Apple is Holding Back the Creator Economy

Apple has always thought of itself as the kind of company that empowers creative people to do their best work. From the fonts on the original Macintosh, to the camera on the first iPhone, it has built world-class tools for people who make things. But now, through its App Store policies, Apple is now one of the main barriers to independent creators thriving on the internet. It’s not because they changed their minds about who they want to serve. This is just what happens when a company manages a platform as if it were a product.

Apple is a product company. They famously obsess over details, and want every element of the user experience to be perfect. They require total control, because it allows them to use their taste to make choices that are frustrating at first for users (like removing the headphone jack) but then turn out later to be prescient and perhaps even courageous. There’s no question, they make the best products, and they extract a steep price for them.

But iOS is a platform. And the habits you acquire by being a good product company do not always help to run a platform effectively. Too much control, taste, and value extraction can break a platform. These three principles served iOS well in the early days when the platform was nascent and needed to be hand-nurtured. But now that the iPhone is ubiquitous, the App Store has become part of the basic infrastructure of the internet. And many of its policies around in-app purchases and tightly controlled App Store curation are not well-suited—and in fact harm—the broader ecosystem.

We’re not the first to critique Apple’s policies. But most debates about Apple center on the harm they cause to developers, and instead we think the far larger impact is on creators: the millions of people that could be earning more money and connecting with their fans.

Specifically, we take issue with:

Requiring all payments for digital content to use Apple’s in-app purchase system (IAP)
Their 30% take rate on IAP
Their $999 price cap on IAP
Too much intermediation of the relationship between buyers and sellers
Restrictive, inconsistent norms on what kinds of apps are allowed in the store

The creator economy has grown massively in the past few years, but what we see today is actually just a small slice of what the creator economy could be if Apple were not stymying its growth. Apple’s gatekeeper status is holding back the growth of the creator economy. Without Apple’s policy restrictions, there’s an entire universe of creators—including those who aren’t participating in the creator economy—that could flourish on iOS in ways we’ve never seen.

Below, we’ll unpack each specific Apple restriction, how it holds back creators, what Apple can do to fix the situation, and what the impact on the creator economy might be if they did.

In-App Payments

First, let’s look at Apple’s policies regulating in-app payments. App developers who want to take payments on iPhone must use Apple’s in-app purchasing system. This is not a technical limitation, it’s a policy decision that Apple has made.

Why? For one, in-app purchases on iPhone are slick and fast. But for another, it allows Apple to take 30% of all purchases made in-app by customers. (With caveats, such as small companies only have to pay 15% and all companies only have to pay 15% on revenue from subscriptions that have been active for longer than a year.)

The 30% take rate on in-app payments means that creators make significantly less money when they sell products and services through the App Store. It also makes prices higher for fans.

Its overall effect is to limit the kinds of software and business models that developers can build for creators—if developers want to build an app with a Substack-style business model that’s aligned with creators by taking a percentage of their revenue, it’s very hard to make the math work after the 30% cut.

Let’s take Cameo for example: Apple imposes a 30% cut on all in-app revenue, after which Cameo takes its own 25%, leaving a creator with 52.5% of the original amount they had earned through the platform.

To be clear, it is acceptable for Apple to take a cut for providing payment infrastructure. But other companies, such as Stripe, that do the same kind of processing charge closer to 3%—an entire order of magnitude lower than Apple’s cut.

Developers have tried multiple ways to circumvent this arbitrarily high take rate by offering payments through browsers so they can complete payments outside the app. But this whole process is a leaky funnel, because Apple also doesn’t allow developers to tell users in the app to go to their website. This creates a high-friction experience that kneecaps developers who are trying to provide ways for creators to monetize their fans.

Another example: Apple banned Spotify from telling its iOS users about non-IAP methods of signing up for the music streaming service. Just recently an EU court ruled that Apple violated antitrust rules by doing so. It wrote that Apple’s practices lead to higher prices for consumers. But of course there’s an obvious corollary: Apple’s practices also lead to lower payouts to creators.

Beyond the take-rate, Apple has also limited the amount that creators can charge for in-app purchases to $999.99. Almost a thousand dollars might seem like a high ceiling, but it effectively locks out creators from offering courses, master classes, and other premium content like NFTs to their fans. Li has previously written about the concept of 100 true fans—that creators today only need a small number of hyper-engaged supporters to make a living online. But Apple’s $999.99 price cap severely limits those creators on iOS.

Intermediating Between Creators and Fans

Payment policies aside, Apple also does much to intermediate the relationship between creators and their fans on the App Store in ways that are harmful.

For one, all product or payment-related problems including refunds and support requests can only be routed through Apple. Not only does this put creators in a tough spot, it also ends up alienating fans. This level of control essentially makes Apple the central arbiter that decides how creators establish and monetize relationships with their fans.

Most importantly, though, Apple imposes its notions of morality onto the creator economy through its gate-keeping of the app store. Entire categories of creators and the platforms that help them make a living are banned just because they are not aligned with Apple’s sensibilities. OnlyFans, a platform that paid out $2.7 billion to its creators just last year is a notable example. Even if you personally aren’t comfortable using OnlyFans, ask yourself whether you think it should be banned from the internet. The role of iOS is important enough in today’s consumer tech landscape that if you can’t operate a native app, you’re severely constrained. In the US, the iPhone has been gaining market share for years and in Q4 2020 had 65% of the smartphone market. (And keep in mind, these same rules don’t also apply to the Mac, where anyone can develop native apps without needing Apple’s approval.)

OnlyFans is just one example. The full economic potential of the creator economy is hindered by Apple’s gatekeeper status and its notions of morality and taste.

Why is Apple Doing this?

All of the above begs the inevitable next question: “Why is Apple doing this?”

To understand why they are doing this, we need to go back to the beginning of this article, and understand Apple’s roots as a product company.

Steve Jobs’ original vision for the App Store was a curated, hand picked selection of apps that ran seamlessly on iPhones—giving users a smooth and secure experience. This was necessary at the beginning. A smartphone which includes an always-on camera, microphone, and GPS poses a unique security risk to users that laptops do not. The App Store was intended to eliminate a potential app “Wild West” that was full of viruses and junky software experiences.

And it worked! Apple’s highly proactive curation has helped them establish trust among users, who presume that anything they download off of the App Store will be of a certain quality and security level.

This was acceptable in 2008, when the number of mobile apps was small. But now the App Store is not one small outpost for developers and creators to make a living. It is an unavoidable, ubiquitous forum for commerce. This new reality requires Apple to behave less like a product company and more like a platform: a neutral party that allows a wide diversity of products to flourish with minimal interference.

Luckily, if Apple chooses to, there are ways to do exactly that.

What Apple Can Do

If Apple want to help creators by design and not harm them by accident, they could potentially do two things:

First, the use of Apple’s in-app purchases should be optional, and third-party payments infrastructure such as Stripe should be allowed. This might sound too strong, but it's not unreasonable. The iPhone is a general-purpose computing device; it should monetize like one.

No other major platform—including the Mac—forces the same limitations on payment infrastructure that Apple does: imagine the hue and cry if Google Chrome were to only allow payments using Google Pay.

Second, users should be allowed to sideload apps by installing them from places outside of the App Store. We don’t believe the App Store should be eliminated entirely, nor should Apple be forced to list apps they don’t want to. Instead, its sense of taste, prices, and policies should be forced to compete with alternatives. This will ensure that developers, customers, and creators can reach the most users possible at the best prices. And if Apple’s policies do indeed lead to the best experience for all three then the App Store will still continue to enjoy dominance.

So what might happen if Apple did all of this?

The Counterfactual Creator Universe

What would creators’ lives be like if Apple’s 30% take rate hadn’t made it less economical for them to get direct support from fans? What kinds of premium experiences would be possible if creators were able to charge more than $999? What kinds of apps would exist if Apple didn’t take it upon itself to judge which apps are valuable or moral, and which are not?

We can imagine some pretty compelling possibilities for businesses like Spotify, YouTube, Twitter, Instagram, TikTok, Snapchat, Discord, Twitch, and Substack—but that’s just the tip of the iceberg. It’s much harder to imagine what new services might emerge, or what shape the economy might evolve into in the long run.

Obviously we think the impact of opening up iOS would be massive for creators, but also we suspect it wouldn’t be that bad of a deal for Apple. Sure, they’d miss out on billions in App Store revenue, but the total lock-in of iOS would only increase as more and more content and commerce flows through it without friction. Not a bad consolation prize.

But this raises the question: what are the chances that Apple would actually do any of this?

Apple Probably Won’t Do This

First, a caveat: Apple has shown some willingness to change their App Store policies in the past. In 2016, they agreed to reduce their take rate on certain types of subscriptions from 30% down to 15%. They have also more recently agreed to charge a 15% take-rate for developers who have in-app revenues of less than $1 million.

Even so, it is highly improbable that Apple will do much more to be friendlier to platforms and creators unless the government forces them to. Why? They have a great business. Apple has a hardware monopoly over a specific set of consumers, and they’ve leveraged that into a monopoly on payments conducted on those devices.

It’s a money machine. It’s becoming a core pillar of growth for them. So they’ll in all likelihood continue to do it unless they’re forced to stop.

And, as noted above, that might happen. Apple is facing court battles with competitors such as Spotify, Netflix, and Epic Games, and also governmental agencies, such as the FTC and the EU.

It might be easy for Apple to shrug off complaints from regulators and competitors like Spotify as sour grapes. But they should realize that as the App Store changes, so do the fortunes of creators.

Apple knows that. We hope they start to care.

Top Stories in the Passion Economy, 05/10/21

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Passion Economy Financings:

Rally, a platform that lets creators build decentralized communities, recently raised $57 million through it’s cryptocurrency $RLY. Rally has more than 100 creators using its platform to launch their own coins. The company has previously received funding from Andreessen Horowitz, Canaan, Battery Ventures, and Green Bay Ventures.
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Rapchat, a platform that enables users to make rap music, recently raised a $2.3 million funding round co-led by Sony Music Entertainment and Adjacent. The platform has 7 million users who are creating 250,000 songs using its catalog of 100,000 beats.