Apple is preparing to comply with the new Digital Markets Act (DMA) introduced by the European Union. This act aims to make the digital sector more competitive and fair. As per the DMA, Apple must make some significant changes to its iPhone business model. These changes will impact both consumers and developers in the EU. These changes are expected to come into effect in March 2024.
What is Digital Markets Act (DMA)?
The European DMA aims to regulate the conduct of digital companies that act as “gatekeepers” and maintain a dominant position in the market. The primary objective of the DMA is to promote fair competition, prevent any abuse of market power by these companies, and safeguard the privacy of online consumers.
Changes To iPhones in EU
Apple has announced new changes that will affect developers, users, and the digital market. Developers will have new options for app distribution and payment processing. Users will have new controls and disclosures and expanded protections to reduce privacy and security risks created by the DMA.
Apple does claim that the DMA poses some issues, and with these changes, it has tried to mitigate those risks but could not completely eliminate them. The changes coming to iOS, Safari, and the App Store impact developers’ apps in the European Union (EU) to comply with the DMA. The changes include more than 600 new APIs, expanded app analytics, functionality for alternative Browser engines, and options for processing app payments and distributing iOS apps.
Changes in iOS
- Alternative app marketplaces — This includes new APIs and tools that enable developers to offer their iOS apps for download from alternative app marketplaces and not just Apple’s own App Store.
- New framework and APIs for creating alternative app marketplaces — This enables marketplace developers to install apps and manage updates from their dedicated marketplace app on behalf of other developers.
- New frameworks and APIs for alternative browser engines — This change enables developers to use browser engines other than WebKit for browser apps and apps with in-app browsing experiences.
- Interoperability request form — Through this, developers can submit additional requests for interoperability with iPhone and iOS hardware and software features.
- NFC access for third-party apps – Apple will open up the NFC chip on iPhones to third-party developers, allowing them to offer tap-to-pay functionalities without relying on Apple Pay.
In addition, Apple says that 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 — This is a baseline combination of automated checks and human review that applies to all apps, regardless of their distribution channel, focused on platform integrity and protecting users. In other words, Apple will also run security checks on apps available in third-party stores. It includes threats like malware or malicious code and risks of installing apps that misrepresent their functionality or the responsible developer.
- App installation sheets — These sheets will use information from the notarization process to provide quick descriptions of apps and their functionality before download, including the developer, screenshots, and other essential information.
- Authorisation for marketplace developers — This will ensure marketplace developers commit to ongoing requirements that help protect users and developers.
- Additional malware protections — The additional protection will prevent iOS apps from launching if they’re found to contain malware after being installed to a user’s device.
Freedom of choice for users also means that Apple loses out on full control over its operating system. In some cases, Apple may be unable to address issues in apps that contain scams, fraud, and abuse or 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, says the company.
Changes in Safari Web Browser
As of now, iOS users can set a third-party web browser as their default. In line with the requirements of DMA, Apple is now introducing a new choice screen that will appear 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.
Changes in App Store
The changes made by Apple to its App Store in a bid to comply with DMA include:
- Users can process digital goods and service payments within a developer’s app. Apple will also inform users when an app they’re downloading uses alternative payment processing.
- Users can make 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 outside their apps. Apple will let users know when they no longer transact with Apple and when a developer directs them to use an alternative payment processor.
- There are new business planning tools where developers can estimate fees and understand metrics associated with Apple’s new business terms for apps in the EU.
Apple once again warned users that apps that use alternative payment processing will be unable to issue refunds and will have less ability to support customers encountering issues, scams, or fraud. App Store features — like Report a Problem, Family Sharing, and Ask to Buy — will also not be available for these transactions.
Apple Changes Business Terms in EU
Aside from the changes above, Apple has also changed the business terms in the EU and says that developers must adopt the new business terms for EU apps to use the new capabilities for alternative distribution or alternative payment processing. Further, these terms are necessary to support the DMA’s requirements for alternative distribution and payment processing.
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 annual download. However, you’ll only have to pay if you have more than a million customers for your app.
What Does Apple Think of The Changes?
Apple is against the rules of the DMA as it now loses control of operations for these three of its Proprietary elements, at least in the European Union. Furthermore, Apple says it won’t be able to protect its users better against frauds, scams, abuse, or the risks that expose users to illicit, objectionable, or harmful content, etc., as the third-party app store will handle all the payments and the app processing.
Apple doesn’t take responsibility for those app stores’ actions but fully tries to protect its users with some safeguards in place. Moreover, Apple goes on to claim that other browser engines apart from Apple’s own WebKit may also affect the performance and battery life of the iPhones. “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”, says Apple.
Whether Apple likes it or not, it has to comply with the EU’s DMA in a proper manner. EU industry chief Thierry Breton told Reuters that if the proposed solutions are not good enough, the EU will not hesitate to take strong action.
How is The Industry Responding To Apple’s Changes in EU?
In a nutshell, the industry hasn’t approved Apple’s approach towards complying with the DMA.
Epic Games: Epic Games CEO Tim Sweeney, who has always bashed Apple for its unsupportive nature in the App Store, calls the new Apple guidelines ‘Hot Garbage’. That is because Apple’s updated business terms pose significant drawbacks, particularly for larger developers. Despite a reduction in Apple’s commission, apps with over 1 million downloads now face an additional €0.50 (~54 cents USD) Core Technology Fee, resulting in accumulated costs for successful apps. Interestingly, despite the drawbacks, Epic claims that it plans to launch its Epic Games Store on iPhone this year in the European Union and bring back Fortnite via that store.
Gas app: Nikita Bier, the founder of the Gas app, shared on X his findings from the new fee calculator tool by Apple. He wrote, ” Under the App Store’s new fee structure for Europe if you make $10 million in sales, Apple’s cut is $6.2 million annually. Assuming you have no operating costs or salaries, your take home amount: $2 million after tax—or 20% of your sales I will never launch an app in Europe.”
Spotify: Spotify is also unhappy with the new rules Apple will be implementing and calls it “plain extortion”. “Under the false pretence of compliance and concessions, they put forward a new plan that is a complete and total farce. Essentially, the old tax was rendered unacceptable under the DMA, so they created a new one masquerading as compliance with the law”, said Spotify via the blog post. “This alternative that offers no alternative at all completely negates the goal of the DMA”, it added.
Developer and author Maximiliano Firtman tells The Verge that the new policy is “Apple doing as many dirty tricks as possible to force developers to stay with current terms and not take advantage of the new terms that will impose an installation fee (on every store) apart from the money Apple will try to collect from your app’s revenue even if App Store won’t be involved in any process”.
The reactions to Apple’s recent policy changes indicate that these changes are a move towards more openness. However, some developers believe that these changes still enforce the App Store’s competitive advantage.