Apple Adapts to European Regulations: Opens iPhone to Third-Party App Stores and Reduces Developer Fees

Apple Inc. has announced significant changes to its iPhone ecosystem, primarily in response to new European regulations. These alterations, which include opening up the iPhone to third-party app stores and reducing fees for developers, are set to commence in Europe.

The move comes as Apple gears up to align with the European Union’s Digital Markets Act (DMA), which is slated to take effect on March 7. This act aims to offer consumers more choices and provide app developers with alternative avenues to circumvent fees that have been a substantial revenue source for Apple. As a result, in a significant policy shift, Apple will permit iPhone users in Europe to access app stores other than its own and enable developers to use alternative payment systems. These changes could potentially help developers earn more while offering consumers lower prices.

However, Apple has expressed concerns that such a move might expose users to increased privacy and security risks, as venturing outside its proprietary system could heighten susceptibility to cyber threats. The company is taking these steps primarily to comply with the upcoming European regulations and plans to encapsulate all the changes in an upcoming iPhone software update, iOS 17.4, which will be released in the 27 European Union countries.

Phil Schiller, who oversees the Apple App Store, emphasized the company’s commitment to providing a secure experience for users, even as it navigates these new regulatory demands. He warned of “unavoidable increased privacy and security threats” as a result of these changes.

In Europe, the DMA will prohibit Apple from imposing its standard 15% to 30% commission on in-app transactions. Consequently, Apple is reducing its commission on in-app transactions to 10% to 17% for developers who choose to remain within its payment system. For transactions completed through alternative payment systems, Apple will not collect any commissions.

This approach contrasts with Apple’s compliance with a recent U.S. court ruling, which requires the company to allow iPhone apps to provide links to different payment options. For transactions completed outside Apple’s system in the U.S., the company plans to collect commissions ranging from 12% to 27%.

The adjustments in Europe also include a “core technology fee” for installing apps on the iPhone, applicable to alternative app stores that pass Apple’s review and authorization process. This move has drawn criticism from industry figures like Epic Games CEO Tim Sweeney, who called Apple’s revisions a form of “malicious compliance.”

The impact of these changes on Apple’s revenue remains uncertain, but investor response has been muted so far. Apple’s shares showed little fluctuation following the announcement.

Apple’s restructuring of its app commission model in Europe could potentially influence regulators and lawmakers in the U.S. and other major markets to advocate for similar reductions. Companies like Spotify have already expressed intentions to push for changes in markets outside Europe, citing consumer benefits from increased freedom.

In addition to modifying its app store in Europe, Apple will also facilitate easier switching to different default options besides its Safari browser, complying with the upcoming European regulations.