Apple Adapts to EU Digital Markets Act with Developer Consultations and Q1 Earnings Success

Highlights

• Apple introduces developer consultations for EU Digital Markets Act compliance.
• Fiscal Q1 2024 earnings show robust performance with $119.58 billion revenue.
• EU contributes to 7% of Apple’s global App Store revenue amidst regulatory changes.
• Apple CEO discusses impacts of EU regulations and commitment to innovation.

Apple has initiated a groundbreaking shift in its operations to align with the European Union’s Digital Markets Act (DMA) antitrust legislation, marking a significant pivot in its approach to the App Store on iPhone.

Earlier it was reported that Apple would be forced to allow third-party downloads on its products.

Apple then said that it would charge additional fees from developers who offer downloads outside of the App Store.

Now reports have said that the company has introduced a provision allowing developers to request consultations regarding the impending changes.

This move is part of Apple’s broader efforts to adapt to regulatory demands, ensuring developers are well-informed and prepared for the upcoming adjustments in the EU.

All this comes amidst Apple claiming the EU contributes to about 7 percent of its total income while Apple relayed its Q1 2024 Fiscal year earnings.

Apple’s Response to EU’s DMA Legislation

As per reports, developers interested in exploring these new waters can now request online or in-person consultations.

These sessions, designed to last around 30 minutes, offer a direct line to Apple’s team for inquiries related to the changes affecting iOS, Safari, and the App Store in the European Union.

The Apple Developer website highlights the availability of these consultations, emphasising their role in addressing changes tied to alternative distribution on iOS, alternative payments in the App Store, and other related topics.

The in-person sessions are slated to take place at an Apple lab in Cork, Ireland.

However, Apple is still mum on whether it is going to remove the additional fees it will charge developers.

There has been massive outcry specifically around this move as developers believe it will stifle competition.

Apple CEO Tim Cook commented on how the EU regulations might affect the company’s revenue.

As per 9to5Mac, he had this to say “We announced a number of changes last week in Europe that would be in effect beginning in March, so the last month of the of the first calendar quarter of the second fiscal quarter.

Those are some of the things that we announced including alternate billing opportunities, alternate app stores, or marketplaces, if you will. We’re also opening NFC for new capabilities for banking and wallet apps.”

He continued, “If you think about what we’ve done over the years, we’ve really majored in privacy, security and usability. We’ve tried our best to get as close to the past, in terms of the things that are that people love about our ecosystem, as we can. But we’re going to fall short of providing the maximum amount that we can supply because we need to comply with the regulation.”

Apple Earnings Report Fiscal Year Q1 2024

Amid these regulatory adaptations, Apple announced its fiscal year 2024 Q1 earnings, revealing a revenue of $119.58 billion for the quarter, surpassing analysts’ expectations and highlighting a robust financial performance.

Apple CEO Tim Cook said “Today Apple is reporting revenue growth for the December quarter fueled by iPhone sales, and an all-time revenue record in Services. We are pleased to announce that our installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments.

And as customers begin to experience the incredible Apple Vision Pro tomorrow, we are as committed as ever to the pursuit of groundbreaking innovation — in line with our values and on behalf of our customers.”

Apple’s recent quarterly financial results surpassed expectations in several key areas, showcasing the company’s strong performance across its product lines:

• Earnings per share (EPS) reached $2.18, outperforming the anticipated $2.10.
• iPhone sales generated $69.70 billion in revenue, exceeding the forecast of $67.96 billion.
• Services segment brought in $23.12 billion, slightly below the expected $23.31 billion.
• Mac sales amounted to $7.78 billion, narrowly missing the predicted $7.80 billion.
• iPad revenue stood at $7.02 billion, falling short of the anticipated $7.31 billion.
• The Wearables, Home & Accessories category reported revenue of $11.95 billion, beating expectations of $11.39 billion.

Apple’s Revenue Share from the EU

During the earnings call, discussions around the App Store changes in the EU revealed that this segment accounts for approximately 7% of Apple’s global App Store revenue.

Despite the potential financial implications of the DMA compliance, Apple remains focused on maintaining the privacy, security, and usability that define its ecosystem.

It remains to be seen how the new DMA compliance issues affect Apple’s revenue in future quarters.

From Apple CFO Luca Maestri: “Our December quarter top-line performance combined with margin expansion drove an all-time record EPS of $2.18, up 16 percent from last year,” said Luca Maestri, Apple’s CFO.

“During the quarter, we generated nearly $40 billion of operating cash flow, and returned almost $27 billion to our shareholders. We are confident in our future, and continue to make significant investments across our business to support our long-term growth plans.”

Apple CEO Tim Cook told CNBC’s Steve Kovach that some of the company’s growth rates actually represent a “huge acceleration” from the previous quarter because of the way Apple’s corporate calendar works in this year’s December quarter.

That’s one week less than last year’s first fiscal quarter.

“It is important to note that last year, we had 14 weeks in the quarter. This year we had 13,” Cook said.

Apple Earning Table

FAQs

What changes is Apple making in response to the EU’s DMA legislation?

Apple is complying with the European Union’s Digital Markets Act by allowing third-party app downloads and offering developer consultations to navigate these changes effectively, ensuring a smooth transition for app distribution and payments in the EU.

How can developers learn about the new guidelines affecting the App Store in the EU?

Developers can request 30-minute online or in-person consultations with Apple’s team to discuss changes impacting iOS, Safari, and the App Store in the EU, including alternative distribution and payment methods.

What was Apple’s revenue in Fiscal Q1 2024, and how did it compare to expectations?

Apple reported a revenue of $119.58 billion in Fiscal Q1 2024, surpassing analyst expectations and indicating strong sales across iPhone, Services, and other product lines, despite slight shortfalls in Mac and iPad revenues.

How significant is the EU market to Apple’s App Store business?

The EU accounts for approximately 7% of Apple’s global App Store revenue. Despite the small percentage, the recent regulatory changes pose new challenges and opportunities for Apple in the European market.

Will Apple’s compliance with the DMA affect its financial performance?

While Apple CEO Tim Cook acknowledges the challenges posed by the DMA compliance, the company remains focused on preserving its ecosystem’s privacy, security, and usability. The full impact on financial performance remains to be seen in future quarters.

What is Apple’s new policy regarding third-party app stores?

Apple announced plans to allow third-party app stores in Europe, including a “Core Technology Fee” for apps sold outside its App Store and a €1,000,000 letter of credit requirement for opening an app store.

Why is Apple’s new policy being criticized?

Critics, including Spotify’s CEO, argue that Apple’s new policy imposes high financial burdens on developers, especially smaller ones, potentially stifling innovation and diversity in the app market.

What did Spotify’s CEO say about Apple’s new app store policy?

Spotify CEO Daniel Ek criticized Apple’s policy in a blog post, calling it “extortion” due to the combination of the per-install fee and restrictions on in-app payments.

How does Apple’s policy affect smaller app developers?

The requirement of a €1M letter of credit and per-install fees pose significant financial challenges for smaller developers, potentially excluding them from establishing their own app stores.

Are there potential legal implications for Apple’s policy?

Apple’s approach to DMA compliance is expected to lead to legal challenges, with accusations that the company is making it difficult and costly to leave its App Store.

App Store, Apple Music, and More Experiencing Outage .Details?

The App Store, Mac App Store, Apple Music, subscription purchases, and AppleCare on Device are all experiencing an outage, according to Apple’s System Status page.

Apple says that the services have been unavailable for some users since 6:30 p.m. Eastern Time.

Affected users may be unable to make purchases in the iTunes Store, Mac App Store, and App Store, and are also experiencing intermittent issues with Apple Music.
Update: Apple has fixed the outage.

Spotify CEO slams Apple’s App Store changes; Apple fires back. Details?

Ek said Apple’s reaction to the Digital Markets Act is “a masterclass in distortion.”

Under Apple’s new changes, apps with over one million downloads will need to pay a “core technology fee” for “each first annual install per year.” That puts an app like Spotify — which Ek said has more than 100 million downloads in the EU — in an “untenable situation” because it drastically increases the cost of acquiring new customers.

In a statement, Spotify described the fee as “extortion, plain and simple.” The company says the fee will likely hurt developers, potential start-ups, and those offering free apps who might not have the funds to pay Apple — especially if their app suddenly goes viral.

That means that even a multibillion-dollar company like Spotify will need to “stick with the status quo” to remain profitable, Ek said.

For its part, Apple said in a statement that it seeks to support developers, including Spotify, which it acknowledged as the world’s “most successful” music streaming app.

“The changes we’re sharing for apps in the European Union give developers choice — with new options to distribute iOS apps and process payments,” a spokesperson for Apple told Business Insider by email. “Every developer can choose to stay on the same terms in place today. And under the new terms, more than 99% of developers would pay the same or less to Apple.”

While Apple’s tight hold over the iOS ecosystem has helped it reap billions in revenue, it has also caused it to run afoul of regulators who believe its tactics stifle innovation and suppress new entrants. Ek, too, is a longtime critic of Apple’s tactics and has previously said the company has a ways to go before it becomes an “open and fair platform.”

Apple’s App Store change not only falls short of that ideal, but “mocks the spirit of the law and the lawmakers who wrote it,” Ek said.

Apple’s third-party app store announcements guarantee the company will end up in court. Details?

Apple has bought itself some time here for sure – in part, because what it has come up with is so complicated it will take regulators some time to digest all the details and run all the numbers.

But there seems little doubt that Apple is aiming to do everything it can to make leaving the App Store as difficult and expensive as possible.

Some tiny fraction of 1% of developers will be big enough to create their own ‘app marketplace,’ and developers who work on a freemium model could end up punished for their own success.

Apple’s third-party app store plan is a ‘shameless insult’ and ‘must not stand’, says Coalition for App Fairness.Details?

Full statement:

“Apple clearly has no intention to comply with the DMA. Apple is introducing new fees on direct downloads and payments they do nothing to process, which violates the law. This plan does not achieve the DMA’s goal to increase competition and fairness in the digital market – it is not fair, reasonable, nor non-discriminatory,” said Rick VanMeter, Executive Director of the Coalition for App Fairness.

“Apple’s proposal forces developers to choose between two anticompetitive and illegal options. Either stick with the terrible status quo or opt into a new convoluted set of terms that are bad for developers and consumers alike. This is yet another attempt to circumvent regulation, the likes of which we’ve seen in the United States, the Netherlands and South Korea. Apple’s ‘plan’ is a shameless insult to the European Commission and the millions of European consumers they represent – it must not stand and should be rejected by the Commission.”

Apple announced its plan to comply with the Digital Markets Act (DMA) in Europe yesterday which will allow third-party app stores. However, the Coalition for App Fairness believes Apple’s approach will be found illegal and says the iPhone maker’s plan is a “shameless insult to the European Commission and the millions of European consumers they represent.

iPad users will miss out on third-party app stores, browser engines, and more .Details?
Changes coming to the App Store are coming to all of Apple’s platforms, while changes to the iPhone are coming only to the iPhone, even if iOS shares a lot of the same codebase as iPadOS.

Here’s what that means in practice.

The ability to install third-party app marketplaces and download apps from third-party app marketplaces will be an option only on the iPhone.

The new prompt in Safari that asks users to pick a default browser engine is coming only to the iPhone.

Support for third-party browser engines is coming only to the iPhone.

The ability to set default NFC and wallet apps will only be available on the iPhone.
Changes to App Store policy to allow alternative payments and lower commissions affect the App Store across all Apple platforms.

Changes to the App Store guidelines to allow game streaming apps impact all of Apple’s platforms.

All of these changes are coming as part of iOS 17.4, which is currently available in developer beta testing.

What are the Changes to iOS in the E.U. which Apple has made ?

In the EU, Apple is making a number of changes to iOS to comply with the DMA.
For developers, those changes include new options for distributing apps. The coming changes to iOS in the EU include:

New options for distributing iOS apps from alternative app marketplaces — including new APIs and tools that enable developers to offer their iOS apps for download from alternative app marketplaces.

New framework and APIs for creating alternative app marketplaces — enabling marketplace developers to install apps and manage updates on behalf of other developers from their dedicated marketplace app.

New frameworks and APIs for alternative browser engines — enabling developers to use browser engines, other than WebKit, for browser apps and apps with in-app browsing experiences.

Interoperability request form — where developers can submit additional requests for interoperability with iPhone and iOS hardware and software features.

As announced by the European Commission, Apple is also sharing DMA-compliant changes impacting contactless payments. That includes new APIs enabling developers to use NFC technology in their banking and wallet apps throughout the European Economic Area.

And in the EU, Apple is introducing new controls that allow users to select a third-party contactless payment app — or an alternative app marketplace — as their default.

Inevitably, the new options for developers’ EU apps create new risks to Apple users and their devices. Apple can’t eliminate those risks, but within the DMA’s constraints, the company will take steps to reduce them. These safeguards will be in place when users download iOS 17.4 or later, beginning in March, and include:

Notarization for iOS apps — a baseline review that applies to all apps, regardless of their distribution channel, focused on platform integrity and protecting users. Notarization involves a combination of automated checks and human review.

App installation sheets — that use information from the Notarization process to provide at-a-glance descriptions of apps and their functionality before download, including the developer, screenshots, and other essential information.

Authorization for marketplace developers — to ensure marketplace developers commit to ongoing requirements that help protect users and developers.
Additional malware protections — that prevent iOS apps from launching if they’re found to contain malware after being installed to a user’s device.

These protections — including Notarization for iOS apps, and authorization for marketplace developers — help reduce some of the privacy and security risks to iOS users in the EU. That includes threats like malware or malicious code, and risks of installing apps that misrepresent their functionality or the responsible developer.

However, Apple has less ability to address other risks — including apps that contain scams, fraud, and abuse, or that expose users to illicit, objectionable, or harmful content. In addition, apps that use alternative browser engines — other than Apple’s WebKit — may negatively affect the user experience, including impacts to system performance and battery life.

Within the DMA’s constraints, Apple is committed to protecting the privacy, security, and quality of the iOS user experience in the EU as much as possible. For instance, App Tracking Transparency will continue to work with apps distributed outside of the App Store — asking a user’s permission before a developer tracks their data across apps or websites.

However, the DMA’s requirements mean that App Store features — including Family Purchase Sharing and Ask to Buy — will not be compatible with apps downloaded from outside of the App Store.

When these changes come into effect in March, Apple will share more detailed resources explaining the options available to users — including best practices for protecting their privacy and security.

What are the Changes to Safari by Apple in EU?

Today, iOS users already have the ability to set a third-party web browser — other than Safari — as their default.

Reflecting the DMA’s requirements, Apple is also introducing a new choice screen that will surface when users first open Safari in iOS 17.4 or later. That screen will prompt EU users to choose a default browser from a list of options.

This change is a result of the DMA’s requirements, and means that EU users will be confronted with a list of default browsers before they have the opportunity to understand the options available to them.

The screen also interrupts EU users’ experience the first time they open Safari intending to navigate to a webpage.

What are the Changes to the App Store by Apple in EU?

On the App Store, Apple is sharing a number of changes for developers with apps in the EU, affecting apps across Apple’s operating systems — including iOS, iPadOS, macOS, watchOS, and tvOS.

The changes also include new disclosures informing EU users of the risks associated with using alternatives to the App Store’s secure payment processing.
For developers, those changes include:

New options for using payment service providers (PSPs) — within a developer’s app to process payments for digital goods and services.

New options for processing payments via link-out — where users can complete a transaction for digital goods and services on the developer’s external website. Developers can also inform EU users of promotions, discounts, and other deals available outside of their apps.

Business planning tools — for developers to estimate fees and understand metrics associated with Apple’s new business terms for apps in the EU.
The changes also include new steps to protect and inform EU users, including:

App Store product page labels — that inform users when an app they’re downloading uses alternative payment processing.

In-app disclosure sheets — that let users know when they are no longer transacting with Apple, and when a developer is directing them to transact using an alternative payment processor.

New App Review processes — to verify that developers accurately communicate information about transactions that use alternative payment processors.

Expanded data portability on Apple’s Data & Privacy site — where EU users can retrieve new data about their usage of the App Store and export it to an authorized third party.
For apps that use alternative payment processing, Apple will not be able to issue refunds, and will have less ability to support customers encountering issues, scams, or fraud.

Helpful App Store features — like Report a Problem, Family Sharing, and Ask to Buy — will also not reflect these transactions.

Users may have to share their payment information with additional parties, creating more opportunities for bad actors to steal sensitive financial information. And on the App Store, users’ purchase history and subscription management will only reflect transactions made using the App Store’s In-App Purchase system.

What are the New Business Terms for Apps in the EU ?

Also today, Apple is sharing new business terms available for developers’ apps in the European Union. Developers can choose to adopt these new business terms, or stay on Apple’s existing terms.

Developers must adopt the new business terms for EU apps to use the new capabilities for alternative distribution or alternative payment processing.

The new business terms for apps in the EU are necessary to support the DMA’s requirements for alternative distribution and payment processing.

That includes a fee structure that reflects the many ways Apple creates value for developers’ businesses — including distribution and discovery on the App Store, the App Store’s secure payment processing, Apple’s trusted and secure mobile platform, and all the tools and technology to build and share innovative apps with users around the world.

Developers operating under either set of business terms can continue to use the App Store’s secure payment processing and share their apps on the App Store in the EU. And both sets of business terms reflect Apple’s long-standing work to make the app ecosystem the best opportunity for all developers.

Developers operating under the new business terms will have the option to distribute their iOS apps from the App Store and/or alternative app marketplaces. These developers can also choose to use alternative payment processors in their EU apps on the App Store, across Apple’s operating systems.

The new business terms for iOS apps in the EU have three elements:

Reduced commission — iOS apps on the App Store will pay a reduced commission of either 10 percent (for the vast majority of developers, and subscriptions following their first year) or 17 percent on transactions for digital goods and services.

Payment processing fee — iOS apps on the App Store can use the App Store’s payment processing for an additional 3 percent fee. Developers can use a payment service provider within their app or link users to their website to process payments for no additional fee to Apple.

Core Technology Fee — iOS apps distributed from the App Store and/or an alternative app marketplace will pay €0.50 for each first annual install per year over a 1 million threshold.
For apps on iPadOS, macOS, watchOS, and tvOS in the EU, developers who process payments using a PSP or by linking out to their website will get a 3 percent discount on the commission they owe to Apple.

Apple is also sharing a fee calculator tool and new reports to help developers estimate the potential impact of the new business terms on their app businesses. Developers can learn more about the changes for EU apps on a new Apple Developer Support page and can begin testing these capabilities today in the iOS 17.4 beta.

What are the key changes Apple is making in the EU to comply with the Digital Markets Act?

Apple is rolling out significant updates in response to the EU’s Digital Markets Act, including the introduction of new APIs, alternative app marketplace and payment processing options, and revised functionality for browser engines.

How will Apple’s changes impact app developers and marketplace options in the EU?

Developers will now have access to new tools and APIs for creating alternative app marketplaces, utilizing different browser engines, and managing app updates, significantly expanding their capabilities within the EU market.

What security measures is Apple implementing in light of these changes?

To counter potential risks from more open platforms, Apple is introducing safeguards like app Notarization and required authorization for marketplace developers, aiming to protect users from malware and other security threats.

Will Apple’s compliance with the DMA affect user experience in Safari and the App Store?

Yes, users in the EU will notice changes such as a new default browser choice screen in Safari and additional payment options in the App Store, though some existing features like Family Sharing might not be compatible with externally downloaded apps.

Also Read: Apple Faces Criticism Over New Third-Party App Store Policy in Europe

Also Read: Apple Announces iOS, Safari, and App Store Changes in EU to Comply with DMA

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