Apple's new era: New CEO, new revenue problem, ads and a smarter Siri
There's a lot happening at Apple right now. The company just unveiled its first foldable iPhone, Siri AI rolled out in beta, we've officially entered the John Ternus era, and regulatory changes to Apple's App Store business model are starting to show up in the numbers.
App Store revenue declined for the first time in years with Apple's U.S. commission revenue falling 18% since January. Eric Seufert has argued that advertising is the only realistic lever for offsetting some of that pressure.
Cue ads in Apple Maps, which officially started rolling out in the U.S. and Canada. Businesses can now pay to appear in Suggested Places before a search, or alongside results after one, but the jury’s still out on how users will respond. There's also some whispering around Visual Intelligence. Code discovered in iOS 27 by developer Aaron Perris suggests Apple is laying the groundwork for sponsored results there too, though Apple hasn’t confirmed it.
These placements share a common approach to intent, which tracks with how Apple is approaching AI more broadly: keep as much intelligence as possible on the device.
Ads in Maps already do this. They're contextual and use signals from the current session, like your search, approximate location, and what part of the map you're viewing. Apple says it doesn't track users across third-party apps and websites or associate Maps ad activity with an Apple Account. Visual Intelligence could take that same idea even further, using what your phone already understands about what you're looking at to make the results, including sponsored ones, more relevant.
Siri AI shows the same instinct at work outside of ads. It can now use personal context and what's on your screen to understand what you want and take actions across apps on your behalf.
That might sound like Apple inching toward the same agentic AI model we're seeing with Meta and Muse, but Apple's approach is still very much device-is-king. Siri is deeply integrated into the operating system, and the iPhone itself is providing much of the context and orchestration behind what it can understand and do.
Eric Seufert noted an interesting consequence of that: If Siri learns which app you typically use for a certain task and starts choosing it automatically, it could decide which apps get the user's attention — and which don't.
Apple needs new revenue streams, and advertising is an obvious one. But Apple is also getting better at understanding what you want, when you want it, while keeping the device at the center.
Google is already preparing to do this in South Korea, as a result of recent legislation there.
Commissions on outside payment methods are something most analysts agree are specifically allowed under the terms of the Epic v. Apple ruling, but 'allowed' and 'preferable' are quite different — one theory I've seen is that this filing is simply leverage, intended to get a stay on the ruling that is due to allow links to external payment methods starting on December 9.
This week's big story is clearly the fallout from the Meta/Facebook earnings report. We'll get to that in a minute.
But first: a few thoughts on the ever-unfolding situation around alternative in-app payment methods, this time for dating apps in the Netherlands. There have been so many 'alternative payment methods' stories over the last year that you might be thinking 'wait, another one?'
If so, I don't blame you. The short version this time:
But the Byzantine twists of each new version of this story are much less interesting than the clear pattern that is starting to emerge: while these showdowns are always phrased around allowing alternative in-app payment methods, that's just a means to an end: the real objection is the 15-30% commission rate.
I think the unspoken assumption here has been that the commercial models behind the App Store and Play Store are the digital equivalent of a Prince Rupert's drop, and that forcing Apple and Google to budge even slightly on payment methods would cause the whole thing to shift.
In other words, most seemed to hope that if Apple and Google could be forced to allow alternative payment methods in even a small jurisdiction, they would either quickly give up, or decide to overhaul the entire system.
That's not what has happened, at all. In reality, the result so far has been much closer to scorched earth, trench warfare. In every case, Apple and Google are giving only the bare minimum in concessions necessary to comply with the literal letter of each new law, while making sure each change is a Pyrrhic victory for those who brought the complaint (for an example of what I mean, just see the scrupulously detailed guidance above)
One can't entirely blame them for this approach — no one enjoys it when their product roadmap is dictated by court order — but the unfortunate thing is that all this ultimately harms the broader mobile ecosystem. Yes, there are many issues with walled garden app stores. Discoverability, high commission rates, and mercurial review decisions are just a few examples.
But there are also major benefits (no one really wants a return to the days of Windows 98, when an antivirus scanner was the only thing standing between your computer and total anarchy), and avoiding heavy-handed regulation via a few thoughtful compromises would seem like a worthwhile trade.
Following the case of 'Apple v. Everybody'...
Apple seems intent on taking on the entire world to protect the margins on its App Store business. In our last issue, we covered Apple's proposed changes to the EU App Store to meet compliance issued by the European Commission (EC) Digital Markets Act (DMA). What's followed has read comically like a middle-school feud. Grab the popcorn folks, it's gonna get catty:
Meanwhile, Epic works hard to keep a second front against Apple alive in the U.S.:
If you find this a bit much, you're not alone. But keep in mind, we're talking commissions worth billions of dollars, so it's no wonder these companies are squaring off so publicly. I find an exchange between Eric Seufert and Ben Thompson on a recent Stratechery podcast (paywall) especially salient:
Eric Suefert: "People don’t recognize whenever you see a price in the App Store that was optimized for gross revenue by the app developer. So, you cut that feed, it’s not going to trickle down to the consumer; they’re not going to pay less."
Ben Thompson "100%....There is so much competition on the App Store that prices have long since been driven down to their optimal level and taking the fee. All it does is shift money from Apple’s pocket to Epic’s pocket."
At the end of the day, we'll likely see some resolution in the middle, but the only real change will be the shifting of profit between juggernaut's balance sheets.
WWDC 2022, A Tangible Demonstration of Care
What is it like to attend WWDC in person? By all accounts (including this one), it's an amazing, awe-inspiring experience.
If you're reading this newsletter, you may be used to thinking of Apple as a vaguely antagonistic elephant in a world full of mice. With things like the ongoing controversy about App Store commission rates and all the disruption caused by the IDFA Apocalypse over the last two years, a glowing endorsement like this one might seem like cognitive dissonance.
I don't think these are actually at odds. I believe Apple genuinely does care about indie developers. The small, independent dev teams building niche apps that might even be uniquely possible only on iOS, ideally monetizing via in-app purchases or subscriptions. They're the ones who make sense to Apple, who fit into Apple's worldview and use the iOS ecosystem the way Apple wants it to be used (the article above about 'getting Sherlocked' notwithstanding), and who often feel something like Apple's 30% commission rate is a pretty good deal.
Unfortunately, somewhere along the line — as companies get larger and their iOS apps become a part of the end user relationship instead of the entire thing — that care starts to gets smothered by ideology and other business considerations.
The Small Business Program is a huge, clever U-turn by Apple
Via a middle-of-the-night press release, buried in the middle of this week's Apple Silicon MacBook noise, Apple just announced a new program to cut App Store commission rates from 30% to 15%…for ‘small businesses’.
In other words, commission rates are cut in half for all of the companies that hadn’t really been complaining all that loudly (perhaps because they lacked a tall enough soap box), but which everyone was assuming made up the silent majority.
It’s a great chess move. The impact on Apple’s App Store revenue will probably be statistically insignificant, and the big tech companies that are complaining loudly now look a whole lot more lonely.
Google Play to pilot third-party billing option, starting with Spotify
Yes, this is the mythical 'third-party in-app payment option'.
No, this is not a 'get-out-of-commission-free card'.
The details of this pilot program are not public, but that doesn't mean we're without precedent: Google already offers a similar program in South Korea, and the commission rate is only reduced by 4% for non-Google payment methods.
Anti-monopoly verdicts coming fast, years too late
A federal court ruled Google’s AdX (Exchange) and DFP (SSP) created a monopoly and will seek to require selling off their third party advertising Network business. This ruling might have been a big deal 20 years ago when users spent most of their time on the open web and Google made 46% of their ad revenue came through the third party Network (source paywall) but as online usage has moved to logged-in “Content Fortresses”, the Network business has degraded in performance (and margin). Today Google makes closer to 10% from this business. Google will still appeal, but it’s probably a moot point.
This comes at the same time the DoJ is trying to force Google to sell off Chrome four years after they succeeded in a court claim Google has a search monopoly.
Chasing another bold verdict in the very same courtroom — also years too late — the Federal Trade Commission is (FTC) revisiting its 2019 revisitation of its 2012 approval of Facebook’s acquisition of Instagram. Even though Zuck has offered the court a cool billion to settle, the case is projected to fail, in the words of Ben Thompson: “The government is making a case from the late 2010s, using evidence from the early 2010s, that Meta is a monopoly in the 2020s, and thus should have to divest acquisitions made over a decade ago.”
Amazon and Apple aren't immune to the punitive scrutiny.
That said the FTC is making some helpful rulings that are right on time: such as forcing Airbnb to display full prices (looking at you $250 cleaning fee) and dinging Uber for falsely claiming “savings of $25 a month” for subscriptions to Uber One, then telling users to contact customer service to cancel, but giving them no way to do so.
tl;dr: state of ads in chatbots
Confused about the state of advertising in AI chatbots? Me too. I researched the latest, so you don’t have to:
Last week, Apple published a report done by Analysis Group, an international economics consulting firm, under the headline 'Report finds third-party apps see global success on the App Store'.
The Apple press release and the report itself are worth discussing separately: the former is full of carefully-polished PR points, but the latter is a legitimately interesting whitepaper with a lot of fascinating industry data.
Setting aside PR spin, it's probably best to take this analysis at face value for exactly what it shows: in certain markets and for certain verticals, users prefer apps not made by Apple. Nothing more, nothing less.
