Microsoft and Shopify abandon app store commission fees

July 20, 2021

Microsoft and Shopify abandon app store commission fees
Jonathan Bennett, Chief Commercial Officer

Jonathan Bennett

Chief Commercial Officer

Market entry for mobile developers is getting steadily easier after Microsoft dropped its fees for most of the apps being available in its Windows store. Multinational eCommerce platform provider Shopify quickly followed suit for apps on its App Store, indicating a new approach amongst storefront owners. They seem keen to expand beyond the traditional model and bring more developers, content and end-users onto their respective platforms.

The direction of app store commission fees has been heading in a generally downward trend over the last few months. Earlier this year, Apple and Google responded to developer concerns by reducing their fees from 30% to 15%, on the first US$1m of annual revenue that apps sold through their respective Apple Store or Google Play generate (read more in DOCOMO Digital VP of Partnerships Greg Sigel’s blog on the subject here).

Microsoft has gone one better by completely abandoning its 15% commission fees for most app developers, additionally allowing them to use their own payment systems on apps they sell through the Windows store.[i] However, the new rules don’t apply to games companies, which will continue to pay Microsoft a 12% cut of any sale or in-app payment, and all mobile game revenue must continue to be processed through Microsoft’s own payment platform.

Shopify announced it would charge zero commission on any app’s first US$1m of revenue from the 1st August 2021 though developers will need to pay a new one-off registration fee.[ii] Once an app breaks more than US$1m of turnover in any one twelve-month period, the fees revert to 15%, still a 5% reduction on Shopify’s previous charges. Earlier in June this year, Amazon too cuts its commission fees from 30% to 20% as part of its new Appstore Small Business Accelerator Program.[iii]

App revenue to surpass games revenue by 2025

Statista ranked Google Play as the world’s biggest App Store in terms of the number of apps it had available in the first quarter of 2021 (3.5m), ahead of the Apple App Store in second (2.2m). Microsoft was a distant third with 669,000 apps, followed by Amazon’s Appstore (461,000). Shopify – which specialises in apps designed to help merchants sell goods and services online, keep track of orders, customers and inventories and build and manage their eCommerce businesses – reportedly has just 6000 by comparison.

Microsoft, in particular, is very keen to grow its own app ecosystem, and the decision to drop commission fees entirely follows analyst forecasts, suggesting it could make more money out of charging a commission on generic apps than it does on mobile games in the future. Mobile games are currently the single most significant segment of the app market by revenue, which could change over the next four years.

Sensor Tower’s Mobile Market Forecast 2021-2025 report estimates that global consumer spending on gaming apps via Apple’s App Store hit US$48bn in 2021, double that of all other apps put together (US$24bn). Those numbers are expected to equalise by 2023, however (US$68bn vs US$67bn), and by 2025 other categories of iOS smartphone apps are forecast to generate significantly more turnover (US$107bn) than gaming apps (US$78bn).

It’s a different story on Google Play, however. Sensor Tower estimates that Android games generated US$32bn of turnover in 2020, more than four times more than that paid for all other apps combined (US$7bn). But Android games will continue to deliver the majority of Google Play revenue in 2025, predicted to land their developers US$60bn collectively, more than twice that produced by other apps (US$25bn).

Either way, non-gaming apps are expected to account for a higher proportion of revenue than they do currently, which is why Microsoft and others are doing their best to attract their developers onto their own storefronts rather than (or most likely alongside) those of Apple and Google.

Developers bring alternative billing arrangements into play

Allowing greater flexibility in how developers are allowed to charge consumers is regarded as another critical element in that strategy. It removes the control that the App Store owner exerts over the billing process. The market for mobile apps has low barriers to entry and has traditionally provided a hive of innovation precisely because it has attracted so many small businesses.

Allowing those developers to choose their own payment methods rather than those mandated by the app store gives them the ability to get a better deal elsewhere. It also presents them with an opportunity to sell directly to consumers or in partnerships with telcos and mobile network operators via carrier billing that would give them more reach into regions of the world where consumers don’t own credit/debit cards link to app store payment methods.

[i] Microsoft to let developers keep all their Windows app store revenue, The Guardian, 25th June 2021

[ii] The Most Flexible, Scalable, and High-Performing Shopify Ever: Major Platform Investments Unveiled at Unite 2021 Give Entrepreneurs Limitless Creative Power, Shopify, 29th June 2021

[iii] Amazon will reduce Appstore fees for smaller developers later this year, Endgadget, 17th June 2021

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