Apple Stock takes on Meta

Why is Meta so furious with Apple’s recent change to its App Store guidelines?

As you’ve probably heard, Apple now requires iOS developers to process in-app purchases for “boost” ads through its platform, which means Apple can reap up to 30% of Facebook’s ad revenue.

“Apple continues to evolve its policies to grow its own business while undermining others in the digital economy,” Meta told Business Insider. is committed to providing small businesses with easy ways to advertise and grow their business on our apps.”

It is a serious threat to Meta stock because, as I will show you, Apple
AAPL

AAPL
is by far the largest online retail force in the world. I know it’s hard to believe, but Apple’s partners sell twice as much online as Amazon
AMZN

AMZN
— the supposed king of online shopping.

This largely invisible side of Apple stock has so much power that Capitol Hill is growing increasingly worried. This is why Apple CEO Tim Cook has been called so many times to explain himself to Congress.

Apple’s greatest invention isn’t the iPhone

I remember my first smartphone. It was an HTC P3600, released a year before the iPhone.

The phone came with a few apps for the must-haves like mail and calendar. There were also third-party apps, but they were a pain to get. You had to find the right version for your phone, download it to a computer first, and then install it on your phone via a cable.

Then the iPhone arrived. As a phone, that hasn’t changed much. There were already dozens of phones with touchscreens instead of buttons before the iPhone. The real revolution came a year later.

In 2008, Apple launched the App Store, the world’s first app store built into the phone. For the first time ever, you can install third-party apps on your phone without needing a computer science degree. This changed the role of apps for good.

Today, the App Store has 2 million apps that we turn to in almost every aspect of our lives. We watch TV shows on streaming apps. We train using fitness apps. We travel the roads with GPS applications. We pay in stores and restaurants with banking apps.

But most importantly, we spend a lot of money on apps.

It turns out that apps from the App Store earn almost 2 times more than Amazon

The dominance of Amazon (AMZN) may trick you into believing that online shopping is only for physical items like clothes, books, and electronics. Not so. It is much, much more. We spend money online on all sorts of things that don’t come in a box, like taking a ride with Uber
UBER

UBER
.

Now let me ask you this.

How do I hail an Uber? You are using an app. What about this Netflix
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NFLX
sets you catch up on while commuting? It goes through an app. And how did you (or your kids) get this ranking in the Fortnite game leaderboard? Well, you know…there’s an app for that.

Without thinking too much about it, we are spending more and more money through apps. This is what I call “app-commerce”. And as we recently discovered, this invisible corner of online retail is making more money than anyone could have imagined.

A few years ago, a groundbreaking study revealed how much money people spent on App Store apps in 2019. The figure includes everything: physical items like clothes and groceries, services like Uber and Netflix, and digital goods like plane tickets and games.

Sit down before you continue reading because the number is the spirit breathtaking.

In 2019, App Store apps (used on the iPhone) achieved a staggering $519 billion in revenue. For perspective, Amazon generated $328 billion in sales in 2019. With its partners earning 2x more than Amazon, it turns out Apple’s App Store, not Amazon, is the largest online retail force in the world.

Now you could say that Apple has nothing to do with these sales because the App Store apps are independent from Apple. Fake. Apple maintains strict control over what apps Apple customers use and how they use them.

Apple dominates iPhone apps

Imagine there was only one department store chain on the entire east coast. And that chain is owned by a single company that dictates how more than a hundred million Americans shop. It tells them which products they can buy and from whom. Even how these products are used at home.

You would call it nuts. But in fact, it’s the App Store.

Think about it, almost half of Americans carry an iPhone. But unlike any other phone, iPhone does not allow you to install apps from anywhere. Like a walled garden, the App Store is the only place an iPhone user can get apps.

Even there, Apple strictly governs what apps you can get and how you can use them.

For example, it shamelessly pushes its “homemade” apps that come with the iPhone, most of which are set as default options for their particular use. So when you send an email, Apple Mail appears first. And Apple’s Safari is still the go-to app for browsing the internet.

Apple also doesn’t play music on the Home Pod from any app other than its own Apple Music (unless you make a specific request.) And when you ask Siri to call or text someone, the iPhone defaults to Apple’s phone and iMessage. apps.

There is more. Apple applies a 15-30% “Apple Tax” to every penny its third-party apps earn from Apple customers in-app. Most of them have no choice but to pay for it because App Store guidelines prohibit charging Apple customers outside of the app.

In other words, Apple has an iron grip on how half of America spends its money through apps. It’s a powerful leverage that drives one of Apple’s biggest moneymakers.

The App Store is driving Apple’s biggest business

Apple is no longer an iPhone company. Today, services like Apple Music and iCloud generate almost half of Apple’s profits. And Apple’s absolute monopoly on iOS “e-commerce” is a major enabler of this activity.

Is it right? It’s the job of policy makers to decide. But as an investor, I’m watching Apple’s stock closely as it transforms into a services giant ruling a growing share of online retail.

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