The App Business Blog

The German site ifun.de noticed that Apple recently changed their iTunes Terms and Conditions for several (all?) EU countries. The changes include several new paragraphs related to “right of cancellation” and it mentions a 14-day period within which you can cancel your order and receive a refund, without giving any reason.

9to5mac seems to have been the first U.S. site to pickup the story and they ran with the headline “Apple introduces 14-day no questions asked refunds for App Store & iTunes in EU countries”. This was quickly picked up by many other sites and caused a lot of buzz on Twitter.

So it must be true then?

The iTunes T&C were indeed changed for EU countries on December 16. You can read the new U.K. version here. The new paragraphs in question are conveniently placed at the very beginning of this very long legal document. Here’s the smoking gun:

Right of cancellation: If you choose to cancel your order, you may do so within 14 days from when you received your receipt without giving any reason, except iTunes Gifts which cannot be refunded once you have redeemed the code.

Compare that to the U.S. version which succinctly says:

All sales and rentals of products are final.

Very interesting. And a significant change to how business is currently done on the App Store. Could this finally be the introduction of free trials that so many developers have asked for? But if that is the case, why introduce it as a change to the T&C and do it during the holiday season? Apple is certainly not known for being proactive in their communication with developers, but this borders on the Christmas Eve document dumps that governments like to do when they don’t want anyone to notice.

But if you bother to read a bit further into the T&C document, you quickly find this paragraph:

Exception to the right of cancellation: You cannot cancel your order for the supply of digital content if the delivery has started upon your request and acknowledgement that you thereby lose your cancellation right.

Given how the App Store works with downloads beginning immediately when you purchase an app, this change is really only interesting to lawyers and EU commissioners who are pushing a new directive on consumer rights.

Nothing new here. You can go back to your holiday vacation and glögg.

But since I have your attention, let’s do a thought experiment: What would happen if Apple suddenly did implement a 14-day no questions asked return period for iTunes?

Who would benefit from this?

Consumers obviously. But I also think that many developers would make more money as a result of such a change. If you have an app that is expensive, it seems very likely that more people would be willing to give it a try if they know that they can easily get a refund if the app is not right for them. This is the argument put forth by proponents of time limited trials in the App Store.

When you shop in the App Store you know that you are inevitably going to buy some duds: apps that were not what you expected, apps that are buggy, apps that were totally misrepresented in the App Store description, etc. When apps only cost $0.99 it’s easy shrug off the bad purchases. The total price you paid to find an app that you end up using is still pretty low. However, if the risk of purchasing a “bad” app is taken away, then that could lead to an overall increase in App Store prices. The difference for developers is that the good apps will get all the money instead of it being spread out accross several not so good apps. This is a good thing in my opinion.

Who would become the losers?

Developers of bad apps are likely to suffer economically as a result of easy refunds. Their refund rates will skyrocket and the business model of flooding the App Store with crap will crumble. I would not cry for them.

Unfortunately some really good apps could fall victim to this change as well. Think of apps that you “finish” within 14 days. Many casual games fall into this category. Event specific apps too. Perhaps some travel related apps, e.g. after your short vacation trip you may not “need” a city guide app anymore. Of course it’s not right to fully enjoy an app for 13.9 days and then request a refund. But some people would of course abuse this.

Open questions

• If an app is refunded, would it be removed from the customers iTunes account or can the customer continue to use the app?
• Would this only affect the initial app purchase, or In-App Purchases too? I’m guessing only the initial app purchase as it would be impossible for Apple to “roll back” purchased features and benefits inside apps.
• Would this change only pertain to apps? The Terms & Conditions are for all of iTunes, not just the App Store portion. What about ebooks, music and movies? I think movies would be especially vulnerable to a 14-day return period. It’s unlikely that it will take you 14 days to watch a movie. And if you “didn’t like” the movie is that reason enough to get a refund?

How would this affect you?

If Apple were to implement a more liberal refund system, then you should keep an eye on  your refund numbers in iTunes Connect. In the sales report you can set a filter for Transaction Type = Refund. You have probably seen some of these in the past as Apple has always had a limited refund policy in place, it was just a lot more difficult to use.

In all likelihood you would see the refund number increase initially after a new refund system was introduced. I wouldn’t panic immediately. People are probably going to try this new system in the beginning to see if it really works. Then I think many people are going to promptly forget about it.

Should you pull your app from sale in the countries where the refund policy was introduced? That seems like a foolish reaction. Even if your net sales after refunds is lower than your sales were before, they would still be greater than the $0 you’ll make from no apps for sale in those countries.

If my guess above is correct and IAP would not be subject to refunds, then maybe a change will finally push you over to switching your apps to free download with IAP to unlock all features. Interestingly the reverse is also true: if it turns out that apps that are paid up front convert better than free + IAP, then it should be worthwhile launching a paid app as well.

Why is Apple not doing this?

A Machiavellian approach would be to implement this under the guise of “EU is forcing us to do it”. And if things don’t go well, then they can blame the EU directive. If it’s a success, then they can take credit and roll it out to other countries too.

If nothing else, rolling out a new return policy just in the EU would make for a controlled experiment to determine if trials are a net positive for apps: You can compare your net sales in the EU before and after this change, and you can compare with other regions of the world that do not yet allow for easy refunds.

Apple should view this as a good change for consumers, and Apple usually takes the side of consumers, especially when they can use that club against their competitors. As far as I know the Google Play Store still only offers a 2-hour return window for apps.

As this news flash showed, the thought of instituing a 14-day return period caused a lot of anxiety among developers. But overall I think this would be a positive change for the best developers. And that would definitely be in Apple’s long-term interest.

written by Nick