What is the 30% ‘Apple Tax’ and why is Elon Musk suddenly whining about it?

Musk recently decided to unban controversial accounts such as Donald Trump, Jordan Peterson and Andrew Tate. He has also publicly floated the idea of reinstating all banned Twitter accounts.

While we don’t know the full story regarding Apple and Twitter, Musk has been drawing comparisons with hatred for free speech.

Apple has mostly stopped advertising on Twitter. Do they hate free speech in America?

— Elon Musk (@elonmusk) November 28, 2022

Around the same time, Musk began tweeting about the 30% commission rate that Apple takes on all purchases through the App Store. Musk has referred to this as a “secret” tax despite its long-standing existence and public attention from regulatory bodies, media and large companies for years.

This has likely come to the CEO’s attention now that the company will be charging US$7.99 for Twitter Blue. Considering the huge amount of debt the company is in due to Musk’s acquisition, losing 30% to Apple would be a huge blow.

Did you know Apple puts a secret 30% tax on everything you buy through their App Store? https://t.co/LGkPZ4EYcz

— Elon Musk (@elonmusk) November 28, 2022

Musk has also tweeted a meme indicating that he would rather ‘go to war’ with Apple than pay the 30% commission.

pic.twitter.com/uKEY9mVujp

— Elon Musk (@elonmusk) November 28, 2022

Just so we’re clear, Elon Musk wanted people to pay for Twitter Blue and is now mad those subscriptions will be taxed?

Yes.

What is the ‘secret’ 30% Apple Tax?

The ‘Apple Tax’ is a popular term for the general 30% commission rate that Apple charges for paid apps and in-app purchases on the App Store. This is the same amount that Google also tends to charge on the Play Store.

It also isn’t a secret, even if Elon is only just hearing about it now. There has been contention over the high commission rate for years from both app developers as well as regulators around the world.

This is because in the mobile world in particular, it’s very much a two-party system. While other stores and operating systems exist, Apple and Google have a monopoly. Not having your app on these platforms is a big deal and a disaster for a business.

This gives both Apple and Google immense power when it comes to the commission rate as well as the guidelines developers have to follow. For example, all in-app purchases have to run through the App Store/Google Play. This means that Apple and Google will get a cut of every single purchase.

Offering users a different means of payment that cuts out Apple or Google is a guideline violation and can get the app removed.

Has anyone fought the Apple Tax before?

Absolutely.

There have been a few instances of both small and large companies fighting back against the Apple tax. Spotify and Meta have also spoken out against the commission rate, as have smaller developers.

Basecamp, the developers of email management app Hey went public with its issues with Apple mere days before the company’s Apple Worldwide Developers Conference (WWDC) back in June. They revealed that Apple was allegedly blocking an app update because they were yet to add a subscription service they offered directly through the App Store.

“Like any good mafioso, they paid us a visit by phone,” Hey co-founder David Heinemeier Hansson tweeted at the time. “Stating that, firstly, that smashing our windows (by denying us the ability to fix bugs) was not a mistake. Then, without even as much of a curtesy [sic] euphemism, said they’d burn down our store (remove our app!), lest we paid up.”

The dispute was ultimately settled.

But the most prominent example was back in 2020 when popular video game Fortnite was removed by Apple and Google. This occurred because the developer, Epic Games, allowed players to purchase in-game currency directly in the app rather than through the App Store or Google Play.

As a further cheeky enticement, players who paid for V-Bucks directly were given a 20% discount.

Both Apple and Google swiftly booted Fortnite from the store, stating this move violated their store guidelines.

Epic was prepared for this and swiftly sued in several countries for anti-competitive behaviour — including in the US and Australia. The judge ultimately ruled in favour of Apple in the US on grounds that the App Store wasn’t anti-competitive.

Here in Australia the ACCC got involved and the case has been blown out after a stay was granted while the US proceedings played out. According to court filings, the case will continue in 2024.

Antitrust regulation

Regulators from around the world have also raised an eyebrow at Apple’s App store policies and alleged anti-competitive behaviour.

On the very same day that Basecamp went public, the EU entered into an antitrust investigation due to complaints coming from Spotify and a small audiobook and e-book distributor. The US Department of Justice also began a probe into Apple back in 2019 that is still ongoing.

And here in Australia the ACCC began looking at the App Store and Google Play regarding the impact on competition and consumers off the back of its Digital Platform Services Inquiry interim report.

There are other examples of these kinds of monopoly investigations into Apple products, including Apple Pay. But not much has been done yet.

Is it 30% for everyone?

No, although Apple has tried to make it out like it was in the past.

Back in August 2020, Apple released a statement regarding Fortnite being banned from the App Store. In that statement, the company falsely claimed parity between the cut it got from in-app purchases.

“Today, Epic Games took the unfortunate step of violating the App Store guidelines that are applied equally to every developer and designed to keep the store safe for our users,” Apple said in a statement to The Verge at the time.

But an antitrust hearing just one month earlier revealed that first-year Amazon Prime Video subscriptions were only hit with a 15% charge from Apple.

This deal went back all the way to 2017 and allowed Amazon Prime Video to be available through Apple TV. Similarly, Apple products would be available for purchase on Amazon.

“As part of the terms of that deal, Apple would reduce its fee for consumers who subscribed to Prime Video from 30% to 15%. For existing Prime Video subscribers, Apple agreed to completely waive its normal 15% fee.”

To add insult to injury, the deal allowed Amazon to use payment systems outside of Apple — the very thing that Epic Games did which resulted in Fortnite being removed from the App Store and multiple lawsuits.

Apple introduced a 15% small business program

A few months after the Fortnite blow-up — and the subsequent heat it brought to App Store commissions — Apple introduced a ‘Small Business Program‘.

This effectively cut the commission rate to 15% for ‘small’ businesses that earned under US$1 million in the previous calendar year. This was applied to both paid apps, as well as in-app purchases. The program launched on January 1, 2021.