Is 30% An Unreasonable App Store Fee?

Conflict within any value chain is inevitable, since one participant’s cost is another participant’s revenue. Game developers, for example, complain about the 30-percent fee Apple charges for game distribution through the app store or in-app purchases. 

source: Eric Seufert

That might seem an unreasonable fee, but perhaps it is not. Consider typical “distribution” costs for various industries, which might include delivery networks, logistics, warehousing, packaging, store operations, app store fees, marketing, server costs, content licensing, payment processing, fees and fuel or booking systems. 

“Distribution” is a key function in getting a created product to the ultimate buyer and end user. And it can be hard to separate some functions, such as sales and marketing, from logistics as parts of the total distribution cost. 

But consider the case of an app store product. Once the app is written, additional value chain costs include methods for sales, marketing and fulfillment, for example. Those costs might range from mid-single-digits to 40 percent of total end user price (much depends on where one decides to allocate costs). 

Industry	Example Product	Distribution Costs (% of Retail Price)	Key Cost Drivers
Transportation	Passenger car	6-12%	Shipping, logistics, dealer network
	Gasoline	15-25%	Transportation, storage, refining, marketing
Retail	Clothing	10-20%	Warehousing, shipping, packaging, store operations
	Groceries	5-10%	Transportation, storage, refrigeration, distribution centers
	Furniture	15-25%	Transportation, assembly, delivery, storage
Digital Apps	Mobile Game	0-5%	App store fees, marketing, server costs
	Music Streaming Service	10-15%	Content licensing, marketing, payment processing
	News App	2-5%	Content creation, platform fees, hosting
Airline Tickets	Domestic Short-Haul	10-20%	Airport fees, fuel, booking systems, security
	International Long-Haul	20-40%	Fuel, taxes, crew costs, airport fees, in-flight services
Restaurant Dining	Dine-in Meal	10-20%	Food supply chain, staff costs, rent, utilities
	Food Delivery	25-40%	Packaging, transportation, platform fees, marketing

App stores such as Apple’s arguably offer many tangible benefits that would otherwise still need to be created by any would-be retailer. 

App stores such as Google Play and Apple App Store boast billions of active users, so developers have access to a vast potential customer base they wouldn't be able to reach on their own. So 30-percent fees might seem high, but the alternatives of creating a potential audience at similar cost are not possible. 

App stores offer curated storefronts and search features, helping users find relevant apps within a specific category or based on personal preferences. This increases the chances of an app being discovered by its target audience. So there is clear marketing value. 

Branding also is aided, as a trusted app store boosts user trust and confidence compared to downloading from unknown sources.

App stores handle the technical aspects of app downloading, installation, and updates, eliminating the need for developers to manage their own servers and distribution channels.

Integrated payment gateways enable in-app purchases and subscriptions, streamlining the monetization process for a game developer or app provider. 

Global Reach: App stores facilitate international distribution, allowing developers to reach markets beyond their borders with minimal additional effort or cost. No single developer is typically able to do so on its own. 

Many app stores offer opportunities for app promotion using featured lists, editorial recommendations or in-app advertising, increasing visibility and organic downloads.

App stores provide data and analytics about app usage, user demographics, and engagement, which developers can leverage to optimize their apps and marketing strategies.

The point is that a great deal of the cost of getting a product into the hands of a buyer is broadly dominated by “distribution” costs, and app stores such as Apple’s or Google’s Playstore provide many of the benefits. 

Partner unhappiness about value chain costs is not surprising, since “my cost is your revenue.” Participants always will seek to maximize their own value and power within the value chain, as that tends to boost the prices they can command for their contributions. 

Still, it is a plausible argument that app stores provide lots of value for apps distributed through the stores. Is 30 percent the right amount? It is hard to say. 

What are the alternatives, and what would those alternatives cost?

Are There Any True "Natural Monopolies" Left in Infrastructure?

The existence of perhaps some 83 U.S. “whole community” municipal internet access networks, plus 400 to 600 dark fiber networks, networks serving business districts and cooperatives does continue to raise questions of whether home broadband networks are natural monopolies; whether they are forms of utility infrastructure or not; and if so, how they ought to be regulated and funded. 

Patterns for supplying electricity, water, wastewater, trash collection can take the form of “municipal ownership” or “private supply.” Roads, railroads, airports, seaports, oil and gas pipelines likewise can take a variety of forms, ranging from functional “natural monopoly” to “competitive supply” markets. 

Over time, however, the range of infrastructure considered to be natural monopolies has shrunk, In fact, many would consider most forms of infrastructure to be amenable to at least some competition by multiple suppliers in a single market, at the level of retail delivery and “last mile” networks.

Infrastructure Service	Market Model	Natural Monopoly?	Reasons
Airports	Oligopoly or Regulated Monopsony	Not necessarily	Multiple airports can serve a single region.
Seaports	Oligopoly or Regulated Monopsony	Not necessarily	Similar to airports, multiple ports can compete for cargo traffic based on location, efficiency, and infrastructure. Government regulation or dominance by shipping companies can also create a monopsony.
Roads	Public Good or Regulated Duopoly/Oligopoly	Generally a “natural” monopoly, but toll roads supplement	Roads are generally considered a public good as they benefit all citizens and cannot be easily excluded from use. Government funding and construction eliminates competition directly, while private tolls create limited competition between toll roads and non-tolled options.
Electricity	Regulated Monopoly or Partial Liberalization	Generally a local network monopoly in terms of retail delivery	Grid infrastructure requires high upfront investment and economies of scale, making a single regulated provider potentially efficient. However, renewable energy and distributed generation are introducing competition in electricity generation and retail markets.
Oil and Gas Pipelines	Regulated Monopoly or Oligopoly	generally a local network monopoly in terms of retail delivery	Similar to electricity, pipelines benefit from economies of scale and often operate as regulated monopolies in specific regions. However, competition can arise from alternative energy sources and competing pipeline infrastructure.
Mobile Service	Oligopoly	No	Several mobile providers typically compete in a given region, offering different plans, coverage, and network speeds. However, barriers to entry (spectrum licenses, infrastructure costs) can create an oligopoly with limited competition.
Home Broadband	Oligopoly or Duopoly	No	Similar to mobile service, a limited number of providers (cable, fiber, DSL) often compete in a given area. Government intervention can incentivize additional competition through infrastructure investment or regulation.
Waste Collection	Municipality, Oligopoly, or Competition	Generally no	Waste collection can be provided by a single municipality, several private companies competing in an oligopoly, or fully open to competition depending on local regulations and policies.
Wastewater Systems	Public Good or Regulated Monopoly	Yes, typically, at the retail level	Similar to roads, wastewater treatment is often considered a public good due to its environmental and public health benefits. Government funding and operation typically eliminate competition, while private involvement may occur through regulated contracts.

Half a century ago it was the prevailing wisdom that such networks were “natural monopolies” where the economics would only support one provider in each market. That was never the belief for mobile service provider networks, which have featured multiple suppliers since the start.

All General Purpose Technologies (and AI if it is a GPT) Will Generate Overinvestment

Without suggesting artificial intelligence is presently, or necessarily will become, an “investment bubble” where capital is overallocated, it is at least worthwhile to remember than investment manias have happened before, as it the internet or “dot.com” bubble between 1995 and 2000. 

It also is worthwhile remembering that, early on, ultimate winners are hard to identify, as many of those winners are not yet founded at the beginning of a period of exuberance. If we look at 1995 as the beginning of the internet investment boom, only a few firms, including Apple, Microsoft and Amazon, had been founded prior to 1995. 

Company Name	Founding Date
Amazon	July 5, 1994
Google	September 4, 1998
Facebook (Meta)	February 4, 2004
Netflix	August 29, 1997
Apple	April 1, 1976
Microsoft	April 4, 1975
Twitter	March 21, 2006
YouTube	February 14, 2005
Spotify	October 23, 2008
Airbnb	August 11, 2008
Uber	March 21, 2009
Tesla Motors	July 1, 2003
SpaceX	June 6, 2002
TikTok (Douyin)	September 9, 2016
WeChat (Tencent)	January 27, 2011
Alibaba	September 4, 1999
Tencent	November 13, 1998

But that is only a list of “winners.” There were many “losers” as well. One of the firms on the following list still exists, even if it entered and exited bankruptcy at least once, with a major business pivot along the way. 

For example, the technology-heavy NASDAQ composite index plummeted from its peak of 5,048.62 in March 2000 to around 1,139.90 in October 2002, representing a loss of over 77 percent. Hundreds of venture-funded and privately-financed firms went bankrupt. 

source: Global Entrepreneurship Institute 

Company Name	Investment Raised (USD Millions)	Peak Valuation (USD Billions)
Pets.com: Online pet store selling food and accessories	$82.5	3.2
Webvan: Online grocery delivery service	$1.2 billion	7.9
Boo.com: Online fashion retailer	$147	475
eToys: Online toy retailer	$650	8.5
Petsmart.com: Online competitor to Pets.com	$400	5.8
FreeMarkets: Online business-to-business auction marketplace	$250	7.9
WorldCom: Telecommunications company engaged in accounting fraud	$11 billion	450
Global Crossing: Telecommunications company that filed for bankruptcy	$12 billion	50
Exodus Communications: Web hosting provider acquired by Verio	$485	64
GeoCities: Free web hosting service acquired by Yahoo!	$324	6.6

The point is that ultimate winners from AI are going to be hard to identify in the early going, as many of the ultimate winners are not yet founded or clearly on a path to success.

Nor should we discount the ability of leaders in a prior era (Microsoft and Apple) to make strategic pivots that allow them to thrive in the next era. 

Finally, overinvestment seems always to be a risk when GPTs are born. 

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