Apple’s iPhone App Refund Policies Unfair to Developers

By Leena Rao

We reported Wednesday about Apple’s (AAPL) alleged delay in payments to iPhone app developers, but there is more alarming news from iPhone developers about Apple’s refund policies. Apparently, if iPhone users decide that they want a refund for an app (users can get a refund within 90 days, according to Apple policy), Apple requires that developers give back the money they received from the sale. But here’s the kicker—Apple will refund the full amount to the user and says that it has the right to keep its commission. So the developer not only has to return the money for the sale, but also has to reimburse Apple for its commission. Apple charges a 30% commission on all paid apps sold through the App Store. So basically, developers get 70% of a given sale but if the end-user wants a refund, the developer has to pay Apple 100% of the sale.

Here’s the clause in the contract:

In the event that Apple receives any notice or claim from any end-user that: (i) the end-user wishes to cancel its license to any of the Licensed Applications within ninety (90) days of the date of download of that Licensed Application by that end-user; or (ii) a Licensed Application fails to conform to Your specifications or Your product warranty or the requirements of any applicable law, Apple may refund to the end-user the full amount of the price paid by the end-user for that Licensed Application. In the event that Apple refunds any such price to an end-user, You shall reimburse, or grant Apple a credit for, an amount equal to the price for that Licensed Application. Apple will have the right to retain its commission on the sale of that Licensed Application, notwithstanding the refund of the price to the end.

The developer we spoke to seemed to think that the app would become unusable if a consumer gets a refund for a particular application, but the developer was unclear if this actually happens. We were also told that this section of the contract is new, and developers are being forced to sign this in order to sell apps in the next generation App Store (for when the iPhone OS 3.0 is officially released). But we saw a contract from another iPhone developer who signed the agreement back in December and the same clause was part of the contract.

We are assuming that Apple still has to pay bank fees on a charge if a consumer wants a refund, but certainly bank charges don’t amount to 30 percent. This policy still seems incredibly unfair to developers. Apple should instead require developers to return the exact amount they received from a refunded sale, not extra. Apple has a ton of money in the bank and could stand to make a lot more from the app store down the line as the iPhone user base grows. With these fees, Apple is pointing a big red arrow at why developers shouldn’t be developing for the iPhone—namely, they’re at the mercy of Apple, which is making a habit of treating its developers like dirt.

Original post

Comments

[nytesky:]

I don't think it is unfair. If a developer makes an app that isn't very good or doesn't fulfill expectations and many people return that app, Apple shouldn't be expected to shoulder the cost of housing and distributing an app that sucks.

This clause is an incentive for developers to put out good quality apps that people want to keep. There are a lot of junk apps on that store. If a developer can't make an quality app that won't be returned in masse, you are right, they shouldn't develop for the iPhone / iPod touch platform.

Mar 26 11:14 AM

[typopolice:]

uhhh..here's the clause in the contract...

uhhh...read the contract...

lots of people losing their houses today because they uhhh...didn't read the contract...

life is so unfair...

free country, if you don't like the game, don't play...pretty simple, aye Leena?

Mar 26 11:21 AM

[typopolice:]

treating its developers like dirt...

pretty bold statement, care to back it up with any facts other than your opinion?

Mar 26 11:22 AM

[costello:]

Read other firms contracts before make statement like this one, and you`ll find a real dirt. Then try to count how much cost to establish and run an look like app store (servers, people, power, connections etc.) from a sketch, and how much cost to maintain all free apps in the store. You`ll may find that`s not so cheap to build and run such store even for rich firms

Mar 26 11:44 AM

[dvd:]

Apple CAN (but should not) do what they want having a monopoly on the distribution of iPhone apps. A better albeit more complicated solution... no developer penalty for small # or % returns. But high return rate = crappy app then developer penalty applied (100% refund).

Apple should be accommodating developers and are leaving themselves open to litigation and eventually govt. intervention if they continue esp. in (separate issue) sanctioning copy-cat apps (see... arstechnica.com/apple/...). Apple's early success was due to independent software developers and they still provide Apple a competitive advantage esp. in the case of the iPhone, as others attempt to mimic all things Apple.

Mar 26 12:08 PM

[Camden:]

I think this is an appropriate refund policy. This policy will help in weeding out the poorly designed apps and will result in a better customer experience. You can bet that there are thousands of developers that will not have any problem with the policy because they make apps that people want to keep and they will continue to make LOTS of money. Also, I completely agree with the comments by typopolice.

Mar 26 12:29 PM

[AaplCentral:]

I have to disagree with the other comments on the this post. Sure, Apple has to spend a lot of money hosting the apps on their store, but so do sites like paypal and half.com. However, when a transaction is canceled via paypal, paypal never keeps the commission it took on the transaction. How is this fair?

Mar 26 12:41 PM

[Johnnymack:]

when a lot of the apps people buy are under $5, they would have to suck pretty bad for someone to think of asking for a refund.
How many apps have been "returned" that this is even an issue?
Sounds like something that rarely happens, so it's a chance to stress that apple is unfair or abuses it's monopoly, or something like that.
Yawn...

Mar 26 12:57 PM

[SiliconVall...:]

You are comparing peanut to Apple.

PayPal is a service that helps people handle charges. Its service is minimal and does not even provide any escrow-like support. PayPal does not have a warehouse storing the goods involved in the transactions. If a transaction is cancelled, PayPal simply does not make the charge.

Apple provides the physical infrastructure that involves paying some companies to provide the hosting services, bandwidth, 24/7 support. The developer's APP sits in one of Apple's "leased" server.

Apple has a team of engineers who work on the SDK to evolve the kit, fix bugs and support developers. Apple continues to ship out SDK to developers and it may still be free (TRUE?).

Comparing PayPal to Apple's AppStore support is like comparing a gas-station attendant who pumps gas and cleans windshield with a full-fledge manufacturer certified auto mechanic.




On Mar 26 12:41 PM AaplCentral wrote:

> I have to disagree with the other comments on the this post. Sure,
> Apple has to spend a lot of money hosting the apps on their store,
> but so do sites like paypal and half.com. However, when a transaction
> is canceled via paypal, paypal never keeps the commission it took
> on the transaction. How is this fair?

Mar 26 01:18 PM

[Skrabichewski:]

The way CC companies take their fee is a flat charge per transaction (usually several cents) + fixed % of the amount so it is quite possible that Apple pays 15%-20% to CC processor on a $0.99 charge. It is not known if any of these fees are refunded in case of a full refund - since we don't know details of the contract between Apple and their CC processor.

Mar 26 01:23 PM

[SiliconVall...:]

I agree totally with this assessment. It seems the complaints are either from BLOG writers or green-horn software developers. IN both cases, they lack business experience.

Suppose I sell 1000 copies for $5 each earning $3500. Customers return 20% or 200 copies of my poorly made product. Apple then will get a $1000 check from me but I still earn $2500. What is the complaint?

If the return rate is 2% or 20 copies or $100 return to Apple, what am I complaining? I still made $3400! The $100 is just the cost of doing business!

Many posters here are right on in that this is a way to deal with bad developers who make poor products.



On Mar 26 12:57 PM Johnnymack wrote:

> when a lot of the apps people buy are under $5, they would have to
> suck pretty bad for someone to think of asking for a refund.
> How many apps have been "returned" that this is even an issue?<br/>Sounds
> like something that rarely happens, so it's a chance to stress that
> apple is unfair or abuses it's monopoly, or something like that.
>
> Yawn...

Mar 26 01:27 PM

[Oh Blah Dee...:]

RE: "... However, when a transaction is canceled via paypal, paypal never keeps the commission it took on the transaction. How is this fair?..."

The difference is that PayPal only acts as collection agency. PayPal does nothing more. If the developer sold the app through its own company, the developer would still incur all the administrative costs: employees, hardware, software, rent, etc. when a customer returns an app

Apple HOSTS and MAINTAINS the website. Apple is hoping to only break-even with its website. Why should Apple be burdened with the website expense when a customer is unhappy. The customer returns the app because the customer is unsatisfied with the APP, and not with Apple.



Apple is requiring the developers to be responsible and is holding them accountable.

Mar 26 01:28 PM

[.crazylegs..:]

sounds like a classless move by apple. they should return the commission on a failed sale, as it was never actually earned. sure they spend money on hosting/processing, but isn't the point of the store to encourage developers to build apps, which encourages people to buy iphones as so many apps are available. it's a business move and strategically beneficial to give up a little on the store to make developers comfortable and provide end users a better platform.

Mar 26 01:31 PM

[AppleCartTi...:]

If developers offer a good app then nobody will go through the trouble of asking for a refund. 3 cheers to APPL for holding developers accountable. After all, they are parasites living off Apple's genius, no offense to parasites. Consider the commission fee retained by Apple to be the cost of playing on Apple's turf. In reality developers aren't getting hurt by this policy. Desperate bloggers want to make this a big issue when it is nothing.

Mar 26 03:51 PM

[Aussie Machead:]

If you buy an app which is a rip off or just doesn't work - surely the best way is to ask for a refund and Apple should be able to be reimbursed for its marketing costs. All publishers have an amount they need to run their store.. online or physical.
It shows developers the seriousness of selling an app.

Mar 26 07:10 PM

[tommylee:]

Another leech stirring the S...t and forgets that if a developer has to build their own online outlet (besides the time spend on it or even outsourced) monthly charge and maintenance fees, optimizing the website and promotion of the site and product they may well fall outside making any revenues.

When do these complainers stop being bloodsuckers. You get premium exposure, a topnotch branding, a hefty percentage return without much risk unless you output a mediocre product that does not deserve even the light of day. Go sell your stuff on Clickbank and see what premium you will have to "pay" to even get any sales going. Granted, you can't sell an iPhone App at Clickbank, but that does not take away any credibility of the statement.

Nothing wrong with Apple's Policy. I completely agree with SiliconValleyJoe's statement.

Mar 27 08:41 AM

[Warnin4U:]

Application writers should spend a few cents on marketing. Dissatisfaction usually results when a consumer isn't satisfied. They typically are not satisfied when an App doesn't do what they think it is supposed to do. A better job describing the applications capabilities on the front end might help the App writers. However, I do think 90 days is a bit much. If you don't like an App, you know in 14 days. I think a scaled refund policy on third party Apps should apply. If Apple wants to provide 90 days on their Apps, that's fine, but they should provide a little more protection for third partys. They might want to peanilize (money back + 10%) if an App is returned in 7 days - this would encourage very accurate App descriptions by developers, maybe even with warnings saying what the App won't do!

Mar 27 08:59 AM

[mikesan:]

who is this person I can only assume it's a woman what a stupid rant did she ever do any business or has she spent her life writing twaddle like this. A contract is a contract for better or for worse, if you can't stand a joke you shouldn't sign up.

Mar 27 09:33 AM

[3CpO:]

...and do not forget (as highlighted by tommylee) that most of the developers are strongly leveraging Apple well known name and reliability, otherwise they wouldn't sell one single app. I download apps and pay for then just because I browse Apple web site, otherwise I woudn't buy anything....
Cheers

Mar 27 09:33 AM

[Johnty:]

I don't know how you can reason in that way. Apple is the seller of the application,m therefore bears some responsibility in testing it for 'fitness for use/purpose' before releasing it on their own sales website.

I think that it's a great way of reducing the number of developers working on making the iPhone a very cool applications platform..

If the application is not fit for use, then a purchaser should get a full refund, however, i don't see why a 'change of mind should entitle a purchaser to a free refund (possibly the equivalent of a re-stocking fee could be taken to cover Apple's costs.. I certainly don't see how Apple could have a right to retain it's commission when a product has been returned. I wouldn't be surprised this type of clause would be found to be unfair and unenforceable in Europe...





On Mar 26 11:14 AM nytesky wrote:

> I don't think it is unfair. If a developer makes an app that isn't
> very good or doesn't fulfill expectations and many people return
> that app, Apple shouldn't be expected to shoulder the cost of housing
> and distributing an app that sucks.
>
> This clause is an incentive for developers to put out good quality
> apps that people want to keep. There are a lot of junk apps on that
> store. If a developer can't make an quality app that won't be returned
> in masse, you are right, they shouldn't develop for the iPhone /
> iPod touch platform.

Mar 27 09:34 AM

[scottg:]

Can you be anymore dramatic? Treating the developers like dirt? Maybe you should grab a flashlight and lead the developers thru the tunnel and out to safety.

Mar 27 10:02 AM

[tommylee:]

Johnty, I'm a European Citizen and I can assure you that 90 days policy of return is in line as well as the "retail clause" Apple has put in place since consumer protection of online sales is probably more strict than in the US but on the other hand leverages the "opportunity provider" to charge for marketing, branding and "restocking" since it is NOT the producer of the product but it "merely" provides a service. You should read-up on "retail clauses" before making statements that Apple should take some responsibility.

No wonder the country US of A is in trouble, because no one wants to take responsibility but likes to put that in the hand of the retailer. You buy a faulty product like a GM truck, who do you go after to get your money back or at least some compensation: The Dealer or The company that produced it?

Get real.... and welcome to the real world.


On Mar 27 09:34 AM Johnty wrote:

> I don't know how you can reason in that way. Apple is the seller
> of the application,m therefore bears some responsibility in testing
> it for 'fitness for use/purpose' before releasing it on their own
> sales website.
>
> I think that it's a great way of reducing the number of developers
> working on making the iPhone a very cool applications platform..
>
>
> If the application is not fit for use, then a purchaser should get
> a full refund, however, i don't see why a 'change of mind should
> entitle a purchaser to a free refund (possibly the equivalent of
> a re-stocking fee could be taken to cover Apple's costs.. I certainly
> don't see how Apple could have a right to retain it's commission
> when a product has been returned. I wouldn't be surprised this type
> of clause would be found to be unfair and unenforceable in Europe...
>
>
>
>

Mar 27 04:32 PM