The “I’m An Adult, And I Don’t Pay My Taxes” Argument

As a small developer for iOS myself, I found Apple’s 30% cut high, but somewhat acceptable. With it, I’m not worrying about monetary transactions (sales, fraud detection, refund handling, money deposit); I don’t need to find a place to host my app for download; I don’t need to tell people where to find it, as long as they know the name or have a link.

Plus, with Apple doing a good job with the OS updates, supporting legacy systems are the least of my worries. With a nice and properly scoped idea, it’s easy to have an app up and running within literally hours.

So, I’m happy to pay that 30% tax, and just focus on my apps. This is from me, someone who makes a few hundred bucks a month from the App Store.

If, for some groundbreaking reason, my app hit No. 1 on the leaderboard and I suddenly made half a million dollars a month, I’d still be paying Apple 30% of that. I know that 30% of $1 million is a lot, but I knew that from the onset; I knew I’d cut Apple 30% from the first day of being a developer. I willingly and knowingly agreed to the terms, and should I stop agreeing to them, I can terminate my relationship with Apple.

I cannot imagine myself whining for something I knew I’d see happen from Day 1. But this is exactly what’s happening right now: Fortnite survived the battle and made huge success, and now Epic Games is suddenly unhappy with the rules they agreed; Apple refused to cut them a deal, and Epic Games is now a whining baby. Apple also made the same arguments on Spotify, that the company found success on the platform, and is now bitter with the terms they had agreed to in the first place.

To draw back to the metaphors on a citizen paying tax on his income:

  • You benefited from the friendly environment provided by your community and society, and paid next to nothing; the tax dollars that funded those amenities were paid by someone else
  • You made it and earned big bucks; you become that someone else
  • You refuse to pay taxes, after the negotiation for better tax rates goes south. After all, what government has decreasing marginal tax rates? That’s unheard of.

While everyone laughed at Apple’s argument on providing a level field of play, I find it quite spot-on.

The Econ 101 Argument

I had this funny feeling reading about Econ 101 on Daring Fireball: John Gruber drew the quote from Paul Krugman to demonstrate that there are limits to free market, and there is the mathematically proven need for a regulator to “solve the problem of ‘externalities’” and that “there are some things that must be supplied through public policy rather than individual initiative,” such as scientific knowledge to the pandemic.1

What Gruber failed to do was apply the same logic to his own beat in technology: Apple regulates the market; Apple holds a standard of app quality; Apple, to a reasonable extent, prevents scam and malicious apps from entering the App Store. Apple is the policymaker in the otherwise free market of the App Store.

And just like your dear government — Apple asks you to pay tax (with a high 30% tax rate), Apple makes policies seemingly absurd, Apple enforces them a bit arbitrarily. You can’t do what Apple doesn’t approve, but that’s just about keeping the space nice and friendly. Bad guys are gonna cut corners.

When you apply the basic theory on externality of free market to Apple and the App Store, you should know that the quarrel isn’t with Apple making policies; there has to be a regulator of the market. And once you establish that, this regulator has better be Apple, who has teeth in the market and the platform, and who financially benefit from the platform’s health.

Your quarrel is with the high tax rate, and with the “legislation” and “law enforcement.”

The Bottomline

What Econ 101 also taught me was that there is always a gradient between black and white. Developers are complaining about Apple’s 30% cut and tight control (mostly arguing that the control is so tight, no cheaper alternatives can be implemented), and the complaints are not to be dismissed. It’s a lot more helpful to discuss “what is a reasonable cut, and why” than to argue Apple is suffocating innovation.

Brent Simmons had some great discussion on what he finds reasonable:

We used Kagi as our payment processor at the time, and I think we paid around 5% for our storefront and payment processing and everything. Completely reasonable, and we were perfectly happy with it.

This piece, sadly, is the only one I came across as helpful in this whirl of discussion. I would really like to see some discussion on process improvement (on the “legislation and enforcement” of policies), and how a better system can be.

  1. If you need proof on this theory, I agree with Gruber and Krugman that you should go check out some videos on externality in Econ 101.