30% of Distribution for App Stores

  • December 10, 2018
  • Scott
  • 0 Comments

Fred Wilson makes the case that the 30% “tax” (it’s not a tax, a tax is a government imposed fee) on the Apple Store or Google Play store is exorbitant compared to transaction fees on payments (3-5% on credit cards, etc.).

It makes for a powerful argument. But subscriptions have been lowered to 15%, first of all. Secondly, what Apple and Google are charging for is distribution, rather than payment transaction fees (Iikely Apple and Google will actually pay out some percentage for the transaction fees, but less than 3% of course).  Distribution means, presenting products in a storefront, managing reviews and shelf space (who shows up where), and lending some of the storefront’s credibility to the safety and surety of the performance of the product.

In traditional distribution channels (physical stores), a seller of goods would expect a keystone markup – meaning that the store will charge twice the price they pay. Put the other way around, those stores were charging a 50% fee to distribute your product.

Moreover, if app developers had to do all the distribution themselves, they would have to spend a lot of money on awareness to draw traffic to their own in-house distribution – mostly revolving around gaming Google search results, most likely, along with some other forms of advertising.  Because these apps wouldn’t sit in physical stores…

I suspect these fees will come down over time. Apple used to charge $79 for it’s productivity apps, then slashed the price to $29… and then to zero.  Apple has a history of (eventually) lowering prices on the things that make their products more attractive.  But let’s keep in mind that the 30% on paid apps also subsidizes the free cost of distributing free apps…

 

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