The App Store TollNarrow moat

The App Store is a toll booth of quite remarkable design, and once you see it clearly you understand a great deal about how Apple's profits have shifted over the past decade. Every developer on earth who wishes to reach the more than a billion people carrying an iPhone must pass through Apple's gate¹, and on a great deal of what changes hands inside that gate² — the paid apps, the in-app purchases, the digital subscriptions — Apple takes a commission. It is a wonderful sort of business: high margin, recurring, and paid for almost entirely by other people's effort and other people's risk. Apple built the road and the storefront; the developers supply the destinations and take the chances; and the toll is collected quietly on the traffic between them. This is a large part of why the Services segment has grown into such a profitable and richly valued piece of the whole company: in fiscal 2025 it was 26% of Apple's net sales and 42% of its gross profit⁶.

The genius of the position is that the toll is not merely a tax on games and apps. It increasingly sits astride payments and subscriptions as well, so that Apple owns the checkout counter for a substantial slice of the digital commerce conducted on its devices. When a business can collect a percentage of everyone else's transactions simply for standing at the door and controlling who may pass, it has found one of the most attractive economic positions in all of commerce — a position that requires very little additional capital to grow as the traffic through the gate grows. The newest extension of the toll is advertising: Apple sells search-result ads inside the App Store and, in 2026, began opening paid placements in Apple Maps as well³ — high-margin dollars riding the very same gate. It is worth holding this beside the erosion story, because it shows the toll is not only being chipped at by regulators but also widened into new lanes; even with the commission under fire, that combination helped push Services to a fresh all-time high in the March-2026 quarter.

But here is the one genuinely soft spot in an otherwise sturdy fortress, and it is worth being candid about it rather than waving it away. The threat to the App Store is not a competitor with a better product. No rival is going to build a more appealing gate to the iPhone, because Apple owns the iPhone and always will. The threat comes from regulators and courts, who have looked hard at how much the toll collects and how little practical choice developers have but to pay it. The long fight with Epic Games in the United States⁴ and the Digital Markets Act in Europe are both, at bottom, attempts to pry the gate open⁵ — to force Apple to allow alternative app stores, outside payment links, and lower commissions.

That makes this the one place where an otherwise durable moat could be narrowed not by a rival's ingenuity but by the stroke of a legislator's pen. Apple has so far conceded ground grudgingly and by inches, and it retains a great deal of pricing latitude even under the new rules — but the trajectory of the pressure runs one way. The wall here is high and the toll is rich, richer than almost any other Apple collects. It is also the wall most exposed to the weather of politics, and a prudent appraiser of this castle keeps one eye fixed firmly on the sky.