[lloyddobbler]

“A 30% revenue share can easily be the difference between a company that can afford to scale, hire new employees, and reinvest in its product, and one that is perpetually struggling to stay afloat.”

This brought up a fun thought exercise for me. Pretty sure that Y Combinator would argue that giving away 7% of one's company for access to intangible (but beneficial) things like funding, advisors, etc, is completely worth it for a company. Pretty sure that they also fund companies that pay salespeople fairly significant commissions on sales.

Interesting to see them argue that asking a company to give up 30% "commission" on revenue for access to a large market stifles competition and innovation.

Is Y Combinator's forcing companies to give up 7% of their companies for access to advisors and funding stifling innovation and competition? (Spoiler: I don't think so. I think both Y Combinator and apple should be able to capitalize on the access they provide.)

[Hammershaft]

Startup founders can choose between many models of funding, VCs, etc. Starups cannot choose between different ways of accessing willing customers over iOS, they have to comply with a %30 cut and a jungle of regulations that act in Apple's interest.

These two examples aren't the same, even just on the basis of market power.

[JustExAWS]

Startups aren’t paying 30% of sales unless they have more then $1 million in revenue coming through the App Store, they are selling access to digital goods and even then, they can still sell access to subscriptions and services outside of the App Store and now they can link directly to their website from the App Store thanks to the courts ruling - at least in the US.

[Nevermark]

Many startups are still losing money at $1M ARR. So getting a bump up to 30% of revenue at $1M can be catastrophic.

Investors don't want large percentages of pre-profit money being siphoned off by Apple.

Generally speaking, an optimized win-win fee would be some percentage of profits, not revenue.

That might be far too difficult to manage, accounting wise. But we can safely say that 30% of revenue, would translate to an extreme percentage of profit. Apple is extorting from many companies.

One sign of anticompetitive behavior is when a company is leveraging things in their favor so hard, it seems quite plausible that they are actually harming themselves. Killing of developers, by charging massive fees even to money losing developers, is not a good long term strategy.

But the power to extract money even from those it causes real pain, is hard to turn down when quarterly numbers keep coming up.

[JustExAWS]

Let’s look at the startups that YC funds. How many of them are selling apps in the App Store with in app purchases?

[johnnyanmac]

>they can link directly to their website from the App Store thanks to the courts ruling - at least in the US.

In Apple. fashion, they are still pushing back on this despite the court ruling. It only shows more so why Apple needs to be made to open up.

[addaon]

> Starups cannot choose between different ways of accessing willing customers over iOS

What? They can offer an SPA, or a traditional web page. They can offer a hardware device. They can make an android app compelling enough to convert users.

[maximus_01]

You are really trying to say that for a startup trying to build software, say a productivity app or whatever, they should consider launching their own hardware device? They are very different things and would basically make indie development impossible (or really any software company that can't raise hundreds of millions to billions)

[sokoloff]

You’re arguing that Apple’s App Store, even with its commission, is a better business proposition.

I agree, and from that conclude that Apple’s earned their commission/fees.

[maximus_01]

There is a limit to this sort of logic though. Don't get me wrong, I'm generally pro free markets. But: A) Apple's policies make some products completely unviable (anything with a gross margin less than 30%). Even for products at say 40% gross margin, Apple as a storefront is taking 75% of the gross margin pool (ie 30% to Apple, 10% to developer). This in my view is direct consumer harm. B) Apple acts egregiously and restricts what should be basic free speech. For instance, app developers not being able to even mention they have to pay Apple (let alone being able to direct customers to their own website etc). To me this is the biggest one - I could probably live with everything else more if developers at least could show customers where their fees were going etc. C) Apple has changed the rules over time, or at least how they enforce the rules (by trying to force more and more apps to pay the 30% - eg what they did to Patreon)

[JustExAWS]

This hasn’t been true in months in the US because of the courts ruling. Right now, just looking at two apps, you can click on “Buy book” from the Kindle app and be redirected to Amazon’s website and download the Netflix app, click on “Get Started” and create an account.

[kelnos]

Just because people will go along with something because they have no other choice, it doesn't mean it's a fair business practice that we should allow.

Apple's deal is still an acceptable business proposition because there aren't any alternatives. Android users don't spend much on apps compared to iPhone users. It's an ok market, but not a great one, and in the US, if you aren't on the iPhone, then you aren't relevant, period.

Maybe if there was an actual competitive market on iOS for app stores, we'd see what app developers actually thought was a good business proposition, not the only take-it-or-leave-it (but if you leave it there's no way to be successful) proposition they have now.

[sokoloff]

> because they have no other choice

People clearly have other choices here: develop for Android, develop for the web, create a telephony-based or text-response system, operate in bricks-n-mortar format, etc.

[johnnyanmac]

Apple with a 90% commission would still be a better business proposition.Did they earn that or are they at that point a monopoly on half a domain of tech?

[sokoloff]

Is that a better business proposition for a prospective app developer? GP was arguing that the alternatives to the App Store commission were far worse. Under a 90% commission scheme, they're probably both unviable.

[JimDabell]

> would basically make indie development impossible

We aren’t talking about indie development though. People like to paint a picture of a small, scrappy startup or beleaguered solo dev being held back by Apple’s crushing 30%, but that isn’t the case.

Unless you are earning more than a million dollars a year through the App Store alone, you don’t pay 30%, you pay 15%. And if you earn more than that, you still only pay 15% for long-term subscribers. And of course, all those SaaS companies where the app is just an interface for the larger service pay 0%.

As soon as you start talking about “Apple’s 30%”, you reduce the scope of the argument to the tiny fraction of developers with millions in revenue.

If you do actually want to talk about indie development, you should be talking about “Apple’s 15%”.

[MindSpunk]

Let's run the numbers for indie development.

Say you're a team of 3. Your game takes 2 years to develop. You spend on salary for 3x2 years. You've spent ~$600,000 so far. Let's assume you haven't had any other sources of operational costs like software licenses for your art tools (3D modelling, 2D drawing, music production, sound production, game engine), marketing expenditure, development hardware, outside contracting, and a number of other things.

If you pull $800,000 in the first year Apple will take $120,000. Your net profit is $80,000. Apple has taken over half your profit.

If you pull $1,200,000 in the first year Apple will take $210,000. I'm going to assume that Apple still only takes 15% on the first $1million. Your net profit is $390,000. About a third of your profit has gone to Apple now.

The carve-out for small revenues is not some panacea. Fixed cost overheads for small teams will swallow the platitude very fast. Video games is a high risk, hits based industry. Apple's tax adds the most risk to small ventures, the kind of ventures that are going to produce innovative high risk content, making them even more risky adding more difficulty to acquiring finance.

So if we want to talk about Apple's 15% it's actually worse.

[JimDabell]

> You've spent ~$600,000 so far.

> If you pull $800,000 in the first year

This is not what people have in mind when you talk about poor little indie devs being unable to cope with 30%. We’re talking about a well-funded operation that can run for years without revenue.

> So if we want to talk about Apple's 15% it's actually worse.

Paying 15% is not worse than paying 30%.

[Fomite]

I believe we call that a "pivot"

[kelnos]

> They can offer a hardware device.

As someone who worked at a company that tried to do this, years ago, that's hilariously laughable, and either you're just incredibly unaware of what that sort of thing takes, or you're arguing in bad faith.

And if you think SPAs or regular websites on mobile Safari can give you the same experience and hardware access as a native app, I'm not sure what to tell you.

> They can make an android app compelling enough to convert users.

Sure, right, now you're just spouting fantasy stories. (And I say this as an Android user.)

[ianbutler]

The dynamics of 7% of ownership and 30% of ongoing revenue are vastly different.

So different in fact that the comparison doesn't hold water.

[johnnyanmac]

I'd love to hear a proper cointerargument, and not a dismissal.

[CGamesPlay]

When Y Combinator gives $10,000 for a 7% stake in the company, the company goes from being "worth" $130,000 before the money to being worth $140,000 after, and they have $10,000 more in their bank account. Every dollar the company earns afterwards also increases their bank account by $1.00.

When an app store takes a 30% commission on sales, every dollar the company earns afterwards increases their bank account by $0.70.

The percent doesn't really matter (if YC took 30% ownership or app stores took 7% commission), the comparison doesn't really make sense either way.

[close04]

> Every dollar the company earns afterwards also increases their bank account by $1.00.

Wouldn’t this be true also if YC owned 100% of the company? On the other hand from that point on, from every dollar the company is worth YC gets 7%.

You need to know what is (or will be) bigger and more critical for your success, the investment worth 7% of your company, or the 30% Apple takes from your app. Either of these numbers can be millions or $0.

I’m very much for alternative storefronts and letting people choose. Android already proved this works just fine and most people still go for the official store. But I don’t think the argument above paints a clear, unbiased picture.

[CGamesPlay]

Yes, that was my conclusion as well.

> The percent doesn't really matter (if YC took 30% ownership or app stores took 7% commission), the comparison doesn't really make sense either way.

[ianbutler]

Thank you, making it concrete expressed what I was trying to say way better than I was doing in my reply :P

[ianbutler]

Equity ownership doesn't directly effect operating capacity on the same timescale as revenue. (sure investment does but in a positive way, but again not quite the same) Where as revenue does on shorter timescales, and 30% off revenue is an ongoing constraint to operating capacity day to day in a way ownership just isn't.

They don't behave the same way so to make the comparison didn't make any sense.

Note: Edited this a few times because words are hard.

[kortilla]

Ownership doesn’t cost the company anything.

30% of revenue cuts off the flow of money immediately even long before the company is profitable.

[ensignavenger]

If there were competition for App Stores, we could discover what the correct market price for App Stores is, but Apple doesn't want that.

[tpdly]

This is a very good argument. We would also learn what features of an App Store add marketable value, and what features are trivial. I imagine the front end isn't very important, but some kind of build certification/verification is. That requires branding, infrastructure and labor. Maybe its easier than I imagine to verify that apps aren't lying about what they do, but as far as I can tell that could well account for some 5% at cost.

On the other hand you trust your bank, for example, so you follow the link on their website and install the App, and the trust came from their own brand.

[georgemcbay]

Far be it from me to defend Y Combinator or VCs in general but IMO the situation is a bit different because of the monopoly (or at least duopoly) power that Apple and Google hold as gatekeepers over the only practical way to sell to iOS and Android device users.

Of course, I'd also assume most or all the people associated with YC were part of the "fire Lina Khan because our whole business model is actually just taking advantage of FAANG acquihire panic" squad, making them hypocrites (in a slightly different way) for helping to prop up these monopolistic gatekeepers and then acting put upon by the results of that.

[kg]

Equity and revenue share are fundamentally different things. YC could be asking for 30% equity and it'd still be more reasonable than the 30% revenue cut modern gatekeepers demand.

[x0x0]

I'm not sure how offering an investment in a highly competitive market (dozens of incubators, thousands of vcs) is comparable to raising the cost of payment processing 900%. Alongside all the other bad acts that Apple does, mostly inhibiting your ability to provide good customer service to your customers. Or even continue a billing relationship if they migrate from ios -> android/pc.

[cma]

7% of equity is worth far less than 7% of gross, equity ultimately gets paid on what you can make net.

[aprilthird2021]

> I think both Y Combinator and apple should be able to capitalize on the access they provide.

Capitalizing, to the detriment of your competition (other paid software services) when you have a monopoly or duopoly on app distribution isn't legal.

[wmf]

I thought the standard advice is to target 80-90% gross margin at early stage so you can easily eat 30% CAC. It probably starts to hurt as you scale though.