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Rumors of Apple’s virtual fitness classes competing with 3rd parties raises scrutiny of the 30% App Store tax

The tax gives Apple's own services a margin advantage against competing apps that are forced to pay this 30% fee.
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Apple is reportedly developing a new subscription for virtual fitness classes that can be accessed via iPhone, iPad, and Apple TV.

According to Bloomberg, the fitness subscription is codenamed “Seymour,” Apple will be offering it as part of a higher-end bundle with the rest of its existing services, and the discounts on these bundles could be more than $5 per month.

A few weeks before this report about Apple’s fitness subscription, lawmakers started looking more closely at Apple’s practice of extracting a 30% fee from apps after it suddenly started demanding a commission from fitness class app ClassPass.

Before the pandemic, ClassPass focused on facilitating exercise class bookings at local gyms but as the coronavirus starting forcing gyms to close, ClassPass started facilitating virtual fitness classes from these local gyms.

After this business model switch, Apple sent a message to ClassPass saying that because they had shifted to offering digital classes, they now had to pay Apple a 30% cut of the sales.

ClassPass, which wasn’t collecting any commissions on these virtual classes and passed 100% of the sales onto the local gyms providing the classes, had to stop offering the classes after Apple’s demand for a 30% cut.

At the time, lawmakers reportedly started considering Apple’s efforts to collect a commission from ClassPass as part of their Big Tech antitrust investigation.

The revelation that Apple could be developing its own fitness class subscription and offering bundle discounts adds a new layer to this antitrust investigation because ClassPass’s virtual classes would have been a direct competitor to Apple’s offering.

Under Apple’s current App Store rules, apps that sell digital products or services have to pay a 30% fee on upfront sales and on the first year of subscriptions then a 15% fee after the first year which is a much higher than the average 2-3% + $0.30 per transaction rate of other payment processors.

In addition to charging these high fees, Apple prevents developers that don’t want to use the App Store payment system from linking to or mentioning alternative payment methods and it also places further restrictions on certain categories of apps.

Not only do developers that use the App Store payments system have to pay this Apple tax but when they’re competing against Apple apps, they’re at a margin disadvantage because Apple doesn’t have to pay these fees.

The discounted bundle component potentially gives Apple an even greater margin advantage because the competitors are still being forced to pay up to 30% in fees while Apple can reduce the price of its virtual fitness class offering as part of a bundle without paying these fees.

Apple’s virtual fitness class offering is the latest of several developments that have highlighted how this 30% tax acts as a hurdle to apps that compete in the same category as Apple.

Music streaming app Spotify has been a strong critic of this 30% fee, arguing that Apple uses it to advantage its own services and that the fee allows Apple’s own music streaming service Apple Music to undercut Spotify.

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