The loosening of the hardcore alliance and Android may start with the concession of "Apple tax"

Last week, Apple announced that it would cut the App Store fees paid by small developers in half. This means that in the future, the commission for new projects of these developers on the App Store will be reduced from 30% to 15%. The rule change will start on January 1, 2021.

However, the implementation of this major preferential policy has a prerequisite: it only targets small businesses or individual developers with annual revenue not exceeding US$1 million.

After the news was released, the first thing that came to mind was that Epic had recently withdrawn "Fortnite" from the iOS ecosystem because of dissatisfaction with the "Apple tax" (it is now trying to return to iOS through cloud gaming). Epic is obviously not a small company or individual developer with an annual income of less than one million US dollars, so "Fortnite" will not be able to return through normal channels in the short term.

Even so, it is still surprising that Apple has made concessions on the "Apple tax" that it has insisted on for 13 years since 2007. After all, compared with the relatively loose Android ecosystem, Apple has always been closed and tough. However, if we carefully observe the iOS ecosystem and the environment that Apple is currently facing, this concession should be the most favorable choice for its "destiny" within a limited scope.

Is Apple’s concession big?

From the perspective of attracting attention, it is a bit regrettable that Epic and Spotify, the leading players who have been "fighting" against Apple tax for many years, are not covered by the preferential new policy. However, most of the applications used by consumers are products of giants with annual revenue of billions or even hundreds of billions of dollars. From the perspective of overall user coverage, small and medium-sized enterprises and developers with annual revenue of less than 1 million US dollars are the absolute cornerstone of the entire Apple iOS ecosystem. "Tax reduction" means that most groups will benefit.

According to Sensor Tower data, 97.5% of developers had annual revenue of less than $1 million in 2019. This means that the coverage of Apple's new policy is very wide, covering almost all developers. Such a large coverage will theoretically have a great impact on Apple's application service revenue, but the smart Cook will obviously not let the company make less money.

Therefore, we can see from the data of Sensor Tower that in 2019, the 97.5% of developers with "annual income below $1 million" only accounted for 4.9% of the total Apple app revenue. Such a revenue share and user-developer share is very "glaring", and it also shows Apple's "routine" - although it seems that Apple's tax has been directly reduced by 50%, from the perspective of the overall revenue, the affected part of the revenue accounts for only 5%.

Without affecting the overall revenue, it covers the vast majority of user groups. This move has calmed the dissatisfaction of some small and medium-sized developers, increased their interests, and ensured their survival. After all, Apple's huge software ecosystem requires these small and medium-sized developers to continuously provide content support, and Apple has made a good plan to make this group live a better life with only a slight loss.

In addition, the recent launch of the M1 chip version of Mac also demonstrated Apple’s determination to completely improve its own ecological closed loop. However, although the actual performance of the M1 chip beats Intel of the same period, the M1 chip based on the ARM architecture still needs to attract more developers to accelerate software adaptation and change its niche status quo. In this case, reducing the commission rate of small and medium-sized developers by 50% can also significantly mobilize the interest of small and medium-sized developers, who account for 95% of the total number.

So, from this point of view, Apple's concession this time is big but the sacrifice is small.

Finally, let’s talk about monopoly. Technology giants like Apple have always been the focus of global antitrust agencies. In addition, Epic, Spotify, Netflix, Facebook, and many American news publishers have tried to get Apple to reduce its Apple tax rate through lawsuits or joint letters. All these “resistances” have been seen by regulators. Although Apple has not given the “green light” to these big revenue earners to this day, the pressure on it is still there.

Due to the huge impact of the recent fight between Epic and Apple, although Epic did not win in the end, its actions still created a huge vortex of public opinion. The former once again brought the high commission, a fact that was previously taken for granted, to the forefront, and even most ordinary players knew about it. It can also be seen from the players' public opinion that the overall public opinion orientation is not in favor of Apple. Overall, Apple has to adjust the commission mechanism.

Perhaps after Apple launches this new policy, it will have more confidence when facing regulators. After all, it does reduce "half the commission" for 95% of developers.

Will Android and Hardcore Alliance follow suit?

After Apple made concessions on commissions, the outside world naturally focused on the Android camp. However, the Android camp should look at the domestic and foreign markets separately, because Google Play cannot be used in China.

First, in the overseas market, although not as closed as iOS, Google Play and the Google behind it are the same as Apple in the eyes of antitrust agencies. Huge fines are commonplace for Google. At the end of last year, Google was fined 150 million euros (about 167 million US dollars) by the French antitrust agency. Therefore, how to circumvent antitrust is also a long-term task for Google.

In this regard, relevant Internet industry analysts told Dongdong Notes: "After Apple took the lead in setting an example, Google will most likely follow suit, whether to appease developers or to show it to antitrust agencies. Since Google Play's overall revenue is much lower than that of the App Store, its follow-up costs will also be lower. In this case, it has no reason and no need to stand firm on its own."

From a data perspective, although Android models have a higher market share, the relatively loose ecosystem makes Google Play's revenue far lower than the App Store. According to Sensor Tower data, App Store's revenue in 2019 was US$55.3 billion, while Google Play's revenue in the same period was only US$29.8 billion.

As for channels such as the Hardcore Alliance in the domestic market, I'm afraid it will require the developers themselves to work hard.

The domestic Android ecosystem is completely independent of the Google ecosystem. Without the official channel of Google Play, the distribution channel, the most profitable business in the mobile Internet era, has become a fat piece of meat in the eyes of countless third-party companies. This is true for the initial 91 Mobile Assistant and Wandoujia, as well as the current Hardcore Alliance and emerging vertical channels and community distribution channels such as taptap, Coolapk, and even Bilibili.

In terms of the living environment, domestic developers are much more miserable than overseas developers: when Epic is arguing over the 30% commission, the vast majority of domestic developers are still facing a 50% commission. As the leading smartphone manufacturers have monopolized most of the distribution channels, they have united to form a hardcore alliance in order to make profits.

For a long time, in a market environment where channels are supreme, distribution channels have a lot of say, and developers can only accept this situation: the revenue of the applications or games they develop is only half of the actual recharge amount of users. Even Internet giants such as Tencent and NetEase must abide by this standard of the Hardcore Alliance.

This high commission rate is undoubtedly very abnormal. While satisfying the interests of distributors, it does not bring positive development momentum to the entire industry. Take the game industry as an example. Previously, game developers invested heavily in creating a high-quality game, but the majority of the final revenue was taken away by distributors. This was a serious blow to the confidence and enthusiasm of developers.

In contrast, those low-cost, low-investment skin-changing games, through the practice of buying traffic and rolling servers, promised distributors a lot of money, and finally obtained a lot of traffic and revenue. They and the distributors achieved a win-win situation, but the final result led to the entire game market being flooded with a large number of shoddy "skin-changing" games.

Fortunately, domestic developers are also trying to say "no" to the channel like Epic did. This year, two blockbuster games, "Genshin Impact" by Mihoyo and "Rise of Kingdoms" by Lilith, have become the most talked-about topics in the industry. At the same time, there are reports that domestic medium and large game developers such as Duoyi Network, Giant Network, and Leiting Games are also currently withdrawing their important games from the Android channel.

Before the developers withdrew, giants such as NetEase and Tencent had already started negotiations with distribution channels on top game products such as Honor of Kings, Onmyoji, and Fantasy Westward Journey, asking the latter to reduce the commission rate to 30%. Not long ago, at Tencent's third quarter earnings conference, Tencent Chief Strategy Officer James Mitchell made it clear when talking about distribution channels: "If the platform can bring more new users to game companies, then their services have great value, otherwise the value is not great."

The meaning behind this statement is actually quite clear: truly high-quality developers are gradually breaking away from the constraints of distribution channels.

At present, the success of Mihoyo and Lilith has also given confidence to the gaming industry. Under such circumstances, the domestic Android distribution channels, led by Hardcore Alliance, are naturally extremely tense.