Tim Cook, CEO of Apple Inc, will face questions from US lawmakers on Wednesday about whether or not if the company's App Store practices provided it an unfair edge and power over other independent software developers.

The iPhone maker controls the App Store, which is at the heart of its business services that net $46.3 billion-per-year. It has been criticized by developers for the levying of commissions between 15 percent and 30 percent on several App Store purchases. Also under fire is its prohibitions on seeking customers for external sign-ups, and is being described as an unpredictable and opaque app-vetting process.

Different Origin

A man looks at the screen of his mobile phone in front of an Apple logo outside its store in Shanghai, China on July 30, 2017.
Representational Picture Reuters

But when the App Store launched in 2008 with 500 apps, Apple executives viewed it as an experiment in offering a compellingly low commission rate to attract developers, Philip W. Schiller, Apple's senior vice president of worldwide marketing and a top executive for the App Store, told Reuters in an interview.

"One of the things we came up with is, we're going to treat all apps in the App Store the same - one set of rules for everybody, no special deals, no special terms, no special code, everything applies to all developers the same. That was not the case in PC software. Nobody thought like that. It was a complete flip around of how the whole system was going to work," Schiller said.

In the mid-2000s, software sold through physical stores involved paying for shelf space and prominence, costs that could eat 50 percent of the retail price, said Ben Bajarin, head of consumer technologies at Creative Strategies. Small developers could not break-in.

Bajarin said the App Store's predecessor was Handango, a service that around 2005 let developers deliver apps over cellular connections to users' Palm and other devices for a 40% commission. With the App Store, "Apple took that to a whole other level. And at 30%, they were a better value," Bajarin said.

Stringent Rules

But the App Store had rules: Apple reviewed each app and mandated the use of Apple's own billing system. Schiller said Apple executives believed users would feel more confident buying apps if they felt their payment information was in trusted hands.

"We think our customers' privacy is protected that way. Imagine if you had to enter credit cards and payments to every app you've ever used," he said. Apple's rules started as an internal list but were published in 2010.

Over the years, developers complained to Apple about the commissions. Apple has narrowed where they apply in response. In 2018, it allowed gaming companies such as Microsoft Corp, maker of Minecraft, to let users log in to their accounts as long as the games also offered Apple's in-app payments as an option.

Commissions Funds Developers

"As we were talking to some of the biggest game developers, for example, Minecraft, they said, 'I totally get why you want the user to be able to pay for it on the device. But we have a lot of users coming who bought their subscription or their account somewhere else - on an Xbox, on a PC, on the web. And it's a big barrier to getting onto your store,'" Schiller said. "So we created this exception to our own rule."

Schiller said Apple's cut helps fund an extensive system for developers: Thousands of Apple engineers maintain secure servers to deliver apps and develop the tools to create and test them. Marc Fischer, the chief executive of mobile technology firm Dogtown Studios, said Apple's 30 percent commission felt justified in the early days of the App Store when it was the price of global distribution for a then-small company like his.

But now that Apple and Alphabet Inc's Google have a "duopoly" on mobile app stores, Fischer said, fees should be much lower - possibly the same as the single-digit fees payment processors charge. "As a developer, you have no choice but to accept that charge," Fischer said.

(With inputs from agencies)