Apple Crumbles Walls, Allows EU App Downloads Outside App Store

Apple announced on Tuesday its decision to permit European Union users to procure iPhone applications directly from developers’ websites, marking a significant departure to adhere to the regulations outlined in the EU’s Digital Markets Act. This paradigm shift will be promptly enforced for Apple consumers within the EU. Previously, users were confined to downloading iPhone applications solely through the confines of the App Store.

The inception of the European Union’s Digital Markets Act, which transpired last week, is hailed as a watershed moment in the oversight of major tech conglomerates, compelling Apple to dismantle its insular ecosystem. Formerly, on March 4, the European Union imposed a substantial fine of 1.84 billion euros upon Apple for stifling competition in the realm of music streaming services on its platform. Apple subsequently voiced its intention to contest the decision made by the EU.

In the secondary market, Apple’s stocks have dwindled by nearly 10% since the advent of this year, precipitating a colossal evaporation of over US$300 billion from its total market valuation. Presently, its market capitalization hovers around US$2.65 trillion, with NVIDIA’s market worth edging closer to Apple’s precipitously. It is noteworthy that Buffett’s Berkshire divested approximately 10 million shares of Apple in the fourth quarter of 2023.

Apple’s Conciliation with the EU

Apple unveiled a policy revision on March 12, facilitating EU users to download iPhone applications directly from developers’ platforms for the first time. Furthermore, developers are empowered to make their applications accessible on alternative app markets without the obligatory passage through the App Store, alongside the liberty to directly extend promotions to users.

This substantial concession marks a volte-face for Apple. Over the years, Apple staunchly opposed sideloading, attributing security concerns and safeguarding its prerogative to shape user experiences.

This instance exemplifies the latest instance of Europe’s Digital Markets Act compelling Apple to recalibrate its modus operandi within the App Store domain. The act mandates tech titans like Apple to unfurl their platforms to accommodate smaller competitors. Emphasizing interoperability, the DMA necessitates tech giants to unveil application interfaces, thereby affording users the autonomy to designate pre-installed applications on their devices. Violation of DMA stipulations incurs penalties amounting to 10% of the company’s global annual revenue, with repeat transgressions inviting fines scaling up to 20%. Apple’s policy revision stands as a significant compromise forged in this regulatory milieu.

Moreover, in late January of the current year, Apple announced adjustments to commission structures in compliance with the European Union’s Digital Market Act. Previously, Apple levied a maximum commission of 30% on developers. Under the revamped policy, developers will remit a commission of only 17% on app sales, with the rate tapering down to 10% after a year for most developers and subscribers. Apple has also waived commission fees for app installations conducted through alternative platforms.

While trimming commissions, Apple has introduced two supplementary charges. Firstly, a 3% payment processing fee is levied on apps utilizing Apple’s in-app purchase system. Secondly, an installation fee of 0.5 euros is imposed on each app exceeding 1 million installations, irrespective of the distribution channel. This maneuver signifies that apps retailed outside the Apple App Store are absolved from additional commissions, only bearing the nominal 0.5 euro fee.

The “Apple tax” designates Apple’s commission on paid apps within the App Store, which rakes in billions annually, humorously dubbed as such within the market lexicon. Although precise figures regarding the “Apple tax” remain undisclosed, media estimates, predicated on Sensor Tower data, project the revenue derived from the “Apple tax” in 2023 to range between US$11.7 billion and US$23.4 billion, constituting approximately 3% to 6.1% of Apple’s total revenue during the same period.

On March 7, local time, the EU’s Digital Market Act formally took effect. This legislative endeavor, emblematic of the European Union’s antitrust initiatives against tech behemoths, delineates the obligations of digital service providers, mitigates cutthroat competition on major online platforms, and augments consumer choices. Mandating the interoperability of applications owned by major tech firms, the bill necessitates these companies to unfurl application interfaces, facilitating interaction and data exchange with other applications, thereby empowering users to curate pre-installed applications on their devices. In compliance with this bill, six entities identified as “gatekeepers,” including Apple, Google, Amazon, and Microsoft, have disclosed their compliance frameworks over recent months.

Presently, Apple finds itself ensnared in the vortex of the Digital Market Act. Pressured by legislative imperatives, Apple is compelled to dismantle its walled garden, such as facilitating software developers to disseminate applications to EU users devoid of intermediation through Apple’s App Store.

Is the “Nadir” Yet to Materialize?

Since February, Apple’s stock prices have been buffeted by a confluence of adversities.

On February 14, local time in the United States, post-market disclosures revealed that Buffett’s Berkshire divested 10 million shares of Apple in the final quarter of 2023, constituting approximately 1% of the company’s Apple shares. Despite this divestiture, Apple remains Berkshire’s largest holding, accounting for 50.19% of disclosed assets.

On February 28, Beijing time, another bombshell ensued: Apple scrapped its multibillion-dollar electric vehicle venture, prompting staff reassignments, layoffs, and transfers to the artificial intelligence division.

On March 2, local time in the United States, Goldman Sachs expelled Apple from its coveted best-buy list owing to lackluster stock performance and apprehensions regarding tepid demand for its flagship products. Apple had enjoyed an enduring stint on this list prior to its ousting, spanning over 270 days.

On March 4, local time in Europe, the European Union meted out a staggering fine of 1.84 billion euros to Apple for impeding the provision of alternative payment options by streaming music platform Spotify and other music streaming services, aside from the Apple App Store. Apple intends to contest the ruling, affirming the European Commission’s failure to substantiate credible evidence of consumer rights infringement.

On March 5, Beijing time, data from market research agency Counterpoint Research disclosed a 24% year-on-year downturn in Apple’s iPhone sales in China during the initial six weeks of the year, relegating Apple to fourth place among Chinese smartphone vendors, with its market share dwindling from 19% in 2023 to 15.7%. Conversely, Huawei witnessed a meteoric 64% surge in sales during the same period, catapulting its market share from 9.4% to 16.5%, supplanting Apple. Jefferies’ prognostications portend a protracted spell of double-digit declines in Apple’s shipments throughout 2024.

Notwithstanding the over 10% slump in Apple’s fortunes thus far this year, some analysts caution that the “nadir” of Apple’s tribulations may yet be imminent. A recent Mizuho report posited that if Buffett’s Berkshire, Apple’s preeminent non-ETF shareholder, further diminishes its stake, Apple’s stock valuation could endure a precipitous decline.

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