Late last year, Netflix opted out of Apple’s fees, which can range from 15 percent to 30 percent. Analysts fear other companies will follow. And attorneys representing consumers in a pending Supreme Court case say Apple is a unfair monopoly in the market for iPhone apps. An adverse decision in that case could open a legal door that might eventually force Apple to cut its high commissions.
That could spell more bad news for Apple, which is already reeling from a slump in iPhone sales that has knocked down its shares by 25 percent. The company has been positioning its highly profitable digital-services business as its new profit making machine. That plan could hit a snag if the app store takes a big hit, it generates about a third of the company’s services revenue.
Investors are now hanging onto Apple services as a “life preserver in the choppy seas” just as it’s about to float away.
The app-store fees mostly hit app developers, though some pass along the costs to users of their iPhone apps. Spotify SPOT, -1.56% , used to tack $3 onto the cost of its $10-a-month paid service — but only for users who signed up via its iPhone or iPad app.
Apple has doubled down on digital services as consumers hang on to older iPhone models, hurting sales. Apple’s iPhone revenue this year is expected to drop by 15 percent from last year $141 billion.
Services, by contrast, are expected to generate about $46 billion in revenue this year, according to the same survey. Schachter estimates the app store will account for $16 billion of the services revenue. By those estimates, both services and app store revenue will have doubled in just three years.
Besides the app fees, Apple’s services division includes revenue from its Apple Music streaming service, iCloud storage, Apple Care, Apple Pay and ad commissions that Google pays to be the iPhone’s built-in search engine. Apple is also expected to roll out its own streaming-video service this spring, although few details are available.
The potential streaming competition from Apple may have triggered Netflix decision’s to bar customers from paying for new video subscriptions through its iPhone app. Instead, it directs users to its website, thus avoiding the extra fees. (Netflix did likewise with Google’s app store last year.)