Taking Thirty Percent of Everything Sold Through the Gate
App stores charge developers a large cut of what they sell, justified by the platform they provide and enforced by controlling the only way onto the device. The size of the cut is fiercely contested.
The Cut on Everything
Software sold on a mobile device typically goes through an app store controlled by the platform that makes the device operating system. The store takes a share of what developers sell through it, historically around thirty percent of purchases and subscriptions, a substantial cut of every transaction.
This cut is enormously lucrative for the platform, since it applies to a vast volume of app sales and in app purchases, and it costs the platform little, since distributing software is cheap once the store exists. The power to take this cut comes from controlling access to the users: on many devices, the app store is the only sanctioned way to install software, so developers who want to reach those users must go through the store and accept its terms.
The store's power is the gate. If the only way to reach the users runs through the store, developers must pay whatever the store charges to pass through it.
The Justification and the Dispute
The platform justifies the cut by the value it provides: the store, the payment processing, the security review, the distribution to a huge audience, and the development of the platform itself that created the opportunity.
| Platform provides | Developer disputes |
|---|---|
| Access to a huge user base | The cut far exceeds the cost |
| Payment and distribution | Cheaper alternatives exist |
| Security and review | Applied even where little value added |
| The platform itself | Locks out other stores and payments |
Developers, especially large ones, dispute that the cut reflects the value provided, arguing that it far exceeds the actual cost of distribution and payment processing, and that it is really a charge enabled by the platform control over access rather than a fair price for services. The dispute intensified as the app economy grew and the sums involved became enormous, with large developers arguing the cut is an unjustified tax enforced by the platform monopoly on access to its own users.
Why the Platform Can Charge It
The platform ability to take the cut rests on controlling the device and restricting how software gets onto it. If the app store is the only permitted way to install apps, and if in app purchases must go through the platform payment system, then developers cannot avoid the cut, since there is no other route to the users.
This control is the foundation of the power. A developer might prefer to sell directly or through an alternative store to avoid the cut, but if the platform does not allow it, the developer must use the official store and pay. The platform enforces this by not permitting alternative stores or payment methods, or by restricting them, ensuring that transactions flow through its system where it takes its cut. The whole model depends on this control, since without it developers would route around the cut, which is exactly what the disputes and regulatory challenges seek to force the platforms to allow.
The Regulatory and Legal Assault
The app store model faces intense legal and regulatory challenge around the world, from developers, competitors, and authorities arguing that the platforms control and their cut are anticompetitive. The challenges seek to force the platforms to allow alternative app stores, alternative payment methods, and to reduce or justify the cut.
Regulators and courts in various places have pushed the platforms to allow more competition, permitting developers to steer users to alternative payments or to use other stores, which threatens the control that enables the cut. The platforms resist, defending their control on grounds of security, privacy, and the integrity of their platforms, while critics see these as justifications for protecting a lucrative position. The outcome of these battles will reshape the economics, since forcing the platforms to allow alternatives would undermine the control that lets them take the cut, and the direction of travel has been toward more openness, gradually eroding the closed model that made the app store cut so powerful and so lucrative.
The Tiered Response
Under pressure, the platforms have made concessions, notably reducing the cut for smaller developers while maintaining it for the largest. Lowering the cut for small developers, who generate little revenue individually but are numerous and sympathetic, addresses much of the public criticism while preserving the high cut on the large developers who generate most of the revenue.
This tiered approach is a strategic response, since the largest developers, a small number, account for the bulk of the revenue the cut generates, so maintaining the full cut on them preserves most of the money while the reduced cut for small developers defuses criticism and regulatory pressure at little cost. The concessions reflect the platforms attempt to preserve the lucrative core of the model, the cut on the biggest sellers, while giving ground where the cost is low and the goodwill is high, navigating the pressure without surrendering the revenue that matters most.
The Bottom Line
App stores take a large cut, historically around thirty percent, of what developers sell through them, a lucrative charge enabled by controlling the only sanctioned way to reach users on the device. The platforms justify the cut by the value they provide, while developers dispute that it reflects the real cost, arguing it is a tax enforced by control over access. The model faces intense legal and regulatory assault seeking to force open alternative stores and payments, which would undermine the control that enables the cut, and the platforms have responded with tiered concessions that reduce the cut for small developers while preserving it on the large ones who generate most of the revenue.