What’s at Stake in the Apple vs. Epic Battle
Epic’s quest to remake Apple’s App Store business model is now in court
Apple’s 13-year-old App Store (and its slightly younger in-app purchases and commission system) is facing its biggest test, not with consumers but in a trial that kicked off Monday in Oakland, California.
At stake is the 30% revenue cut Apple takes on every app and in-app purchase. Fortnite maker Epic didn’t like it and, last summer, it launched a carefully calibrated campaign (breaking Apple’s rules on direct purchases, teasing Apple about it in a “1984-style” ad, and suing them) to upend it and bring the entire issue to court.
I couldn’t be there (nor could most of the witnesses who, thanks to the ongoing pandemic, video-conferenced in), but followed some of the live tweets of the Day 1 testimony. They painted a clear picture of Epic’s strategy and Apple’s well-worn defense. Here are some key takeaways:
So much the same
Epic rightly pointed out that iOS and macOS share the same core technology and Apple’s decision to keep macOS open to app downloads outside their store but iOS closed to all but the App Store is about policy, not technology.
I don’t think you need a computer degree to know this. Apple made a choice, one I’ve always believed was driven in part by seeing the vulnerability of more open, side-loadable systems like Microsoft Windows (Microsoft, by the way, will be testifying in this trial).
Apple’s App Store Is the Monopoly You Want
It’s not perfect, but neither is the case against it
If you accept that macOS and iOS have technical similarities, then Epic argued, it’s reasonable to assume that the security checks and balances Apple applies to its desktop platform could also be applied to iOS (and, I assume, iPadOS).
In the last few years, Apple has nudged iOS, macOS, and the newer iPadOS closer and closer to each other, perhaps inadvertently undermining the argument that iOS and the iPhone are somehow unique in their ecosystem.
At the heart of all this are the billions of dollars Apple and its partners make off in-app purchases. A few years ago, Apple reported paying out, cumulatively, $100 billion to developers.
Despite Epic’s App Store frustration, the company has made more than $9 billion off Fortnite between 2018 and 2019. Over the last few years, Apple made a reported $360 Million from its Fortnite cut.
Overall, Apple makes billions from the App store each year. As Epic sees it. that potential revenue is what drove Apple to start taking a cut of in-app purchases.
Was that nefarious? Developers occupy space in the store, get free promotion, marketing (occasional profiles in the App Store), and delivery to iPhone users. If the hosted developers are making some money, it seems only natural Apple would get a cut.
There’s a fair question about the size of Apple’s cut: 30% far outstrips what, for instance, a grocery store might make on the food products filling its shelves (1%-to-3% margin).
Apple has already shifted that policy so that smaller app developers, those making less than $1M a year (which I assume is the majority of them), pay just 15%. Of course, Epic is not among those who qualify for the more reasonable cut.
Is it safe?
Epic also pressed witnesses on whether in-app, as opposed to side-loaded or direct to developer, purchases make iOS inherently safer.
I think it’s hard to argue that a closed system doesn't afford at least some higher level of security, But iOS is not a failsafe system in and of itself. Just this week, Apple hastily rolled out iOS 14.5.1 only days after launching the more substantial iOS 14.5 because of an already exploited Webkit vulnerability.
Times are a changing
Epic rightly pointed out that the market is shifting. In 2019, Microsoft reduced its rev sharing agreements, adjusting its Microsoft Store revenue cut down to 5%. On the other hand, that adjustment did not include Xbox game downloads.
However, some of Epic’s arguments, like pointing out that car companies don’t take a gas revenue commission, didn't hold up.
Unlike cars, Apple is the only company building the iPhone.
Apple also controls the iOS developer environment. Car manufacturing is essentially open source: anyone, with the right expertise, instructions, and parts, can build a car.
Gas is nothing like an app. I’d argue it’s more than the electricity used to run an iPhone. Apps are more like features in a car: think car radio and sunroof.
As for Apple’s opening day arguments, they played like a Greatest Hits of all previous App Store defenses:
- The App Store is beneficial and serves the needs and desires of most developers
- Other app stores take 30%
- We have positive reviews from those using the app store
- No one is forced to charge for apps or set up in-app purchases
- Developers essentially demanded native apps, which meant Apple had to build an app store (HTML apps were a bust)
Even as Apple and Epic battle it out in court, I contend Epic still needs Apple and its App Store. It’s arguing for fundamental change to the App Store business model, but not its destruction. When all is said and done, Epic still wants to be on that platform.
Apple pointed out that Fortnite does just fine without the App Store anyway (it’s on other platforms and venues and still making money). Here, though, Apple misses the point. Epic isn’t just fighting for the future of Fortnite in the App Store. The game developer will build other games and experiences, ones it surely wants to bring to Apple’s huge audience. If Epic, or the courts, can’t get Apple to change, that might never happen.
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