On App Store Pricing and Developer Payments

UPDATE: A reply from Apple

I had a rather long and messy discussion with Garret Murray on twitter today, after he expressed some concerns regarding apparent discrepancies in App Store developer payments. I think the confusion can be put down to two issues:

  1. Apple is less than transparent
  2. There is a minor misunderstanding with regard to sales taxes

On Transparency

The only official word is that developers receive 70% of App Store profits. Without any further details, many developers make the reasonable assumption that this equates to 70% of sales. After all, Apple made a big deal of covering all the costs for us. Unfortunately, a quick look at your monthly financial statements scuttles this idea.

Tier 2 pricing is $1.99 USD in the US, and £1.19 in the UK. So, we might expect the following payments in our financial statements:

$1.99 * 0.7 = $1.40
£1.19 * 0.7 = £0.83

What we find is a UK payment of only £0.72. Bastards.

On Sales Taxes

Sales taxes are applied to the price of goods and services. They are collected by the seller and remitted directly to the government, having no relationship with the seller’s income tax obligations.

There are two ways to apply sales taxes. They can be included in the list price or applied at the register. For example, Europe and Australia include the tax, but some states in the US apply it at the point of sale. However applied, when considering profit margins and pricing the seller only cares about the base price. That is, the price not including sales taxes. How the final sale price is displayed is a semantic issue and the result of local laws.

So What Happened?

My educated guess is that Apple withheld sales tax (VAT of 15%) from the UK payment. A quick calculation confirms this as a definite possibility, assuming tier prices already include any applicable sales taxes. That is, the tier price in this case is 115% of the base price.

Base Price  = Price * 100/115
            = £1.19 * 100/115
            = £1.03
£1.03 * 0.7 = £0.72

This satisfied me. However, Garrett wondered if Apple is reducing the price in other regions to absorb the sales taxes. I doubt it, but we really don’t know and that’s the biggest issue. There doesn’t appear to be any information available on exactly how tier prices were converted from USD.

My guess? When the tiers were priced, Apple used the current exchange rate to convert $USD to £ then added 15%. Of course, without word from the mother ship, we have absolutely no way of verifying this. If Garrett’s right, the tiered pricing model is fundamentally broken; charging different relative prices in each region.

Clear as mud

Personally, I think Apple should release details of the pricing model and include a specific break down of developer payments in our monthly financial statements. However, I don’t expect to find a story dissimilar to what I’ve described above.

Ryan Booker @ryanbooker