Meta’s developer revenue split: hypocritical, yes, but not unfair

Meta's revenue split oculus
Image by zhuravlev | Bigstockphoto

The notion that Meta Platforms is treating developers unfairly when it is on course to lose billions of dollars from subsidising device sales from which developers are benefiting has no merit, in my opinion.

Developers are starting to make a fuss about the revenue share that Oculus charges developers in return for being present on the Oculus store. Here, the Oculus store has modelled its fee structure on the industry standard of 30% with 10-15% being charged for content subscriptions.

Developers are absolutely correct to call out Meta Platforms for being hypocritical, as Mark Zuckerberg has often criticised Apple for exactly the same business model.

But they are missing the point.

This model of a 30% revenue share comes from the days when software was distributed on games cartridges, as this is what it would cost Nintendo or Atari to create, distribute and sell the software in a cartridge for their machines. The model was then adopted for digital music sales, when digital music players were all the rage. And when these were absorbed into smartphones, the model followed into the Apple App Store, Google Play and so on.

Neither Google nor Apple intended their app stores to become profit centres in and of themselves, as they were run at break-even and seen as a way of driving engagement within the ecosystem which could then be monetised in other ways.

However, as the smartphone economy really took off, the revenues far exceeded expectations which meant that app stores became extremely profitable in their own right. Apple and Google said nothing about this change, and while there were a few rumblings here and there, it was not until Epic Games very publicly challenged Apple that this issue came to a head.

It is now clear to everyone that Apple and Google (Apple particularly) make a lot of money from their app stores, which has created a backlash from developers as well as the intense pressure that we now see on the app store / developer relationship.

However, the case for Oculus is very different, as Reality Labs does not make money and is on track to lose around $14 billion this year. This represents a colossal investment by Meta Platforms in the Oculus platform, a large part of which goes into subsidising the hardware in order to get Oculus to critical mass.

This – combined with the reasonable user experience – is why the Oculus Quest 2 sells in good volumes, and why Oculus dominates both the tethered and untethered VR markets. The fact that developers are selling apps and generating profits in the volumes that they are is, in large part, due to Meta’s substantial investment.

Hence, the idea that Meta is making money from developers is non-sensical – in fact, one could easily argue that it is the developers who are making money from Meta Platforms.

It is not until Meta starts to make money from the Oculus platform that one could argue that developers are being unfairly treated by paying 30% to Oculus – currently, they are making a contribution to the growth of the platform from which they are benefitting.

If Meta Platforms goes on to become a dominant force in the metaverse and becomes very profitable, then there will be a much stronger case for the share of the revenue paid to Oculus by app developers to be reduced significantly. I already see the revenue share paid by app developers coming under intense pressure – so by the time (or if) the metaverse takes off, then I suspect that the industry standard will be well below 30%.

I think that the best scenario for all concerned is one where the platform owner makes a very healthy profit from the ecosystem that it has created and where the app store is run at break-even. This would ensure that developers maximize their profitability and at the same time make a contribution to the cost of running the platform from which they are benefiting.

The platform owner benefits greatly from having the developers present, as it is a core part of creating the engagement which it can then monetize through any of the traditional methods. Hence, I think that until Meta Platforms begins to make healthy and sustainable profits from the metaverse, it will be very difficult to claim with any credibility that developers are being treated unfairly.

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