Offering Virtual Products With Your On-Demand App? Be Prepared to Pay the Apple Tax

When you develop an on-demand app, you are probably going to be prepared for a certain amount of operating expenses. For example, you know that you’ll have marketing expenses, and that you may even have to pay an employee or two to provide support for your buyers and sellers. What you may not realize though, if you are going to have your app available on Apple devices (and you should!), that you may have to pay what critics are calling “The Apple Tax”.  And for that matter, you may also have to pay an “Android Tax”, but for the sake of simplicity in this blog, we will refer only to the Apple Tax.

What is the Apple Tax and Who Has to Pay It?

Many on-demand apps offer in person services such as massages, dog walking, hair styling, etc. When an in-person service such as the ones mentioned is sold via an on-demand app, Apple does not take a commission. On the other hand, if you are offering virtual products such as ebooks or an extra life in a digital game, then the Apple Tax swoops in and gobbles up a whopping 30%.

While some app developers have tried to be clever and avoid this, it really isn’t possible if you want to have your app available through the Apple Store. This is because, of the diligence process that the company uses when developers submit their apps.

Since Apple has real live human beings doing the checks on new app submissions, any attempt at circumventing the Apple Tax will be caught and such attempts will only result in you having your on-demand app rejected.

Learn about the main reasons that apps get rejected by iTunes and Google Play.

Case Study: Will Netflix Revolt Against the Apple Tax?

A prime example of an on-demand app that provides digital products is Netflix. For several years, Netflix users could not stream videos on their phones because Netflix wanted to avoid having Apple take 30% of those revenues. When Apple restructured its fees in 2016 to reduce the Apple Tax for subscriptions to 15% after the first year, Netflix relented and it’s now possible to binge on your favourite shows anytime that your smartphone is within reach.

But now, according to TechCrunch, Netflix is testing ways that it might be able to avoid the Apple Tax altogether in 33 countries. When Netflix subscribers in these countries come up for renewal, Netflix is going to redirect them to renew their membership outside of the app.

Of course, Netflix is a giant and as of yet it doesn’t have much real competition. So chances are, users are likely to continue on with Netflix regardless of whether or not they can use an app to do so. Budding entrepreneurs with relatively new on-demand apps simply aren’t going to have the massive following that makes Netflix able to break free from Apple (if indeed it can).

How Will the Apple Tax Affect Your On-Demand App?

As long as you are providing person to person services and not virtual products, chances are that Apple will continue to let you do business without trying to get a piece of the action. The moment though you start offering virtual products however, be prepared to pay the 30%.

Now, in case you are wondering – that doesn’t mean that you shouldn’t offer virtual products. If you have a business model in which virtual products are going to help you become profitable, then you can and should offer them. Just remember though, that when you set your app’s pricing structure, to take the Apple Tax into consideration.

Click here for a few more considerations on what fees to charge with your on-demand app.


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