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Our flagship series will propel you to the forefront of the global ecommerce revolution. From analyses of breaking current events to the intricacies of navigating cross-border sales and regulations, Business over Borders entertains and informs any audience who wants to learn more about how international ecommerce works.
Welcome to Business Over Borders. I'm your host, Leo Tucker, and I'm joined again today by Matthew Cannon, our Chief Revenue Officer here at Reach. Welcome.
Matthew Cannon:Good to be here.
Leo Tucker:Well, big court case stemming all the way back from 2020, Epic vs Apple. Epic saying you guys are, you know, antitrust. Maybe you're a monopoly in the app store. The court said, not so much, but we'll give you a little concession. Fast forward to 2024, huge appeal ruling.
Leo Tucker:Let's talk about it.
Matthew Cannon:Yeah. It's it's been a it's been a long journey, and I think it probably helps to give some some context from, the beginning to where we're at now, and then how different gaming developers, mobile app developers, how they can really take advantage of the most recent activities and ruling. So this started, as you mentioned, all the way back in 2020, where even going back beyond that, when the Apple App Store was originally created, you only had the ability to everything had to do go through Apple. Right? And it was Apple's terms and policies, and they were always gonna charge a 30% fee for this.
Matthew Cannon:Now that fee, you know, includes not just payments and merchant of record and taxes and everything. It it involves having the entire ecosystem.
Leo Tucker:Yep.
Matthew Cannon:And that was just the always way business was done and and and app developers had to just accept it.
Leo Tucker:It's the walled garden.
Matthew Cannon:And then but a lot of times you had some a lot of bigger players like Spotify and most notably, like, Epic Games. Were always really fighting this because it really makes it - a lot of the marketing and the ecosystem is actually driven by these large players versus Apple delivering all of this. So in 2020, Epic Games and their app, their game, Fortnite, which is like extremely popular game, they went in and they provided a because before you could only do the payments through Apple.
Leo Tucker:Right.
Matthew Cannon:Right? And what they did is within their app, they added a direct payment link outside of there. So directly from their app, it was a ability to accept payments that was not through Apple. And so Apple saw this as immediate violation to the terms and conditions, and they basically banned Fortnite from being on the store. So then Epic Games, who was the developer of Fortnite, immediately filed a lawsuit against Apple.
Matthew Cannon:So then you have a very long, long drawn out process. And they got their initial ruling in 2021, where within that ruling, they said Apple is not a monopoly and they can charge a rev share, but they can't force in their terms and conditions for app developers. They they they can actually add a third party link that they can do payments through someone else.
Leo Tucker:Yeah. They can't do the anti steering, you know, keep people from going somewhere else to pay.
Matthew Cannon:Right. So it was funny. Like, when that ruling happened, both Epic Games and Apple kind of said, oh, we're they both won. Apple saying like, hey. We can charge a rev share, and we're not a monopoly, was the ruling.
Matthew Cannon:And then Epic Games thought it was a big win because they allow them to do a third party link, to do payments outside of Apple. When that happened, everyone got very excited and said, Okay, we can finally get rid of that 30% tax that Apple buys. And and it's a major impediment to the profitability for a lot of these app developers.
Leo Tucker:Yeah. 30% is massive.
Matthew Cannon:But but Apple said, okay. Yeah. We'll we'll comply to this. But of course, this is just a giant revenue center for Apple and they're not going to give it up easily. So they complied to the rules and they allowed third party links.
Matthew Cannon:But what happened was they put in a lot of barriers to that.
Leo Tucker:Oh, yeah.
Matthew Cannon:For one, they said, okay, sure. You can do a third party link and you can do the payments outside. Great. But our real value is not just in payments. So we're going to, we don't have to charge you the payment piece, which is 3%.
Matthew Cannon:So you can do a third party link and do
Matthew Cannon:all the payments, taxes, everything outside of the app. You can do it on there and you can do it. And we're going to give you a whole discount from 30% to 27 Oh,
Leo Tucker:big savings.
Matthew Cannon:Another issue was they're going to allow, you can do the third party links. You can like have a link to a different, to the checkout, but Apple put in a lot of adverse language.
Leo Tucker:Oh yeah. This payment's not secure, you know, be careful paying outside, you know?
Matthew Cannon:Yeah. We, we, we don't know if you can trust this website. We have no idea everything. So there was a lot of barriers, but even if they didn't do that, just the fact that you still have to pay 27% and just do 3%, there's no real savings. When you look in The US, like you go to Stripe direct, like you're going to see their base fees are 2.9% plus 30¢.
Matthew Cannon:So even if you're doing large volumes and you get negotiated rate, you're still going to pay the 2% or 3% just for payment processing and still have to do tax and a lot of other stuff. So it's, there's no real value of building all this stuff, building a checkout, building everything. If you're only, you're not saving anything. In fact, you're probably doing more work to cause more friction to your users.
Leo Tucker:Yeah, absolutely.
Matthew Cannon:So it made it so there was no value there. So what happened recently, that was the ruling that came out on April 30 is basically Epic Games went in and said, okay. What what Apple is doing is unfair practice. They're not they're not abiding by what the ruling actually stated. And and then the court found that in favor.
Matthew Cannon:So that's where it stands now. And to what what you saw immediately after this is some of the bigger players like Spotify immediately changed their app, and they they took away the ability to even pay through Apple. And everything's through a direct link to their checkout. And they got that app, they submitted it for approval and Apple approved it because Apple will have to comply. Now, what happened very recently is Apple sent a, they just did an emergency appeal and they're looking to stay, have a stay.
Matthew Cannon:And what that means is that they're looking to why they go through the appeal process. They want to put a stay on the order. So meaning that they don't actually have to comply because right now they have to comply. And they put in, and we don't know exactly what the state is, but in their appeal, they put in the request for them to make a decision on the stay by May 28.
Leo Tucker:All right. May 28. So we got, twenty days or so.
Matthew Cannon:So right now, as it stands, this is why a lot of people are looking to move fast and, and, and don't really know what's, happening and trying to take advantage of this is definitely up until May 28, can actually do a third party link and there's no anti steering. You're not going to get any of the adverse language and they're not going to charge you that 27% tax. So you can really have significant savings, but we do not know what's going to happen after May 28. If the appeal is approved, then they're probably going to get a stay and they're going to revert to their oral practices while they hear that appeal out. And that appeal can drag on for years.
Matthew Cannon:If the, if the stay is not approved, then it's everything's a go. And then we just have to wait to see the actual decision on the appeal.
Leo Tucker:So let's talk about, you know, we know the the implication for Epic Games and, you know, some of these other larger companies. I mean, you mentioned Spotify, one that pops into mind is Audible. I listen to a lot of audio books and I've never been able to actually buy an audio book on the app. You know, just a little, little thing you kind of get used to, you know, with apps like that. But for other businesses that are doing a significant portion of their revenue through or previously through the app store, what can they do?
Leo Tucker:Like what's, what's kind of the plan here? We don't know what's coming and, you know, we don't know if they're going to uphold the decision or not, but let's assume that stays. Like how does the landscape change and how do businesses sort of position themselves to benefit from the rulings?
Matthew Cannon:Going back just a little bit, what we've seen a lot of like the larger players and we've seen a lot of success with this is after the 2021 ruling, they really started doing what we consider more of like web to app, where instead of actually taking the sales directly from your app to a third party checkout, they're gaining their marketing, they're bringing potential gamers, people, customers to their actual, like a, a landing page or like a web storefront. Right.
Leo Tucker:Right. So their, their own store outside the app. Yeah.
Matthew Cannon:Right. And, and they're seeing a lot of success doing that. And then, so that allows them to get out of the 30% tax from Apple. And it also gives them a lot better functionality as far as like actually owning it and having the data. So the first party data, which allows for like a longer lifetime value, marketing, attribution, it really helps them to actually scale.
Matthew Cannon:So that's why we say a lot of people have already been going there and being very successful and building that out. And when you look at it, but that takes a lot of work and a lot of things like you have to build marketing funnels. You have to build these web pages. You have to build a checkout and you have to set up the payments, the taxes, handling everything. So a lot of like the smaller or mid tier developers, they said that that would just too much work and everything.
Matthew Cannon:So I think what this now enables is something that you can actually utilize very quickly is still having everything within your operations, everything within your in app stuff, but then taking that customer from your in app and offering a lot of offers. Because another part of this ruling is now that you can actually advertise and not have within the checkout and have these third party links and you can make it at a value, right? You can say, Hey, pay through this vehicle or pay through this checkout and you get a 10% off or showing value to the customers. So I think setting something like that within the app is where a lot of people are going to go and make their games much more profitable and having more control over it. But one thing that it's not just, but people that have never set up and had their own payments and have always done it through the app, they do have to understand, a lot of the complexities that they go on with that.
Matthew Cannon:It's not just as easy as setting up like an account at Stripe. One thing that I think Apple gets a lot of bad publicity for charging a 30% tax. I'm not the one I would say, like, that's probably a very hefty fee. It's kind of
Leo Tucker:30% is big. Yeah. But the, but that brings some features and functionality along with it, you know?
Matthew Cannon:Right. But when you look at the actual, the, the scale that they handle and, and the simplicity to just pay and have these transactions go successfully and not getting rejected. And the customer support, handling the taxes, handling the chargebacks, handling the disputes, handling the refunds, all of that is, you don't want to take that for granted because that's incredibly valuable, incredibly important. And what you don't want to do is I say, oh, you've never really handled payments and you don't have any team to handle it. What is your like, wherever you go, like all of a sudden you see a lot of transactions happening and this is a new account.
Matthew Cannon:Is it going to get flagged for holding? Is it going to get flagged for reserves? How are you handling disputes? How are you handling chargebacks? Because a lot of times, if you're not handling it correctly, you could be saving.
Matthew Cannon:Oh, I say I'm going now and I'm only paying 3% for the payments. If you don't handle it correctly and your conversion rate goes down and all of a sudden you start getting these chargeback and dispute fees or you start getting fines from the different payment providers because you're not handling fraud properly, it can get way more expensive than 30%.
Leo Tucker:You can lose your shirt way more than 30% worth. Careful.
Matthew Cannon:Right. And if you if turning down transactions, if transactions are getting blocked, if they're failing transactions, because you don't have the proper infrastructure and setup, it's going to be a huge issue. Then also you look at tax, right? With the Apple system or Google Marketplace, they're all handling the tax liability, all of that for you. And as soon as you are not using them, that means that the developer is now live and setting up registration tax.
Matthew Cannon:This is really, the ruling is only in The US, just in The US, but The US is incredibly complex.
Leo Tucker:It's 50 countries.
Matthew Cannon:All different things and everything. And you look at that and depending on the revenue of the game or the app that they have, just setting it up and getting that tax expert and looking at the registrations and the filing and managing that, that could be a huge cost that you have to consider. Because ultimately Apple is like the merchant of record. They're taking on all this liability, right? They have the direct contracts with the payment providers.
Matthew Cannon:They're handling all the disputes. They are taking financial liability. They are handling the taking on all the tax liability, doing everything. And that's why, when we look at this, there's a huge opportunity and why we work with a lot of companies in this space is utilizing Reach as like the merchant of record that does basically everything that Apple does, but for, you know, we're looking at it compared to the pricing, you're looking at one tenth of the price. And having all the benefits that you can really scale and not having to worry about setting that up so you still have that partner, but then giving you giving these developers much more control and much more profit into their pocket.
Leo Tucker:Right. So if you've got a developer who's maybe looking to cash in on some of that revenue opportunity there from that, that 30% fees, mean, they've got to consider tax. They've got to consider how they're gonna do refunds. They've got to, you know, consider how they're actually gonna take the payments. First of all, know, are they going with a, you know, a Stripe payment processor, for example, you know, how are they handling just all of the minutiae?
Leo Tucker:So what are some quick tips to get started off on the right foot? So you're not just jumping, you know, out of the out of the app store 30% pan right into the I don't know how to manage payments fire, you know, like, so how do we get started there?
Matthew Cannon:When you when you look at someone like Spotify that already had a very large, like B2C, setup, You have to look at it. So like, how does the integration work? What payment methods do I have available? Do I have a team to handle, a customer support team to handle the disputes, the stuff? Do I have a fraud team that's going to actually manage it?
Matthew Cannon:Because like, you can like, a lot of these provide, like, you can go to Stripe and again, they're going to add, you can offer a fraud solution there, but you still need, like Spotify has a very large fraud team that's handling fraud. That's looking at it. That's optimizing it going in there. Do you again, handling any chargeback disputes. Do you have an accountant or you have someone else that's actually going to set up the taxes correctly in the filing and the registration?
Matthew Cannon:Do you have that ready? So if you have that team and you're looking to really invest this in the future, that's something you have to look at. Like, do I actually have the capabilities to do this ourselves?
Leo Tucker:Right
Matthew Cannon:Then you're going to, so a lot of times what you're going to realize is the, for a lot of them, the answer is going to be no. So then like, then it's really looking at who can I partner with that's going to enable this? And I think that's where you have to really look at the different merchant records that are available and what kind of technical integrations do they have, what type of scalability do they have and what type of pricing and solutions. Can they be like a real partner for you to really help you scale this? Because what we're seeing as well is like, this is the ruling right now is within The US, but there was a, within Europe, there was the DMA and the DMA was falling along very closely to how it was working with the rulings in The US.
Matthew Cannon:And what we've seen recently Apple was recently fined several hundred million for not following So this could very well follow suit within Europe, within Japan has a similar legislation that's going now, not legislation, but
Leo Tucker:Yeah, ruling out.
Matthew Cannon:So this is happening all over what we're seeing is so then also making sure that that merchant record can also not just help you within say The US, but then has all of the operations functionality in markets all over the world.
Leo Tucker:Yeah, globally. Absolutely. Yeah. And it's, you know, it's a nice middle ground between, you know, you just go to Apple. Yeah.
Leo Tucker:They take their 30%, but they've got everything covered. And on the other end of that is just figuring it all out yourself, taxes, fraud, refund payments, you know, someone to kind of walk you through the the process to set you up for success.
Matthew Cannon:Yeah. And also someone that's, like, very easy to set up and and work through because we don't know. There there are a lot of variables right now, and I don't think Apple is going to take this line down.
Leo Tucker:So it's not their thing.
Matthew Cannon:It's like, you don't want to go plan in and build out everything. And then Apple will definitely try and throw whether they get to stay or if they don't get that and they still have to comply. What other things are they going to do? Maybe they reduce the rev share, maybe
Leo Tucker:incentivize merchants to come back.
Matthew Cannon:They figure out new barriers. They figure out a lot of stuff. Who knows what they're going to do and how they're going to do it. So it's, it's really also working, looking for a provider that has a long term solution of like, here's how we can actually help. Now here's like the ease.
Matthew Cannon:Here's like what you can do. Here's also some AB testing. Because what you also don't wanna what you wanna worry about is you don't wanna just underestimate the power and the trust that Apple has created for people to check out and just have it be just by habit. And putting a new flow, you got to make sure that that new checkout and the flow is incredibly valuable and seamless. But you might not want to shut off Apple right away.
Matthew Cannon:Like Spotify, when you look at their size and how much revenue they're paying Apple, it makes sense for them to turn off Apple.
Leo Tucker:Yeah.
Matthew Cannon:Right. And within their app. For other ones where you're testing it out, you may want to do some AB testing or have them side by side, having the specific strategy. But then it's also looking at it, I think the web to app is also a major play because that also, what you also get with that is a longer term strategy as far as like acquisition attribution, having that customer data. And it's like a very long term strategy.
Matthew Cannon:So having something that having a partner can help you with, with both strategies.
Leo Tucker:Yeah. So with the, with everything going on with Apple, there's a lot of opportunity for, collecting extra revenue here. Don't be shy to reach out to merchant record providers and get some advice from professionals that can help you scale your business in and outside the app store. Matt, thanks for joining us today. We'll chat soon, I hope.
Matthew Cannon:All right.
Leo Tucker:All right. And that's Business Over Borders. If you liked this, go ahead and give us a thumbs up, subscribe. And if you want to see what we got coming out next, just hit that little bell. We'll tell you when we got something new.
Leo Tucker:Talk to you soon.
Voice Over:Brought to you by the Reach Network. Visit withreach.com/network for more.