobs didn't want users to buy an Apple computer and run other companies' poor operating systems on it, nor did he want them to buy Apple's operating systems and install them on other companies' poor hardware.
It is true that Jobs is a perfectionist who likes to completely control the user experience, but this belief has changed its flavor in today's Cook era. It seems that Apple has only learned to control, but has not considered the user experience... Jobs shows an art, and now Apple shows only a technology, or poor technology. "
This kind of clumsiness is reflected in the fact that Apple has adopted a differentiated and opportunistic attitude in the face of the global wave of opposition to high Apple tax rates.
From 2020 to 2024, Apple and the famous American game developer Epic Games continued their litigation for four years.
Epic Games guides players to use Epic direct payment in the game Fortress Night. Epic provides players with two options: App Store payment or Epic direct payment. If you choose the latter, players can buy game props at a lower amount, and then Apple directly removed Fortress Night for violating the regulations. The two sides began to face each other in court.
The practices of Epic Games were won by the CEO Mr. Musk, CEO of X (Twitter), has repeatedly criticized the 30% Apple tax rate on X, and even threatened that "if Apple drops X, he will choose to build a mobile phone embedded with this program." You know, the U.S. federal corporate income tax rate is only 21%, 9 percentage points lower than the Apple tax rate.
In January this year, Apple modified the rules of the App Store in the United States to avoid possible antitrust risks in the future. After the modification, Apple allowed developers to use other payment systems, and reduced the proportion of Apple tax and commission in the United States from 30% to 27% (standard enterprises), and small enterprises from 15% to 12%.
This alternative Apple tax is also the main reason why Spotify, a streaming music company, chose to confront Apple. In March 2019, Spotify complained to the European Union that Apple used its monopoly position to restrict users from accessing other music streaming services, and objected to the 30% cut fee charged by Apple's App Store. In June 2020, the EU launched an antitrust investigation on Apple, mainly focusing on the commission policy of the App Store.
Spotify has even become the core force of the EU's decision to break the "monopoly" of App Store on iOS. In September 2023, the European Union launched the "Digital Market Act", in which it made clear that technology giants such as Apple, as "gatekeepers", could not use their rights to control core platform service companies to suppress competitors.
At the same time, after about four years of investigation, the EU finally determined that Apple's restrictions on other streaming music service providers constituted unfair trading conditions. Faced with the strong supervision of the European Union, Apple allowed companies to establish third-party app stores in the iOS system in the European Union, allowed developers to put their applications in third-party stores, and freely bypassed Apple's payment channels and opened core system functions such as Safari and NFC.
In March this year, Apple adjusted the Apple tax in the EU, reducing the original rates of 30% (standard enterprises) and 15% (small enterprises) to 17% (standard enterprises) and 10% (small enterprises).
In the same month, the EU's Digital Market Act came into effect, and this new regulation has great restrictions on Apple. The Digital Market Act clearly stipulates that once these giant companies violate the relevant requirements of the Act, they may face fines up to 10% of the company's global annual turnover, or up to 20% in the case of repeated violations. These provisions provide regulators with greater power to punish, to ensure that technology companies adhere to the principle of fair competition.
The same limited concessions of Apple have also been made in the markets of Japan, South Korea, India, the Netherlands and other countries. For example, in Japan, in order to reach a settlement with the Japan Fair Trade Commission on the five-year investigation, Apple revised the App Store Guidelines in September 2021 to remove the suspicion of its antitrust behavior. This revision provides out of app registration and subscription fees for "Reader" application developers worldwide.
But Apple has a strict definition of "reader": an app that provides prepaid content or content subscription for digital magazines, newspapers, books, audio, music and video. And these applications should have the official news subscription qualification granted by Apple.
It is fast and efficient for Apple to build barriers on the App Store, but the opening of the courtyard door is slow and limited. Just as they have a strict definition of the "reader" application that enjoys a 15% commission rate, the scenario of opening third-party downloads and off-site payments to reduce the commission rate is too strict. Moreover, reducing the commission rate is not a inclusive adjustment, but a measure aimed at the smallest possible range of specific groups.
Even with the changes made under the pressure of many companies and the EU, Apple is also full of "chicken thief" flavor: since March, Apple has opened a third-party app store for downloading within the EU, but at the same time, it also requires that applications downloaded more than 1 million times, and each download should pay a core technology fee of 0.5 euro per year. But for certain types of apps, such as social apps with low internal purchase consumption, the company pays Apple more than its share in the App Store when they are launched in third-party app stores. In response, more than 20 companies, including Spotify, Epic Games and 37signals, jointly wrote to the European Commission, accusing Apple of malicious compliance with the Act.
China is Apple's second largest national market in the world, contributing nearly a quarter of more than 20 million App Store developers. Apple still implements the most stringent developer restrictions and the highest Apple tax rate in the Chinese market, so Chinese consumers bear higher use costs.
Chinese developers and consumers are "pulled wool" by Apple
In fiscal year 2023, Apple's revenue was $338.3 billion, of which 22% was contributed by the service business. But what is more striking than the hardware business is that the gross profit rate of the service business is as high as 70.8%, almost twice the gross profit rate of the product.
The commission of App Store belongs to service business, but Apple has not disclosed the commission income. According to the statistics of the mobile application and mobile game information platform Sensor Tower, in 2023, Apple will receive 160.8 billion yuan of Apple tax revenue, with an average daily income of about 440 million yuan. Among them, the Chinese market contributed 48.2 billion yuan, about 50% of the US market, and almost twice of the EU market.
With the income of Apple tax in the Chinese market alone, Apple can surpass Bilibili and Weibo in the revenue list of Chinese Internet companies, and more than double the revenue of Bilibili in 2023. If we calculate the global Apple tax revenue, Apple will surpass Baidu and rank among the top ten Internet companies in China.
In the next five years from 2024, if the tax rate is maintained in the Chinese market, Apple will be able to earn 287.3 billion yuan of income only by drawing commissions from the App Store. According to the calculation of about 250 million iOS users in China, the per capita annual contribution to Apple is about 230 yuan.
If Apple reduces the proportion of commission in the App Store in the Chinese market from 30% to 26%, it will make 37.4 billion yuan of profits for Chinese developers and consumers in the next five years; If it is reduced from 30% to 17% according to the level of Apple in the EU market, it will make 121.7 billion yuan of profits for the Chinese market in the next five years.
According to a statistical data from the analysis group, in the Chinese market, more than 90% of Apple's App Store are large developers (with income of more than $1 million), who still need to comply with the 30% Apple tax rate of global general use, and the remaining less than 10% of small developers (with income of less than $1 million) need to pay 15% of their income as commission.
From the current situation, in the face of this huge market, Apple clearly has no plans to change its App Store policy in the Chinese market, and developers and consumers are still forced to bear high Apple taxes. But Chinese developers and consumers have gradually accumulated dissatisfaction with Apple.
In February 2021, Ms. Jin, an Apple user, sued Apple Inc and Apple Computer Trading (Shanghai) Co., Ltd. (hereinafter referred to as Apple Shanghai) for allegedly abusing their dominant position in the market, which was formally filed by the Shanghai Intellectual Property Court. The cause of the case was a monopoly dispute.
Ms. Jin, the plaintiff, believed that the price of several digital products purchased in the Apple system channel was higher than that in the Android channel, and only Apple Pay could be selected to pay for transactions. Based on this, Ms. Jin believes that Apple has abused its dominant position in the market, implemented compulsory tying (conditional trading), unfairly high prices, refused to trade and restricted transactions, and made huge profits in the Chinese market by harming the interests of consumers.
This case is similar to the first accusation against Apple's monopoly position filed by four overseas iPhone users in 2011 because of the high Apple tax. Four iPhone users, including Robert Pepper, believed that Apple used the monopoly position of the App Store to charge developers 30% of the commission, which led to the pressure of rising app prices being passed on to consumers. However, Apple responded that "users are not qualified to sue Apple, only developers can sue."
But in the face of Apple's absolute advantage, large developers have no resistance, let alone those small developers. Epic Games and Spotify are the most obvious examples. In China, even Internet giants such as byte hopping and Alibaba can only compromise on Apple tax.
In May 2019, Doctor Lilac, the Internet medical service platform, rejected the App update request because it was recognized by Apple that "there were in app purchases of functions, content or services to avoid IAP (In App Purchase, referring to in app purchases in the App Store), which violated relevant requirements". Even in 2018, Apple once recognized the charging model of clove doctors, but it could also take different measures under the same conditions in 2019.
Earlier, in April 2017, Apple was criticized for imposing a 30% Apple tax on the "reward" function of WeChat public accounts. This dispute led to the closure of the "reward" function of iOS version of WeChat for half a year. Finally, the two reached a settlement. WeChat also adjusted this function to "like the author", which ensured that the legitimate income of the creator would not be taken away by Apple.
But in the Chinese market, not all companies have the ability and capital to negotiate with Apple. Take knowledge payment software as an example. If a user uses an Apple phone to find an expert who pays for consulting on the App, the user will spend 100 yuan and the expert will earn 70 yuan. When a user uses an Android phone to spend the same 100 yuan, the expert will earn 99 yuan.
In addition, even after paying high Apple taxes, developers' applications are doomed to be suddenly taken off the shelves by Apple, and they can't get any explanation from Apple, so they jokingly claim that "Apple only collects money, no service." In August 2020, Apple removed more than 30000 applications from the shelves in China overnight. In the fourth quarter of 2021, more than 16000 applications in China were also taken off the shelves.
Because of Huawei's business recovery and the growth of competitors such as Xiaomi and Glory, Apple is facing unprecedented fierce competition in the Chinese market. According to the data of Counterpoint Research, Apple's iPhone sales in China fell 19% in the first quarter of this year, falling to the third place, the worst performance since 2020.
Looking back at Apple's financial report in the second quarter of fiscal year 2024 (the first quarter of 2024 in a natural year), the service sector grew against the trend, with revenue increasing 14.2% year on year, which is the fastest growing business and the second largest revenue source of Apple, accounting for 26% of total revenue. Apple needs growth in its service business to offset the decline in sales of products such as iPhones, but it should never continue to treat the Chinese market with discriminatory tax rates.
In the quarter, the revenue contributed by Greater China, including the Chinese market, to Apple fell by 8%. Some analysts believe that there is no sign that Apple will change the Apple tax collection strategy in the Chinese market. When product sales are challenged, they need the revenue of service business to keep growing. At present, they do not face the urgency of changing the Apple tax collection strategy in the Chinese market.
What many people don't know is that the price of those data lines that are suitable for Apple devices is higher than that of Android devices because Apple needs to collect membership fees, certification fees and commissions from manufacturers. Once each data line that passes Apple certification is sold, Apple will extract 20-25% of the commission from it.
The Daily Mail estimates that Apple earns about 500 million dollars from certified third-party data line manufacturers every year, and the cost of this revenue is ultimately passed on to consumers.
