Apple updates App Distribution Terms in the European Union

Apple recently announced updates to its app distribution terms for developers in the European Union (EU). These changes address the Core Technology Fee (CTF) and the upcoming application of the Digital Markets Act (DMA) to iPadOS.

The CTF is a fee introduced by Apple for developers distributing apps through the App Store in the EU who choose to adopt the new, alternative business terms. These terms offer developers more flexibility, including the ability to distribute their apps through alternative app marketplaces and use third-party payment systems within their apps.

The CTF is designed to offset the cost of the development tools, technologies, and services Apple provides to developers on its platform. However, it only applies to developers who achieve significant scale, defined as exceeding one million first annual app installs in the EU.

Apple has introduced two new categories of developers who are exempt from the CTF:

• Non-commercial Developers: Developers with free apps that do not generate revenue of any kind (including advertising, in-app purchases, or physical/digital goods tied to the app) will not be subject to the CTF. This aims to support student developers, hobbyists, and non-profit organizations creating apps without a commercial intent.
• Small Businesses: Developers with global annual business revenue under €10 million who choose the alternative business terms will receive a three-year grace period. During this time, they won't be charged the CTF, even if their app surpasses the one million first annual install threshold. This aims to support small businesses as they grow their user base.

However, for small businesses exceeding €10 million but under €50 million in annual revenue within the three-year period, the CTF will apply after one million first annual installs, with a cap of €1 million per year.

Digital Markets Act and iPadOS

The European Commission recently classified iPadOS as a gatekeeper platform under the Digital Markets Act (DMA). This means Apple will need to extend the changes made to iOS app distribution in the EU (allowing alternative app marketplaces and payment systems) to iPadOS later in 2024.

Developers will have the choice to adopt the alternative business terms with these functionalities on iPadOS or remain under Apple's existing terms. Importantly, the CTF will also apply to iPadOS apps downloaded through the App Store, web distribution, or alternative marketplaces once the changes are implemented.

Impact on Developers

To minimize potential impact on developers' businesses, Apple has taken steps:

• Unique Installs Across Devices: If a user installs the same app on both iOS and iPadOS within a year, it will only count as one first annual install for the CTF calculation.
• Updated Fee Calculator: Apple's App Store Connect platform has been updated with revised app install reports to help developers estimate the potential impact of the CTF under the alternative terms for the EU.

Implications for marketers

These changes primarily impact developers distributing apps in the EU. However, marketers working with these developers should be aware of the following:

• Potential Cost Changes: Developers who reach significant scale in the EU may face the CTF, impacting their app development budgets.
• Alternative App Distribution Channels: The option for alternative app marketplaces may affect user acquisition strategies. Marketers may need to consider new channels for reaching EU audiences alongside the App Store.
• Payment System Flexibility: The ability to use third-party payment systems could influence in-app purchase strategies within the EU.

By understanding these updates, marketers can collaborate effectively with developers and adapt their strategies to comply with the evolving app distribution landscape in the EU.