Apple, Epic Games, and the App Store

Stratechery’s Ben Thompson opens his latest essay about Apple, Epic Games, and the App Store by quoting a bit of the opinion by Circuit Judge Consuelo M. Callahan in last week’s decision by the Court of Appeals for the Ninth Circuit, reversing the District Court’s ruling that Qualcomm was guilty of antitrust violations:

This case asks us to draw the line between anticompetitive behavior, which is illegal under federal antitrust law, and hypercompetitive behavior, which is not.

Apple App Store on Apple devices
Apple’s App Store

Ben Thompson for Stratechery:

What makes this distinction particularly challenging is that the question as to what is anticompetitive and what is simply good business changes as a business scales. A small business can generally be as anticompetitive as it wants to be, while a much larger business is much more constrained in how anticompetitively it can act (as a quick aside, for the first part of this essay I am painting in broad strokes as far as questions of specific legality go). The specific case of Apple and the iPhone raises an additional angle: should the importance of the market in the question make a difference as well?

While the most likely outcome is an Apple victory — the Supreme Court has been pretty consistent in holding that companies do not have a “duty to deal” — every decision the company makes that favors only itself, and not society generally, is an invitation to examine just how important the iPhone is to, well, everything.

Indeed, this is the most frustrating aspect of this debate: Apple consistently acts like a company peeved it is not getting its fair share, somehow ignoring the fact it is worth nearly $2 trillion precisely because the iPhone matters more than anything. This is not a console you play on to entertain yourself, or even a PC for work: it is the foundation of modern life, which makes it all the more disappointing that Apple seems to care more about its short term bottom line than it does about the users and developers that used to share in its integration upside; if Apple doesn’t change course, hyperessential will at some point trump hypercompetitive.

MacDailyNews Take: There is much, much more in Thompson’s full article – highly recommended – here.

Obviously, running the App Store costs Apple some amount.

We think the ultimate ending to this legal challenge will be that developers will be able to take payments in their apps without being forced to give Apple a cut or as much of a cut as today.

Companies that currently are large enough to work around Apple and send users to their own sites for payment include Amazon and Netflix. Apple will likely need to end this practice and allow all developers to allow users to subscribe to services, buy ebooks, etc. within their apps without a 15%-30% fee. A smaller fee may be tenable, as Apple does have costs to run the App Store, of course. We’ll see after the legal gears grind glacially and eventually spit out their end results.

By the way: On every iPhone, iPod touch, iPad, and iPad mini box, the potential buyer is informed of requirements, including “iTunes X.x or later required for some features” and also that an “iTunes Store account” is required. The plaintiffs were informed of the requirements prior to purchase. If the plaintiffs didn’t like the terms that came along with Apple devices, they should have opted for a pretend iPhone from any one of a dime-a-dozen handset assemblers. Then they could blissfully infest their fake iPhones with malware from a variety of sources.

Note also that Apple doesn’t set the prices for paid apps.

Lastly, the amount by which Apple Inc. has driven down software prices across the board, on every major computing platform, makes legal actions such as this eminently laughable. — MacDailyNews, May 14, 2019

[Thanks to MacDailyNews Readers “Fred Mertz” and “Ladd” for the heads up.]

23 Comments

  1. I would say forcing developers to sell their property, not yours, through your store exclusively is anticompetitive.

    Blocking other stores for iOS applications is anticompetitive.

    Forcing device owners to buy apps exclusively from you is anticompetitive. You don’t own the devices.

    Platform censorship is anticompetitive. You can only censor on your property.
    No you cannot impose rules on devices you have sold.
    This was proven when Apple lost the cases on jailbreaking.

    1. anticompetitive maybe convenient hell yeah. I equate the argrument to people who buy into communities with hoa’s and condominium associations. they were given a chance to read the documents and decline move in and yet they did and now they spend all their time complaining about the restrictions, whether it’s buying from certain vendors or using this supplier or how high the tree can be. you had a chance you excepted the rules now sit down and shut up. ultimately if the thirty percent tax is hurting the software vendors bottom line they could just raise their price. but let’s be honest they are making more money now than ever and the cost of distribution is way down in the electronic delivery age. which brings up another point why the hell are ebooks still so damn expensive?

    2. Apple doesn’t need any store at all, Apple can have all their native apps plus 5 thousand curated apps and that’s it, most people use Apple apps plus a dozen apps at most.

      Apple also doesn’t need any browser beyond Safari.

      What Apple does need to do move beyond having any app and have the best apps.

    3. Buy Android you need it, Windows and Android are the crap end of computing.

      The rest of tech is trying to drag Apple back to them, Apple Silicon however will move Apple even further beyond the rabble.

      And note they will all cry in unison to have FREELOAD RIGHTS on Apple’s patch…..

        1. If you want the Walmart/Windows experience it’s your choice however, you don’t get to go to Crate and Barrel or Williams Sonoma and demand low prices bad service and crap.

          Apple long term isn’t going to give you that Android/Windows low level cheap.

  2. There’s “lots more in the article” because that’s how Ben talks.

    He repeats himself 19 times, sort of making a point, and then jokes that his podcast/article is long winded. He badly needs an editor.

  3. The problem isn’t so much the fee, it’s the fact that you have to pay the fee because there’s no other way to distribute your apps and Apple goes to great lengths to prevent you from being able to.

    If Apple had opened up iOS to apps from outside of the App Store Epic wouldn’t have nearly as much of a case as they do because there would be the argument that they were free to distribute outside of the App Store if they didn’t agree with the terms.

    Even if iOS is opened up to “side-loading” it won’t mean that people won’t still use or submit apps to the App Store… Google has side-loading and developers still publish on the Play Store, I also have to imagine most users prefer to buy from the Play Store even though they have other options.

    I personally think iOS should allow users to install applications from outside sources, it doesn’t hurt Mac and actually re-enforces my point about users and devs choosing to use the App Store when the app is compatible even though they can be distributed directly.

    Apps being able to be distributed outside of the App Store would also encourage more open source software development for iOS.

    1. The difference between Macs and iPhones, and therefore between their openness to unvetted apps, is precisely that “iPhone is the foundation of modern life.” It is a small, and therefore easily stolen or misplaced, device that requires constant access to the Internet. It contains our private messages, our proprietary business information, our selfies, our health data, the ability to track our movements, and even the ability to unlock and start our car. Keeping it secure is therefore an order of magnitude more critical than securing our Mac or PC.

      I cannot buy the argument that security should be left entirely to the user. My 94-year-old mother and my 14-year-old greatniece are not cybersecurity experts and cannot be expected to become such. If there were a user-accessible “expert mode” that allowed side loading, scammers would persuade many users to engage it to obtain some wonderful app that is unavailable on the Apple App Store, and that opens up countless attack vectors.

      Perhaps there could be approved third-party stores that employ similarly rigorous screening, but that would still leave somebody out and free to sue. I’m not sure what the solution is, but I can’t believe that opening everything up will benefit more than a small minority of iPhone users.

      1. But TxUser the digital stores will cry Apple is to tough on us, if I wanted Windows or Android bad ecosystems I would have bought them I don’t, I had a Amiga back in the day for the same reason the switch to Mac and OS X was a very easy.

  4. I fail to see how games can be considered “hyper essential”.

    Apple put a lot of effort and resources into making a marketplace for all of us to use and feel safe doing so. It has earned the right to charge a 30% commission for sales taking place there, and to define the rules of engagement.

    In any case, Apple is not preventing Epic from participating. Epic built up a very sizable business via the App Store, paying their 30% while doing so. What has changed? It seems Epic has decided they don’t want to play by the rules any more.

    As far as I am concerned, Apple is being too patient with them. I’d pull the plug on Epic immediately, until they agree (once again) to play by the rules.

  5. Read Gruber’s take. He points out that Epic has no problem paying a 30% cut to consoles. What’s the difference between selling an app on a console or an app for a smartphone? They’re willing to pay the 30% on a console, but not on a smartphone. Does that make sense?

    1. Right, this is based on gibberish.

      You can install MS word on an iPad, and also games. So? The system needed to push those games through to the store is exactly the same. Bottom line, Sony and Nintendo don’t have enough money for this BS but MS sure does (ironically they have no marketshare or profit in the gaming space but oh well).

      Let Epic take on all three gaming platforms as well as “super rich Apple” and see how that goes. If they do they have balls and stand for something; otherwise they’re looking for a handout.

    2. Epic’s CEO I believe admitted that he makes no similar demand from console makers because the consoles themselves are not profitable. I guess they are loss leaders. But I don’t get it because he may be inadvertently admitting that he is singling out deep-pocketed Apple.

  6. Thompson’s basic premise is that, “iPhone matters more than anything…it is the foundation of modern life,..” is false because Android OS and other phones also exist for non-iPhone users. This brings up the question of veracity in the rest of his argument.

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