Why the EU's Digital Markets Act Risks Apple's Services Growth

The European Union's Digital Markets Act took full effect last week. Apple must open its App Store to third-party payment systems and sideloading by March 7. The change directly threatens the company's high-margin services revenue, which hit $85 billion in fiscal 2024 and accounts for roughly 22% of total sales.

Services margins run near 70%, far above the 36% gross margin on hardware. Apple collects a 15% to 30% commission on in-app purchases and subscriptions. Developers who route payments outside the system could cost Apple $4 billion to $6 billion a year, Morgan Stanley estimated in a January note.

The risk is not new. Apple already lost a similar fight in South Korea and the Netherlands, where regulators forced alternative payment options. In those markets, developer adoption has been slow – Epic Games and Spotify are among the few to use the new systems – but the EU's larger consumer base and stricter enforcement deadlines raise the stakes.

Apple responded by proposing a new fee structure: a 0.50 euro per-install fee on apps distributed outside its store, plus a reduced 17% commission on in-app payments. Critics called the plan a workaround. Spotify's chief legal officer said the proposal "makes a mockery of the DMA." The European Commission has not approved the plan.

A worst-case outcome: the Commission rejects Apple's fee structure and demands a clean sideloading option with no per-install charge. That would gut the commission model, cutting services revenue by an estimated 10% to 15%, according to a Reuters analysis of analyst consensus. Apple's stock, already trading at 28 times forward earnings, would face multiple compression.

A best-case outcome: the Commission accepts Apple's fee proposal, and most developers stay inside the walled garden, avoiding the per-install charge by sticking with the standard App Store. That scenario would limit revenue loss to under $2 billion.

The Commission's decision is expected in the second quarter. Until then, Apple's services revenue growth – which slowed to 11% in the December quarter from 16% a year earlier – will face pressure. Investors watching the stock should track developer adoption rates and Commission statements, not just revenue figures. A ruling against Apple's fee structure would test the services thesis that has supported the stock's premium valuation.