Epic Vs. Apple: Every App Store At Risk

Summary

• There are very high stakes in this case. Every app store and a large part of Apple’s business model are at risk.
• There is tortured logic on both sides, much more so and on key foundational issues from Epic.
• But law is not logic. The risk is real.
• If Epic wants to keep going, this will take a very, very long time.

Photo by Savusia Konstantin/iStock Editorial via Getty Images

Battle Lines

Last week, both Apple (NASDAQ:AAPL) and Epic Games filed their initial proposed findings of facts in Epic v. Apple. These are the competing narratives that are at odds with each other at the trial. We’ll dive into the details, but the basic arguments:

• Epic: Apple’s entire existence is built around the walled garden and keeping those walls high. They leverage the exclusivity of the App Store on iPhone and iPad to build those walls higher. The walls create its own market, where Apple is the monopolist. This is anticompetitive. Also, their vaunted “curation” is terrible. (Epic's filings can be accessed here)
• Apple: We love our developers, to whom we’ve paid out many billions of dollars. But the security and privacy of our customers comes first, and this is one of the ways we have of we enforcing that. We spend a boatload of money every year on this, and deserve to be compensated. Also, not for nothing, but we’re not even close to a monopoly in phones, and especially not in gaming devices. (Apple's filings can be accessed here)

Both arguments hinge on two underlying questions:

1. Despite the fact that iPhone does not have a majority of smartphone or gaming market share, is iPhone/iOS a “relevant two-sided market” as Epic argues?
2. Is a phone sufficiently different from a PC that Apple is justified in locking iPhone down more than Mac? What Epic is doing would not be a violation of their developer agreement on macOS, just iOS and iPadOS.

But there is a broader question as well: to what extent do app store owners like Microsoft (MSFT), Sony (SONY, their brand new ticker as of April 1), Google (GOOGL), and Amazon (AMZN) have the right to set terms in their stores? Most at risk from an Epic win would be the Xbox and PS4 stores, which have a very similar setup to the iOS App Store — you can’t get around it, and you have to pay Microsoft and Sony their cut. It is the whole basis of the console business. If a phone is the same thing as a PC, is a console also the same thing?

Ironically, Epic also has a platform they charge developers for, the Unreal Engine. I can think of a lot of ways this could backfire on them. They have a much smaller number of users than either Apple or Google, and charge much less in their store. What if that became $0, which is what Epic is asking for?

In the meanwhile, Apple will keep plugging Epic's competitor, Unity (U), to developers, like they did at the 2020 Worldwide Developers Conference.

Should be cued up, but the Unity presentation begins at 20:48

But the biggest loser should Epic win is Apple. This is an existential challenge to their way of doing business.

Before we begin, you need to know that I am not an attorney, and I will not be commenting on the legal issues of IP and antitrust law. I am here to sum up the important arguments, and the implications should Epic win. However, law and logic are not the same thing.

But even though I don’t understand the law fully, this much I understand: if Epic wants to keep going, this is the opening bell of round one. Whomever loses will appeal, and this may wind up being decided by the Supreme Court, if Congress doesn’t do something first. In either case, that is a very long way off.

But also, because I am not a lawyer I can sum this case up very succinctly up front. Apple has poured billions of dollars into the App Store to make it what it is today. They think they should be compensated for that from the developers who make money on the platform, who are a minority. Most apps do not make them a dime, so the ones that make money shoulder that burden. The 30% cut on everything, including in-app payments, is pretty standard industry-wide for services. For example, Google Play Store has the same policy, though it was loosely enforced until last year. Why Apple? Android has a much larger market share. Also, in the days when software came in shrink-wrapped boxes, the retail cut was closer to 50%.

Epic, on the other hand, wants to pay Apple 0%.

I’m also going to skip Apple’s countersuit. They claim Epic violated their contract, the same one every developer signs. Epic clearly did, in an effort to precipitate this case, and admit so in their filing. What happened was Epic submitted a Fortnite update to the App Store with a hidden in-app payment system that skirted Apple’s. Once the new version was approved and in the App Store, they turned on their in-app payment system. I think they believe they were being clever to prove that Apple’s App Review process is flawed, and allowed what amounts to a Trojan through. That may be a little too clever, because they were very obviously purposefully violating their contract. Also, Trojans are bad.

Biases, I Have Them

Like everyone, I have biases. I try hard to fight them when analyzing things, but we all know that’s a losing battle. So for the record:

• I am a very long time Apple shareholder, continuously since 2005.
• I have been an Apple customer since 1981. I generally don’t even consider competing products. Initially, this was because of OS quality versus DOS/Windows, but now it is mostly because they are the only large tech company that sees security and privacy as a feature, not a cost center.
• Since Steve Jobs’ return, I consider them the greatest company in the history of capitalism. They still manage to exceed my very high expectations, like they just did with the M1 Macs.

So there it is: I’m a Crazy Apple Bull. I tried very hard to be fair to Epic here, but they make it difficult.

Since a lot of the key events and decisions are now over a decade old, let’s back up a bit and look at how we got here.

The Background

This all begins of course with iPhone, released in June 2007. The first iPhone only had Apple apps on it. They paid Google, Yahoo and others for the services behind them, but all the apps were Apple apps. After everyone got over how awesome the phone was, the whining about the lack of third-party apps began pretty promptly, if I recall correctly, around the fall of that same year.

Some people took matters into their own hands and created an unofficial iPhone software development kit (“SDK”), based around the Mac SDK, because the operating systems were so similar. People started writing apps that leveraged the unique aspects of the phone like touch, location, orientation, and ubiquitous networking. Others released “jailbreaks” which installed a free third-party app store called Cydia from which you could download apps. At first, all of these apps were free, as there was no payment system. Most of these apps were terrible, but some were good.

So this is when Steve Jobs made a series of decisions that put us where we are today. Apple had enough trouble getting the phone out in 2007, so any idea of an SDK was shelved. They filled that hole with web apps. But once things began developing in 2007 and 2008, they were able to figure out how they wanted to approach it.

Steve Jobs was a man who had a lot of disdain for products that didn’t have the Apple brand. He thought no one else thought through the user experience as completely as Apple did. Moreover, he saw the terrible average quality of apps on Cydia, so that did not help. Not having third-party apps was perfectly all right with him. But he wasn’t blind to the demand, and the risks of not filling that demand with an Apple solution. There were too many people who looked at this “phone” and saw a powerful little computer. He sought to find a middle ground where Apple could retain some control.

His goals:

• Treat the phone differently from the PC. The biggest issue is the phone’s ubiquity in people’s lives — it is always with them, and always on a network. Moreover frequent downtime like on PCs was unacceptable for this sort of device.
• Retain some control over quality. Emphasize security and privacy, and filter out abusive practices.
• Native is better than otherwise.

Notice I didn’t mention profit. Jobs nor anyone else at Apple anticipated the scale of what this has become. In 2008 when it launched, they would have been happy with any profit from it. Some analysts pegged it as a small loss-leader to keep iPhone sales going up fast and grow the ecosystem. I was one of them.

Keep in mind what Apple was at the time of iPhone launch. There was a halo around them from iPod, but they still had big issues around third-party support for Mac retail, service and software. They stared three business more to solve these problems than to increase their bottom line, but both wound up happening. These were, chronologically, the expansion of AppleCare services, the retail stores (and more AppleCare with that), and then the App Store.

In the beginning, the vast majority of apps were free, and the ones that did charge were mostly $0.99. Still, today, many of the most downloaded apps in the store don’t net Apple a dime, as they are front ends for ad-supported services, or real-world services like Uber (UBER). So Apple was surprised as anyone here about the rapid growth of the app economy. They had no idea so much money would start changing hands.

The biggest moment in monetization was when Apple turned on in-app payments for free-to-download apps in 2009, and this is at the core of Epic’s complaint. Even at $0.99 and with a very simple payment method, there was a lot of friction in getting people to download paid apps. Free apps were dominating, which advantaged those ad-supported and real-world services who were getting paid elsewhere. The “freemium” model was born. South Park explains it much better than I could:

Now that you’ve stopped laughing, realize that all that is exactly how it works. The model is to rely on a small proportion of users who exhibit problem-gambler type behavior to fund the whole system for everyone, that large majority who only play for free, or through less-profitable advertising.

Epic is not a public company, but a good comparable is Roblox (RBLX). Their gross margin in 2020 was about 74%. Most of their in-game currency sales take place at app stores that charge them 30% like Apple, but a small portion is done on their website, at a much lower cost. So Epic’s goal is that they would like their gross margin to go from something like 74% to something more akin to 95%. To be clear, they are the ones accusing Apple of being greedy.

I Read So You Don’t Have To: Epic

In an effort to be fair to Epic, I wrote this section before I read Apple’s response.

A High-Walled Garden

Epic’s statement starts thusly:

This case is about Apple’s conduct to monopolize two markets within its iOS ecosystem: (i) the iOS App Distribution Market; and (ii) the iOS In-App Payment Solutions Market.

So right off the bat, they have a high hurdle to pass, which is proving that iOS is a “market” as defined by antitrust law, despite the fact that Apple does not sell a majority of smartphones, and certainly not gaming devices where Epic makes their games available.

So let’s dig in to how Epic builds their novel argument. They start here:

Since the introduction of iOS in 2007, Apple has developed myriad services and features that tie together all Apple products to create an Apple “ecosystem”, but that are not compatible with devices running on other operating systems outside of the Apple ecosystem. As Apple has added more features and more devices that can interact with iOS, the reach and hold that iOS has on consumers’ lives has grown. As a result, consumers—and often their households—become locked in to iOS, with high switching costs and decreased ability and willingness to extract themselves from the iOS ecosystem.

So the first thing they state as fact is that people buy Apple products serially, and do so for the entire household, because of these high walls Apple builds to make switching costs high. There is no doubt that switching costs are high, as they are going from Android to iPhone. But they elide the fact that iPhone routinely scores 85%+ in customer satisfaction, which is right around iPhone’s retention rate. Maybe that’s why customers don’t switch? Let’s drill down, because this is part of their foundational argument.

Apple’s core business model is to “hook” its users on this integrated Apple ecosystem, so they “wouldn’t want to leave it”. To keep users repeatedly coming back to Apple’s offerings, Apple has worked to “build” its App Store and other services “as far into the iPhone OS experience as possible”...

Apple recognized that “[g]etting customers using our stores (iTunes, App and iBook store) is one of the best things we can do to get people hooked to the ecosystem”.

Apple has developed a number of apps, services and features that enhance “lock in” into the Apple ecosystem. iMessage (used in the Messages app), “Find My Friends” and “Continuity” are a few examples, all discussed below. As Apple has developed, updated and released its own apps over time, it has fully integrated them into the “iOS experience”.

[Those heavily edited quotes are from Apple SVP of Services Eddy Cue]

There is no doubt that Apple seeks to tightly integrate all their software and services, and one of the reasons is to make switching look unattractive. Epic focuses on iMessage, and this is a good choice as it is a core app and service Apple provides. Epic’s argument is that Apple could easily make an Android version, but they don’t because Apple feared, for example “iMessage on Android would simply serve to remove [an] obstacle to iPhone families giving their kids Android phones” [quote from Craig Federighi, Apple SVP of Software].

Their argument that Apple very much likes their walled garden and wants to keep the walls high is pretty solid. Apple always takes the walls of the ecosystem into account when making decisions like this. But I’m not sure what the remedy should be? Should Apple be forced to make an Android version of iMessage?

But regardless, I think that Epic reasonably establishes that Apple takes wall height into consideration when making big decisions. But they leave out all the other things that factor in, like trying very hard to make a garden people don’t want to leave in the first place.

Then this:

While these features designed by Apple may be responsible for the lock-in, they are not what drew most users to the iOS ecosystem in the first place. Rather, the success of the iOS ecosystem stemmed from the combination of Apple’s iPhone with iOS with a world of software created by developers whose ingenuity, creativity and dedication has led to an array of apps that provide ever more functionality to users within the iOS ecosystem. As Apple’s iconic commercial noted, whatever a user wanted to do with her iPhone, “there’s an app for that!” [emphasis added]

That their best evidence is an ad campaign from 2009 is telling. Apple ads mostly focus on security/privacy, music, productivity, and lifestyle. They haven’t talked about apps in their ads since the App Store was new, and they needed to promote it.

But there are bigger problems with this argument:

• Everyone can mostly get the same apps in Android. But developers usually start with iOS. Maybe Apple has spent a lot of money developing a more valuable ecosystem for developers, whether open or closed?
• They again elide iPhone’s stellar customer satisfaction.
• They brush over the billions of dollars Apple has invested into iPhone and iOS with a dependent clause.
• iPhone was a hit before the App Store existed.

They want to make the argument that apps are more important than the device and the Apple apps that come with it, but that Apple holds all the power in bilateral relationships. The second part of that is obviously true, and that has irked more developers than just Epic. But the first part is far from obvious.

When we dig down further into their detailed argument here, it really falls apart. Much of their evidence is cherry-picked phrases from long Apple presentations. For example:

In connection with promoting the iPad Pro in 2018, for example, Apple highlighted the availability of “over 1 million apps specifically designed to transform your iPad into anything you need with just a tap.”

They want us to believe that people buy iPad over other tablets because of the 1 million apps, that Apple knows this, and that they headline it. This is just not true. I went back and watched the 2018 iPad Pro introduction. iPad takes up almost an hour of the 91-minute presentation. About 10 minutes got devoted to third-party apps, near the end. These were presentations of NBA 2K and Photoshop. Then I looked at Apple’s website promotion of their new product the day after the presentation via the Wayback Machine. You have to scroll ten pages before they talk about third-party apps, again Photoshop.

This whole section is things like this.

iPhone Is A Market Unto Itself

But even if the court accepts Epic’s arguments, that still doesn’t establish iOS third-party apps as a “relevant aftermarket,” secondary to Apple’s “foremarket” as far as antitrust law is concerned. This is the meat here, 29 pages with 85 subsections. They rely heavily on the theoretical analysis of their paid consultant, economist David Evans, a noted antitrust expert.

I won’t walk you through the whole thing, but Evans’ conclusion here is that Apple and Google both operate “foremarket” monopolies, and could “hypothetically” increase prices by 10% or more without losing anyone. Evans says that Apple could, hypothetically, increase iPhone prices by $5 or more, and the price of the $99 annual iOS Developer Program fee by $9.90 or more without losing customers or developers, because of their monopoly.

Theory is great, but it helps to check the facts:

Could they raise prices slightly without losing customers and developers? Maybe. But they have kept developer fees constant for 13 years now. Apple first added an entry-level iPhone in 2009 when they introduced iPhone 4, but kept the 3GS as a less expensive model at $579. Since 2015, they have had the iPhone SE at $399. That 2015 iPhone SE is still supported, even though it has been replaced. Including payments to AT&T (T), customers paid $979 for the first iPhone. Apple has also reduced their cut for the vast majority of developers who gross under $1 million to 15%, and also for years subsequent to the first of subscriptions.

Could they raise prices without losing customers and developers? Maybe, but likely they would have done so by now.

They use more of these hypothetical price increases:

Using Epic and Fortnite as an example, Dr. Evans calculated Epic’s overall EBITDA margin for 2018 and 2019 to be 22.5% [that includes Unreal Engine, which is not at issue]. He then demonstrated that it would not be profitable for Epic to leave iOS unless it could recoup 87.7% of its Fortnite iOS revenue from other platforms. As Dr. Evans demonstrated, when Epic left the iOS platform, it recouped no more than half of its iOS revenues, on the high end, which means that Epic would find it more profitable to pay a 10% increase in price than to leave iOS.

But there has been no increase in price, for all these years.

So the entire foundation of their argument is this foremarket monopoly that Epic and their economist say exist, but does not seem to in practice. There are other problems in this section, beginning with their definition of Apple’s market share.

Apple’s market power is demonstrated by its market share. As noted, iOS has a 40% share of the Smartphone Operating System Market by revenue as of 2019. Apple also has a 56% share of revenue for smartphones priced $300 or more as of 2019. [emphasis added]

As you see, they chose revenue, not phones, as their market share metric. What Epic is talking about throughout the document is developers and individuals making micro-decisions for themselves and their companies or families, and how Apple uses their market power to affect those decisions. The relevant metric is the number of phones sold, not how much those phones cost. They chose revenue, because it makes Apple’s share sound much bigger. Estimates vary because Apple no longer breaks out units sold, but they range from 20%-27%, not 40%, which is not a majority in any event. Also, as noted, all of Apple’s phones cost over $300, so that threshold was cherry-picked.

Next, they have to convince the court that all the other gaming devices from Windows PCs to consoles don’t count in calculating Apple’s market share. I’m not going to go through this part. But even if we stipulate Epic’s argument here — consoles, PCs and phones are not the same thing and everyone treats them differently — it blows up another crucial portion which we will discuss next, and maybe the whole argument.

I am going to skip over a lot here. If the court buys Epic’s arguments regarding the foremarket, it is not hard for Epic to prove that Apple is a monopolist in that foremarket, and practices anticompetitive behavior there. It’s their business model to have a minority market share where they exercise absolute control.

What I am not going to skip is Epic’s broadside against Apple’s security practices, which is a key part of Apple’s justification for the 30% skim. Apple says they put a ton of time, effort and money into this, and they deserve to be compensated. To be clear, security is only one of Apple's justifications for App Review. There are other abusive practices, such as apps that do not do what their description says they do, which is the number one reason apps get rejected. They do this on every app, whether free or paid.

The biggest headlines come from Eric Friedman, head of the Apple's Fraud Engineering Algorithms and Risk unit. Here are some of his quotes Epic highlights from internal documents and his deposition:

App Review is bringing a plastic butter knife to a gun fight.

More like a pretty lady who greets you with a lei at the Hawaiian airport than a drug-sniffing dog.

Not able to deflect sophisticated attackers.

I would of course like to know what the contexts of these edited statements are, but this is tough stuff, and damaging to Apple’s reputation in this regard.

But even though these quotes are the ones that have garnered the most press attention, there’s a problem in their argument from the start — that iOS and macOS are largely the same thing, and iPhone and Mac are largely the same thing. They spend the first 11 pages of the section on this, because the rest follows from it. Again, what Epic is doing on iOS is not prohibited on the Mac. But 108 pages before that, Epic is trying to convince us that the smartphone is entirely unique, because that is foundational to their foremarket argument. They cannot have it both ways, and it blows up one or both of their arguments.

But, again, it’s helpful to look at facts. Epic highlights some very bad examples of malicious apps that have evaded review, mostly old ones. These are typically new exploits at the time, and get past both the automated review and humans. It is telling that most of the cases they cite are old ones. This goes back again to Apple’s continued investment in the App Store, and making App Review better over time.

A good example of how this sort of thing works is the very first large-scale App Store security breach in 2015. Chinese developers had to download Apple’s development software, Xcode, from US servers, and it was slow. Someone in China put up an installer hosted in China that they claimed was a mirror. But it was actually a modified version of Xcode that inserted malicious code into the developers’ app at build. Something like 4,000 apps with this code found their way on to the Chinese App Store before Apple shut it down.

This is the whack-a-mole of security. Apple even let Epic’s Trojan through. New exploits are happening all the time, and even the best security researchers have trouble keeping up. Everyone brings a plastic butter knife to this fight. No one is able to deflect sophisticated attackers all the time. The best you can do is work hard to close holes as soon as they open.

But the ultimate proof here is that iOS phones have something like 50 times less malware installed on them than Android phones, which have multiple App Stores and permit “sideloading” directly from the web. We can argue over what that number is, but it is somewhere in the mid-double digits. It’s a bit of an unfair comparison, because there are so many more Android phones out there, and it is a larger attack environment as a result. But there again is the tricky part for Epic: iPhone is only about a quarter of phones out there.

Epic counters that most of the security of the phone comes from other places like the Secure Enclave and sandboxing. This is very true, but Apple has never claimed otherwise. Their claim is that App Review is one of the many ways they keep malware off iPhone. Those billions of dollars in investment again.

That was a lot! Before we move on, let me bullet all that. Epic claims:

• Apple’s primary decision-making vector is keeping the costs of switching from iPhone high.
• Taken together, the third-party apps in the App Store are a bigger driver of initial iPhone vs. Android decisions than the phone and what comes with it.
• After those initial decisions are where the high switching costs come into play.
• Measured by revenue, Apple has a 40% global share of the smartphone market.
• PCs and consoles don’t count in that calculation, because consumers and developers view them very differently than phones.
• Apple is a monopolist in the iPhone/iOS foremarket and practices anticompetitive behavior.
• Apple has different rules for iOS and macOS. The phone and the PC are essentially the same thing.
• Most of the security on iPhone is provided at the OS and hardware level, not via App Review.

Redactions Hurt

Screenshot from Epic’s filing

This has nothing to do with any of this, but every single Apple analyst, including me, desperately wants to know what’s under those redactions. I shake my fist at an uncaring universe.

For what it’s worth, Apple disputes what’s under those redactions.

I Read So You Don’t Have To: Apple

You’ll be happy to learn that I will be much briefer with regards to Apple, because their argument is mostly pretty simple, and the burden is on Epic in any event.

• We invest a ton of money in keeping iPhone secure and private.
• One of the ways we do that is App Review.
• Because most app downloads net Apple nothing, developers that do make money on the platform shoulder that burden.
• Selling software was far harder and more costly to developers before the App Store. We built this thing from nothing.
• We are not pretending we don’t benefit, but the primary beneficiaries are developers, to whom we’ve paid out billions, including $700 million for Fortnite. Epic just thinks that should be a billion.
• A phone has different security requirements than a PC due to its ubiquity in people’s lives.
• The tighter restrictions on iOS App Store reflect that.
• We are not a monopoly. We believe the relevant market is gaming transactions, where we think we have a market share in the range of 23-38%. Honestly we don’t really know.

Lawyers being lawyers, there are plenty of laughers in here, such as claims that requiring the use of Apple’s in-app payments is “procompetitive.” There is some pretty tortured logic in that section. But that is not central to Apple’s defense. Unfortunately, the most central parts of their defense — we are not a monopoly — are heavily redacted, like subsection 399. Here’s a sample:

Apple filing screenshot.

Here we would have learned how many iPhones Apple sold in the US and other things. Again, I shake my fist at an uncaring universe. There are more redactions in Apple’s discussion of gaming market share.

But we did get some very interesting unredacted stuff as Apple closed out their argument in this section, including this chart:

Apple filing screenshot

Apple wants us to focus on the vast majority of downloads that do not net Apple a dime. What they call their “average effective commission” is less than 1% when taking all those free downloads into account. Note how steeply the green line declines after Apple introduces in-app payments. If Apple did not charge for in-app payments, they would likely be losing money on the App Store.

But as you see, many of Apple’s arguments here echo my own reactions to Epic’s filing; remember, I read Epic’s first and wrote that section before reading Apple’s. The reason is that, to my mind, there are huge logical flaws in Epic’s argument. The central one is that Apple is a monopoly, when even under Epic's generous definition using revenue instead of units, and not counting other gaming devices, Apple only has a 40% market share.

But law and logic are not the same thing.

Apple Is Not Playing

I’ll get to it in the next section, but this is actually an existential challenge for Apple should Epic win. Apple is not playing around, and will go to the mat on this one, no matter what the cost. One of their primary strategies is going to be to spend Epic into submission so they will settle.

But also, they decided to really go after Epic in a very public way in their filing. Just the subject headings are brutal:

Apple filing screenshot. “Project Liberty” refers to Epic’s plan to precipitate this conflict.

You come for the king, you best not miss.

Implications Should Epic Win

There is a long list of specific remedies that Epic is pursuing, but the important one is the first one. Apple should be permanently enjoined from:

Restricting, prohibiting, impeding or deterring users of iOS devices, through technical, contractual, financial, or other means, from downloading, executing, installing and/or updating iOS apps and app stores from a distribution channel other than the App Store.

If the first place, this all assumes that Apple would continue to provide $99 annual licenses to developers under that condition. Without in-app payments, the App Store likely loses money.

This would also unleash a flood of suits towards any app store, and maybe even Epic’s own app store, which Apple claims is unprofitable anyway. Most at risk are Microsoft and Sony, and their consoles. These are the most locked-down platforms of them all. And it does not just apply to games. Should Epic get what it wants, there is just a ton of risk out there across a wide swath of companies.

But the company that has the most to lose is Apple. This case is an existential challenge, which is why they are going to fight it to the last lawyer. The basic Jobs-Cook formula that led to all this success was focus on two things — high customer satisfaction (Steve Jobs) and ultra-efficient operations (Tim Cook) — and the rest sort of takes care of itself.

Both parts are hard, but the first one more so. Jobs was convinced that the best user experience was when Apple controls every aspect of it. Apple’s executives still believe this. In this respect, Apple believes there is a virtuous cycle here:

1. Make great products that people want so much, they are willing to pay more than the competition.
2. But because of those relatively high prices, it is nearly impossible for Apple to remain a monopoly or near-monopoly for very long after a new product launch.
3. That gives Apple the legal leeway to exercise rigid control over every aspect of the user experience without having to worry about antitrust.
4. This control of the user experience allows Apple to keep making the product better, keeping those prices high.

Should Epic win, that blows a giant hole in that cycle. If courts agree that iPhone is a foremarket, as Epic suggests, what other restrictions would developers want to rid themselves of? Apple imposes a myriad of restrictions which are a cost to developers that they may decide they don’t want to pay anymore. An Epic win is an entire reshuffling of the deck for Apple.

30% or 0%?

There are all sorts of legal flourishes here but it boils down to a simple question. Apple has invested a ton into making a giant playground for developers with huge network effects. Fortnite had 100 million paying customers on iOS. Apple thinks the developers that are profiting from software in their playground should shoulder that burden for everyone, including the majority of apps that do not pay Apple anything but a $99 annual fee. For that, they get to license all of Apple's APIs. 30% is a fairly standard online retail take for software.

Epic would like to pay 0%.

Analyst’s Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[combatcorpsmanVN]

The Trial commences tomorrow. While I acknowledge being a strong AAPL supporter, I see EPIC as a wrong doer. EPIC signed the contract, agreeing to the Terms, made a huge amount of money under AAPL's umbrella, and then decided to Breach the Contract AND pro actively act to damage/harm AAPL's reputation. Therefore, I see EPIC as a villain and my experience tells me that triers of fact (juries or judges) don't like to reward wrongdoers. As stated above, EPIC is a wrongdoer in this situation.

After the Verdict -- the long Appellate process leading inexorably to a out of court settlement precipitated by the party opponent that wants out.

[davel]

@combatcorpsmanVN

Epic is trying to convince the courts ( and governments ) that Apple is a monopoly that needs to be reigned in.

An economist would retort that 15% does not constitute a monopoly. A large player maybe but not a monopoly.

Apple’s response is a simple contract issue.

Epic has a real chance, but only if they can convince the court to redefine economic principles ( which is not unprecedented).

[combatcorpsmanVN]

@davel The Contract breach is there but that's not the sum and substance of AAPL's defense position.

"redefine economic principles" -- I've never heard that term and have no idea what you mean. Whose definition of the new definition becomes the standard? District court judge? Appellate court judge? Supreme Court justices?

Contracts b/w equal bargaining parties isn't subject to wholesale definitions based on second guessing.

[davel]

@combatcorpsmanVN

From investopedia

A monopoly refers to when a company and its product offerings dominate a sector or industry. Monopolies can be considered an extreme result of free-market capitalism in that, absent any restriction or restraints, a single company or group becomes large enough to own all or nearly all of the market (goods, supplies, commodities, infrastructure, and assets) for a particular type of product or service. The term monopoly is often used to describe an entity that has total or near-total control of a market.

This is commonly the definition of a monopoly.

The market being mobile phones for example where Apple owns approximately 15% share. Unless I am mistaken 15% is not dominant share of the market.

In a nutshell that is the argument Apple makes with regard to monopoly.

[Trading Places Research]

Oh look, Valve is getting sued now. Every app store at risk

arstechnica.com/...

[combatcorpsmanVN]

@Trading Places Research Not going to happen. Not even close. Pure example of hysteria, nothing more. Even though you might not like to hear it; AAPL has rights too.

[Trading Places Research]

@combatcorpsmanVN Tell that to Amy Klobuchar

[Investing For The Future]

@Trading Places Research Apparently having a competitive advantage is now considered anti-competitive. What will they think of next?

[Kuromeru]

If Epic wins that means if developers think a company is charging too much they just don't have to pay. What this means for me is that I can build a game on the Unreal Engine, but when it comes to paying royalties... I don't have to because they have a monopoly on this engine. I think it's unfair that I have to share with them so I just decide not to pay them because they are a monopolistic company and Unity lets me do it for free... So, they should too.

This is my takeaway and I may just make a game on the Unreal Engine and then refuse to pay them any royalties. When they take me to court I will cite that they forced Apple to let them create and market their game for free... Thus so should I be able to circumvent paying them as well.

Think about it. None of these companies are your friends. They don't care about developers or anything else. All they care about is that they are not getting 100% of the profit and were trying at first to underhandedly get all the money, and now have a judge give them all the money. Either way Apple and Epic do not care about developers, players, or users... They only care about themselves and how much money they make at the end of a day. They could care less what any of you think.

[davel]

@Kuromeru
See what @tradingplaces posted above regarding valve..

[combatcorpsmanVN]

"EVERY APP STORE AT RISK"

Really!? LMAO -- Come on, do you really believe that?

[Trading Places Research]

@combatcorpsmanVN Yes. If a court decides iPhone is a foremarket monopoly, how is XBox not a foremarket monopoly? How is Steam not a foremarket monopoly?

Maybe I didn’t explain the theory well enough, b/c it’s very counterintuitive. Epic argues that iPhone/iOS is a market unto itself. The ecosystem is 1 market, not part of a larger market. If they successfully convince courts of that argument, everyone is at risk, so long as they are big enough. All the big App Stores will lose their ability to set terms. It will unleash a flood of lawsuits.

[combatcorpsmanVN]

@Trading Places Research You're certainly welcome to your conclusion. Does your analysis stop with AAPL? What about companies in other sectors that hold similar positions in terms of products/services? Where are you drawing the line? Xbox -- MSFT? "Steam"? Are you mixing up your companies? Flood of lawsuits - under what theory of liability? Does one theory of liability i.e. monopoly create a platform to field strip dominant companies in diverse sectors by courts attempting to write laws under the guise of interpreting laws? IMO not even close.

I think your analysis and (possible) end result is seriously flawed.

[Trading Places Research]

@combatcorpsmanVN No court has ever accepted this theory. If it were to win out on appeal through the supreme court, it entirely changes the meaning of “monopoly” as we think of it.

These are all potential “monopolies” under that definition:
Android
XBox
PS4
Steam
Tesla’s OS
Roblox

Let’s just take the last one. Roblox:
-Requires you use their development software
-Requires you use their in-game currency for payments
-Puts big restrictions on content and even speech

This would tie courts up for years adjudicating all this. I am not a lawyer, so I am not about to put odds on it. But still I would be very surprised if Epic won, even at the district level.

[PermaFrostByte]

Steve Jobs was a moron. He drove Apple into the ground and then left to start that pile of junk company called Next. While at Next he came up with another horrible idea called Objective-C. He then drove Next into the ground and when Apple was about to go bankrupt, when their stock price was around $5 a share, they asked him to come back. So what did the genius do? He begged for a meeting with Bill Gates and the Microsoft executive team. He asked Microsoft for money and surprisingly Gates agreed to fund Apple with the agreement that Jobs would be able to keep a majority ownership of Apple, but Microsoft would own the rest. Then what did the genius Jobs do? He decided the computer and software company was now going to make phones!!! Usually when an idiot makes such a ridiculous decision the universe punishes them. But not this time. It was a one in a billion chance, but he got it. And oh yeah, if you wanted to build apps for his new phone, you had to use that albatross of a programming language called Objective-C.

And who had the last laugh? Microsoft. They had almost as much ownership in Apple as Apple did; throughout that entire iPhone growth trajectory.

The details are amazing aren’t they?

[chippr]

@PermaFrostByte Even if someone believed this opinion, what is its relevance to the topic of the article?

[md#23]

@PermaFrostByte I worked on a NeXT. It had a gorgeous black and white screen and was a decade ahead anything else.

The genius did not beg Gates and did not gamble iPhone. He created iMac G3. And that was enough to save Apple. And to explain why Gates had to agree.

Objective-C had exactly two flaws. It was excessively compatible with C and was not designed with the goal to hire as many cheap programmers as possible in mind.

iPhone was not a chance, it was an invention. If you believe inventions are being punished routinely, please consult Mr. Edison.

As for Microsoft, I do not know what they got. But any theory must explain why they an away from mobile devices in shame and terror.

[fredrik2109]

@md#23 Actually, Jobs forced Gates hand as Microsoft actually was found with their thieving hand stealing Apples Quicktime code and used it for their Media Player. Jobs said he would let it go if they invested a sum for a few years and also agreed to develop Office for Mac for another five years or so. So that Apple could focus on their products instead of warring on several fronts.

[js204]

Ask yourselves two questions: When was the last time you heard MSFT referred to as "The Great Satan? When was the last time you heard anyone refer to "The Blue Screen Of Death"? And if you need a third question how about when the last time anyone referred to AAPL as "Think Different"?
Point being that all three maxims/aphorisms are so last century. My wife and I have been using PCs since the mid 1980s: I, for various reasons have been tied to Windows machines; She, on the other hand has been using AAPL products exclusively. While Apple may have had an edge early on with the mouse tied to the GUI, and the "i" suite, since about fifteen years ago, there is no discernable difference in hardware or software reliability/robustness/utility between AAPL and MSFT that either my wife or I can identify. Early on, Apple DID "think different". Those days are, for the most part, history, but Apple has managed to ensnare an ever-increasing user base with ever-increasing sizzle (at the expense of steak) like "ecosystem", and flashy "gee whiz" advertising featuring self-professed savvy social media types who are wiling to pay ridiculous prices for the dubious opportunity to unleash their self-identified "creativity" by shooting full-length cinema projects with iPhones, or recording the next gone-gold chart-topper, etc., etc., ad nauseum. Steve Jobs' talent (calling it "genius" is inarguably hyperbole) was adapting new or newer recently released into the public domain inventions to consumer products. Keep in mind, however, that Jobs lived and worked in and near Silicon Valley and kept at least one ear to the ground, and Steve Jobs is inarguably...well...let's just say...dead. So while AAPL was an early adopter of the mouse and the GUI, and the first mover with the "i" suite, there's little if any "wide moat". All of AAPLs products have been successfully copied and marketed by numerous competitors. Today, AAPL consists of a status symbol - an analog to buying a Chevy Z71 Offroad pickup which will never get closer to an offroad experience than the owners driveway, or a "pro" this or that purchased by a dilettante eager to assuage endemic insecurity. The vast majority of APPL users would find themselves just as well served with a $500 ASUS laptop or a $250 Motorola phone. AAPL's ecosystem inhabitants today are a curious admixture of legacy insecure naive zealotry entrapped in a Hotel California-type "ecosystem". But as always, there is money to be made by shearing sheep. P.T. Barnum proved it beyond doubt.

[Trading Places Research]

@js204 now do watches and headphones and tablets.

[SqueakyToy]

Anyone who erroneously believes Windows offers anything close to a comparable user experience to MacOS clearly has never used both platforms for any appreciable amount of time. The differences are quite stark.

Sure, it's true that a 1978 Ford Pinto and a 2021 Lexus LS will both get you from point A to point B, but only one of those offers an impeccable experience throughout the years you'll journey in it.

[Investing For The Future]

@js204 I love your comment and eloquence. Apple does, however, have a competitive moat via 8+ strong competitive advantages.

As the bulk of an investor's purpose is to make money, shearing sheep will have to suffice...

[bahama727]

What about me - the Iphone customer?

What about my rights?

When are we going to litigate my right to buy software for the phone I OWN from any developer, just like I can buy tires or gasoline for my Ford vehicle from anybody without having to pay Ford??

[Trading Places Research]

@bahama727 You should get a class-action suit together if that’s what you want.

[Culvero]

@bahama727 let’s say that you buy a vehicle that supports Adaptive Cruise Control and then you purchase either components, firmware or software from an unsanctioned third party to either repair or modify how it operates. And when you then put it on the highway and things don’t go quite as cleanly as they did from the manufacturer? I’d say your argument is oversimplifying the analogy. In the modern world HW, Firmware, OS & software applications will be designed to work as one and modularizing will be done at a much more aggregate level (AI in the cloud leveraging big data in the cloud interfaced and coordinating Task-driven AI on the device). IoT is arriving and the complexity will need to be worked through. I choose a world with more checks and balances focusing on my experience with the tech. and AAPL is a leading the way.

[chippr]

@bahama727 ummm. your Ford vehicle is not a store. The question for me is can you go into, let’s say Walmart, and say I want everything here at your cost. I don’t care about how much you spend on the physical store, the employees, the mechanism for products to actually get in the store, etc etc.
I’d say good luck with that.
Or going into Walmart as a manufacturer and saying I want to sell my product in your store, and I get won’t pay you anything for the privilege. I won’t pay any of your fees for getting space in the store, I just want to use your store and all it’s advantages regarding bringing actual customers to buy my product, all for free!

[3_furtive_aardvarks]

I wonder if the fact that the practice of jailbreaking an iPhone to use non-approved apps is both well known and quite easy factors into any of these arguments. The fact that no significant alternative marketplaces have had meaningful adoption in this area would suggest to me that there continues to be distinct benefits to operating under the iOS protective umbrella for consumers and developers alike. For now.

[Trading Places Research]

@3_furtive_aardvarks Jailbreaks stopped becoming simple and public several years ago. Apple would fill the holes too quickly and they were worthless.

But also, as you say, part of the reason is that there wasn’t much interest from the general public, just the hackers, which should also tell you something.

[3_furtive_aardvarks]

@Trading Places Research Yeah, I should have put a big fat *relatively qualifier on that easy/public characterization. Of course possible, but I think that even for many (most?) more tech-savvy folks, the effort/reward payoff to sideload around iOS is, for the most part, very low. Just was not sure if this was going to be an issue brought up by either side in a trial where Epic/Apple seem to be arguing the paradigms and practices surrounding Apple’s ‘marketplace’.

[G H]

@3_furtive_aardvarks

Just to be clear, for anyone who doesn't know this (including apparently you): it is possible for a person or corporation to write an app which they can put on all the iOS devices they own without ever using Apple's distribution scheme or paying Apple any fees. Every iOS application starts out that way. People and corporations have done it millions of times, and they're doing it as I type these words.

Read about XCode, which is Apple's iOS application development environment.

[Bepe13]

Epic screwed up with this. They had a good thing going and thought they could violate the law by breaking the contract. In todays environment there are many out there who break laws, then wail because they are caught. This is a very simple business issue and the writer here is making a strange case for a debate when there is none IMHO!

[Trading Places Research]

@Bepe13 not “debate.” “Very important lawsuit you should not presume will go one way.”

Good luck.

[NS100]

@Bepe13 I think EPIC did the right thing and stood up the big bully appl. We need these mega corporations to stop this BS.

None of apples buisness what I do with my phone after I buy the phone. I have the right to any software from anywhere and pay anyway I want to. Not being forced to appl store.

It's total BS To charge 30% just to down load the app and idiot testing by appl when all the hard work I'd done be small companies.

They stifle innovations, jobs, hide taxes, become more powerful then elected officials and nations.

I think goog and apple have made deal to charge same 30%. Anti trust should also look into all communications between Google and appl as well.

[PermaFrostByte]

@Bepe13 Not really. It’s all about control. When you control the proprietary platform and closed ecosystem you can write your own ticket to financial nirvana. Apple does just that while at the same time telling you (pretentiously) that it’s for your own good. It’s complete nonsense. A proprietary system is never better for the consumer. Never. This is the crux of the lawsuit and they’re right to sue. Albeit, they could have filed the lawsuit without hacking the platform. That probably won’t help their case much. But, nonetheless, the spirit of the lawsuit is justified.

Apple needs to have an open API. Their proprietary ways have no place in the future.

[cuttysark8301]

Apple made Epic the successful company that they became, due to the access to Apple's exclusive customers. Epic got greedy, Epic will be crushed in the courtroom, Epic will be discussed as a business enterprise that threw it all away in every business college from here to eternity. Goodby Epic. Hope you enjoyed your 15 minutes of fame.

[tehroflcopter]

"30% or 0%?"

I think that the issue is that you do not have an alternative with a more modest and reasonable processing fee. Credit card processing is a few points in general, and Epic's own store is 12%. Is 30% reasonable for processing transactions? I think it is not. If the default fees were 15% and you could acquire customers via trading points to the platform for promotion then we would be in a better place. I think that Epic Games' store is awesome and I would love to have a curated store with good content on all platforms. Why shouldn't this be allowed? Certainly it makes sense for there to be an agreement in place where there is a modest revenue flow to the platform provider that is not zero percent for access. I bet if they allowed stores at some percentage to come on board, with some sort of commitment to security then everyone would be a winner. You know, like how a handful of businesses already have decreased rates due to their business having more difficult margins? Apple leaves themselves open to this by giving exemptions to amazon and netflix, and there is no good reason to limit those exemptions to other businesses that are operating at that scale like Epic.

[fredrik2109]

@tehroflcopter
They do offer hosting, upgrade services, security and other things apart from just payment services.

[Dsknj]

@tehroflcopter
Don’t like to pay the 30 % - leave the iOS platform owned and maintained by Apple .
Epic can then spend tons of $$ developing their own platform to sell their products for “free”

[NS100]

@fredrik2109 but no choice and others can do it much less. Why should customers or other be tied to the store. The only reason is to gain monopoly power and screw the customers and users on both fronts.

[NS100]

Why cannot others setup a store on appl? It is none of appls buisness after they sell the phone how people use it.

Epic can have store and sell its products at lower price. This benefits customers. Just to download a app you have to pay appl 30% is ridiculous. Lot of digital sales will be 30% cheaper if we get rid of the middle man appl, goog.

Screw all the mega companies we need more small and mid size companies where is a lot of innovation and job creation.

All these big companies do not even pay the fair share of taxes and hide the money in counties which have contributed little to nothing to the world economy

[combatcorpsmanVN]

@NS100 "...have to pay appl (sic) 30% is ridiculous."

Then don't sign the contract. But EPIC wanted the benefits of access to AAPL's customers until success occurred as a direct result of that access but then breached the contract and disparage AAPL while discontinuing the percentage you AGREED to pay when EPIC signed the contract.

LOL - perhaps you didn't understand what it means to sign a contract and then violate the terms of that contract.

[NS100]

@combatcorpsmanVN you do. Do U understand meaning of monopoly and they screw both the customers and users. Appl has no right on the phone once they sell the phone.

As a user I need choices just like if buy a car I have choice where I can get my repairs done or where I can my tiers and how I pay.

Broader your legal knowledge instead of making comments Based on buying a few shares of appl stock. Which by the way is 2.3Trillion and net debt 130B almost no cash left after liabilities in debt.
They have no innovation since the iPhone so they are trying squeeze the users for.more money else the whole crap falls apart.

[combatcorpsmanVN]

@NS100 Thus far, it's clear to see that you parrot the word "monopoly" w/o knowing the definition. Why don't you document precisely where AAPL has been adjudicated a monopoly (of course, after you look up the word: adjudicated.

LOL

[Entreri]

This goes beyond the digital space to the retail space. There are fees if you want to place a product at a retailer.

These businesses have many upfront costs, it is their store. If Epic wants, they can set up their own store, nothing is stopping them.

[md#23]

I know virtually nothing about law. Beyond the fact that it is always fun to act against it, I mean. So, I have silly questions.

Why it was necessary to violate EULA before going to court? Can it be so that Epic made a stupid mistake and is somebody’s pawn now?

Is it in the spirit of the antitrust laws to prevent any coupling of hardware and software? Prevent an OS from installing, prevent apps from installing- serve 20 years... I guess that would be logical, huge, and hurt Apple making Hackintosh legal.

Can all that be a diversion while the real goal is the W^X policy and preventing the dream of a pocketable computer from coming true?

It is possible and easy and legal to bypass Google’s store, more so, Huawei assists anybody inclined to do so. However, everybody prefers Google’s store. If Epic wins and nothing changes, won’t that be funny?

[Trading Places Research]

@md#23 Not a lawyer either, but

Why it was necessary to violate EULA before going to court?
No. They thought they were being clever imo. Look, we got a Trojan past their reviewers!

Can it be so that Epic made a stupid mistake and is somebody’s pawn now?
They want more $

Is it in the spirit of the antitrust laws to prevent any coupling of hardware and software?

The point is protecting US consumers from the higher-than-market prices that come with true monopolies. Monopolies underproduce and overcharge, which is why natural monopolies like some utilities get regulated. Anyway, the final test is whether consumers are hurt. Apple has lowered, not raised prices, because they are not a monopoly.

Can all that be a diversion while the real goal is the W^X policy and preventing the dream of a pocketable computer from coming true?

I think that Epic watched Fortnite dropping down the Top Grossing charts, replaced by Roblox, and thinks they can be the scrappy underdog here. This is an ORCL like strategy of substituting lawyers for engineers and storytellers.

[the forlorn pope]

This is really thorough, thank you.

I hate Apple's OS and resent them after terrible experiences with my past two iPhones, and still hold a bit of a grudge over when I was a Qualcomm investor a few years ago. That said, I bought AAPL at $160 a few years back and have had a great time since, so despite it all, I'm inclined to be in Apple's camp anyway.

However, in addition to the rational arguments that you lay out, I have to make the point that Epic is a bunch of scumbags. The games contain casino-lite reward systems that hit the reward centers of the brain while you play, and Epic is brilliant at adjusting the gaming experience consistently enough and creatively enough to keep people playing essentially the EXACT SAME GAME over and over and over again for years. While the game itself is free, and one can earn upgrades simply by playing, it makes money by offering a constantly revolving sets of personalizations that are given value through the social media marketing. The cool pair of jeans that we fretted over as adolescents might now be a particular skin or "back bling" in the game - none of which actually give any advantage for game play, but the fashion implications of a particular setup or dance can be bizarrely compelling for its users. This is especially problematic since their whole business model is rooted in using Youtube and Tiktok celebrities to manipulate impulsive children into dumping their parents' money into their in-game purchases. My 10 year old kid has friends who have allegedly spent thousands of euros on useless in-game fashions because of this.

While I appreciate Epic's skill at doing what they do, I would be thrilled if this backfired on them.

[BeaBaggage]

so the play here is $U ? which has been under pressure

[Trading Places Research]

@BeaJawa I like U, but RBLX better long term

seekingalpha.com/...

[davel]

Excellent piece. The South Park vid is on point..

Yes. Epic needs to make the case that iOS is a market unto itself. And Apple needs to somehow defend the open Mac developer mkt vs the closed mobile one.

That said. iOS in a sense is not closed. As Apple itself notes that by supporting industry standard interfaces you can do stuff on a web page where Apple does not take a cut.

But the broader question I think is let us break beyond the web and treat the App Store as a physical store. If epic wins, then the ruling should be applied to Macy’s or Target or any store really. Namely that a vendor that sells products in the store gets to dictate everything about their product in the store. That the owner of the store has no control over their property.

As Apple states, Apple owns about 15% of the mobile market. Hardly a monopoly. Epic can make the argument that google and Apple collude on terms and conditions, but they need to prove collusion. I don’t think through any discovery they can prove that google and Apple collude to create a 30% fee for paid apps.

So let us say epic wins. This of course breaks a big tent pole for Apple in terms of security of their environment. If I were Apple my response would be to charge epic fees for any and all infrastructure services for app distribution, data retention and management. I would charge them per copy of every app the company offers regardless whether it is free or not. This means if one user has fortnite on 5 devices epic gets billed for 5 separate items.

Also I would charge them for every update made in the store. So each and every point update of every application would incur a fee.

[Tony Naples]

@davel There are many ways Apple can charge if they lose this battle. I am not concerned that Apple would lose revenue in the long run.
However, I don't see Apple's App store as a retailer in one sense. If Apple wants 30% cut then they should pay for inventory much like retailers. Alternatively Apple like any retailer if the App Store is defined as a retailer, should have the right not to carry Epic products. Then strained logic would say that us restraint of trade because Appstore is only vehicle for user to add Apps, i.e. there is no competitive alternative.
I agree that Apple iPhone app store is a unique market. On a practical basis every user and developer in the world accepts this state of affairs.
Epic also has an argument that they as a profitable developer should not be responsible to support free Apps. That is Apple's problem.
I don't think EPIC will win on the merits of their case and this is a waste of time and money for Epic.

[G H]

@Tony Naples

Your pay-for-inventory plan ignores that the majority of apps are free to download, to support many scenarios. Just a few:

- introduce new customers to a product or service
- increase customer loyalty by a service or product vendor
- trade a "free" service to collect information about the user
- access the services of charitable or political organizations
- facilitate a separately-paid service's data collection (e.g. medical)
- create network effect to facilitate a separately-paid service
- "enterprise" apps (see below)

Look at it through Apple's eyes. Apple sincerely wants to facilitate free apps... but they're a for-profit corporation. How to square that circle? I say they're doing the best they can, and have shown no signs of unfairly exploiting the situation. What can be fairly described as lock-in to their walled garden, can also be fairly described as providing clear customer benefits such as genuinely private and secure intra-family and patient-doctor data sharing.

Also, despite its encyclopedic thoroughness, this article didn't mention enterprise apps, which is a category invented by Apple to meet companies' and other organizations' need for apps for their own proprietary use. Apple's 30% "tax" pays to distribute and support those as well.

[davel]

@Tony Naples

I think that the primary issue for Apple is control rather than profit. Remember for years the App Store was I believe a cost center as the cost to run it probably was greater than revenues or about break even. Only when the user base got large enough did it start generating measurable revenues.

But mostly I think it is control. The way mobile for Apple is set up is they curate the content. Ie they have rules in place on the limits that apps have in terms of content and tools ( api ) they can use to deliver apps.

From Apple’s point of view they garner the praise and insults of the Apple experience. For example , lawsuits were leveled at them because they throttled the system when the battery aged to create what Apple felt was as optimal and experience as they could provide. Apple was wrong here as they were not transparent in what they did. So what if epic for example is able to have its own App Store and offer apps on iOS? What if virus’s or Trojans are injected into the iOS system? Does Apple get sued as the platform owner? How does Apple respond when they discover an issue but epic says no we will do what we want? How does the user feel about the security of their phone? What if apps that use epic’s api don’t work the same or in a uniform way? Essentially you have android. Where developers currently deploy on iOS first because that is where the users are. But by taking away the App Store you essentially make iOS = android.

I think from a bigger picture standpoint iOS is like Macy’s. Macy’s gets to say what products you can purchase in the store and how the products are displayed. If Calvin Klein disagrees with Macy’s they can complain and they can work with the store to display their goods in a way they want. But ultimately Macy’s controls and if Calvin Klein doesn’t like it they have a right to not ship product to Macy’s, but they don’t have the right to tell Macy’s what to do on their property.

If Macy’s becomes too hard to work with they have no products and go bankrupt. But a vendor has no right to dictate to the store owner what they do in their property.

[combatcorpsmanVN]

Bottom Line: Both parties signed a contract. AAPL abided by the contract and EPIC breached the terms of the contract. Then EPIC decided to do a scorched earth policy to disparage AAPL.

The end of AAPL speculation is hyperbole.

[User 49917194]

@combatcorpsmanVN I'm not familiar how it is in the US, but here you can sign a contract and just ignore all clauses that are unlawful. If the courts agree with you, it isn't a breach of contract because the clauses were illegal in the first place.

[Vandooman]

My negative experience with AAPL is this. When I completed a contract on an LG5, I had paid for the phone and there was no charge. When I completed a contract with AAPL for 4 I Phones, I was informed that my contract had automatically converted into a rental agreement and it would cost me 3 months rental to buy the phones. This is the point where the dealer convinces the customer they can flip to a new phone with a new contract at no charge. Instead, I did the math and concluded that if I paid the 3 months rental for the phones, I would get the money back every 3 months. So far I have recouped the money 4 times over. Nothing illegal involved however using fine print to cheat your customer is unethical. But most people throw up their hands and surrender. So my conclusion was that AAPL is an unethical organization and, aside from using their phones, I should avoid doing business with them, which I do.

[Vandooman]

@Vandooman NTW, a good way to deal with AAPL is to buy a second hand phone for $200 and save a fortune. Most people have no need for the newest phone.

[fredrik2109]

@Vandooman Was that any of Apples doing or was it a dealer of some kind? I am in Europe and Apple have no such options here.

[neutrino23]

@fredrik2109 I am in the US and have never heard of such a thing happening.

[apertotes]

I despise Apple with all my heart. I despise their ideology, their way of not acknowledging other companies advances even if they used them to build their success. Really, I can't stand Apple.

Even so, I think that Epic should suck it. Apple, whether I like it or not, built a hugely successful phone and environment and they were smart enough to lure many customers into it. They built the phone, they built the OS, they built the app store. They should be allowed to do as they please on it, even forbidding all 3rd party software if they wanted to.

Epic disagrees? OK, Epic, start by designing your own phone, then carry on to the OS and finally an app store and put your games in there without having to pay fees to anybody.

The big problem is that there is a large history of successful companies that were legally hit for being too successful (Microsoft and Google come to mind) which goes against all that I believe in.

[Trading Places Research]

@apertotes Remember regarding MSFT that all the important stuff got reversed on appeal

[davel]

@Trading Places Research
It got reversed because a different administration with a different set of premises decided to drop the case.

One benefit of being large and well funded is you have $ and time to await an outcome to your benefit.

[Trading Places Research]

@davel I make precisely that point here:
seekingalpha.com/...

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The Microsoft Trial and The Default Setting Fallacy