Rival App Stores on iPhone Estimated to Have Limited Impact on Apple's Revenue

Bloomberg's Mark Gurman this week reported that Apple is preparing to allow alternative app stores on the iPhone and iPad in the European Union, as part of an effort to comply with the Digital Markets Act, which goes into full effect in 2024. The report said Apple is aiming for the changes to be introduced as part of iOS 17.

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In a research note this week, a trio of analysts at investment bank Morgan Stanley argued that third-party app stores and sideloading would pose a "limited risk" to both App Store revenue and Apple's overall revenue given that iPhone users have "long prioritized the security, centralization, and convenience that the App Store brings."

Importantly, the proposed changes in the Digital Markets Act (DMA) are regulator-driven, not consumer-driven. From the consumer perspective, we see very little demand for alternatives to the App Store given the unmatched security, ease of use (centralization), and reliability the App Store provides. According to our Fall 2022 Smartphone survey, less than 30% of iPhone owners are extremely likely to purchase a mobile app directly from a developer website vs. the App Store.

In an implausible worst case scenario where Apple somehow lost the entirety of its App Store revenue in Europe as a result of competition from third-party app stores, the analysts estimated this would equate to just a 4% hit to Apple's services revenue and a 1% hit to Apple's total revenue. If third-party app stores are allowed globally, the analysts forecast around a 9% hit to services revenue and around a 2% hit to total revenue.

In reality, the impact on Apple's revenue could be far less, as the analysts believe it's likely Apple would still receive a commission on purchases made through third-party app stores. In the Netherlands, for example, Apple's standard 30% commission is reduced by only 3% for dating apps using third-party payment systems.

While there are still a lot of question marks surrounding third-party app stores and sideloading, Morgan Stanley believes that the reported changes do not present material risk to App Store revenue/growth or the long-term performance of Apple's stock.

Top Rated Comments

Analog Kid Avatar
16 months ago

If these changes have no impact on Apple revenue, why is Apple fighting these changes so hard ? If they have to implement them for the EU, why not implement them for the rest of the world ?
Because it breaks the tight system integration. It’s been obvious the direct revenue wasn’t the driving factor here, its about customer experience.
Score: 24 Votes (Like | Disagree)
Zakn Avatar
16 months ago
If these changes have no impact on Apple revenue, why is Apple fighting these changes so hard ? If they have to implement them for the EU, why not implement them for the rest of the world ?
Score: 19 Votes (Like | Disagree)
Razor_Crest Avatar
16 months ago

If these changes have no impact on Apple revenue, why is Apple fighting these changes so hard ? If they are willing to implement them only on EU, why not implement them for the rest of the world ?
Because the one thing Apple cares more about than profit is control.
Apple without control is nothing.
Score: 19 Votes (Like | Disagree)
Scipster Avatar
16 months ago
Totally agree with Morgan Stanley. Even if Apple were to allow alternative app stores and side-loading of apps, I will always stick with the App Store. Just my choice!
Score: 19 Votes (Like | Disagree)
BurgDog Avatar
16 months ago
If Apple sells it, I'd prefer to buy it from them. I expect most people feel that way. Still there is stuff I want that Apple won't sell and having the option to get if from somewhere, such as the developer directly, is nice.
Score: 18 Votes (Like | Disagree)
BenGoren Avatar
16 months ago
For me, there is zero chance I’ll install an app unless it either comes from the Apple-curated app store unless it’s a small niche app from a developer I’ve personally known for some time. About the only example of the latter that comes to mind is ArgyllCMS (which will never be ported to iOS).

Yank something from the Apple app store, and it’s getting yanked from my phone.


Score: 15 Votes (Like | Disagree)

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