A little over a year ago on The Decentralists - Store Wars, we talked about the looming legal battle between Apple and Epic Games, maker of Fortnite.
In a high profile trial, Epic Games had challenged the up-to-30% cut Apple takes from purchases - and argued that the App Store was monopolistic.
Epic games declared victory when Judge Yvonne Gonzalez-Rogers Issued a permanent injunction, stating that Apple could no longer prohibit developers linking to their own purchasing mechanisms.
Apple also claimed victory when the Judge ruled that with the evidence provided, the court could not consider Apple a monopolist
Epic is appealing the decision.
What does this decision mean for iPhone users and for Epic? In this episode The Decentralists will unpack this decision and explain why it might be the beginning of the end of the App Store monopolies.
A little over a year ago on The Decentralists - Store Wars, we talked about the looming legal battle between Apple and Epic Games, maker of Fortnite.
In a high profile trial, Epic Games had challenged the up-to-30% cut Apple takes from purchases - and argued that the App Store was monopolistic.
Epic games declared victory when Judge Yvonne Gonzalez-Rogers Issued a permanent injunction, stating that Apple could no longer prohibit developers linking to their own purchasing mechanisms.
Apple also claimed victory when the Judge ruled that with the evidence provided, the court could not consider Apple a monopolist
Epic is appealing the decision.
What does this decision mean for iPhone users and for Epic? In this episode The Decentralists will unpack this decision and explain why it might be the beginning of the end of the App Store monopolies.
Henry : Hey everyone, it's Henry, Mike, and Geoff of The Decentralists. Our hot topic today is called An Epic Victory. We've heard this before. A little over a year ago in The Decentralist Star Wars episode, we talked about the looming legal battle between Apple and Epic Games, the maker of the Fortnite online game. Its taken 13 months, but a court in Oakland, California recently ruled that Apple cannot stop app developers from directing users to third-party payment options. This is huge. In a high-profile trial, Epic Games had challenged the often 30% cut that Apple takes from purchases and argued that the app store was actually monopolistic. Epic Games declared victory when the judge issued a permanent injunction stating that Apple could no longer prohibit developers linking to their own purchasing mechanisms. Despite this Apple also claimed victory when the judge ruled that without the evidence provided the court could not consider Apple monopolistic. Epic disagrees. Of course, an appeal is looming. Michael, can you remind us what has gone on and what's going on now between Apple and Epic.
Mike : What it comes down to is this is an issue. Fortnite is a very popular online, shoot them up, metaverse, dancing, music kind of thing. Kids love it. And they've got millions of people who use it. Most of those people that do it use it on computers themselves. But a smaller proportion, say 2 million people, that's not a small number but it is, use it through the mobile app. Epic basically is one of these games. They even gamify games. So you have this game and you're running around shooting things or doing whatever, and then ‘Oh, wait I want my avatar, my character to have red hair instead of green hair or to have Louis Vuitton boots on or something for some reason. You can buy these things; it's called an in-app purchase. Apple, as we all know or most of us maybe we're not really aware of, but Apple controls what you can put on your phone. It really bothers me.
Henry : The system.
Mike : It's a closed system. That means that Fortnite and anybody else who programs apps has to put it in the app store if they want to get it onto an iPhone. Because of that, it's like having the bouncer at the door. If you want in, and the guy says, ‘That'll be 20 bucks.’ You got to give him 20 bucks. What Apple does is Apple says ‘You can jump through all these hoops, we'll let you into the app store and then whatever you decide to charge somebody we're taking 30%.’ If you're making an app and you need to charge, let's say you want to charge $10. If you need to make $10, you got to charge $14 to pay Apple. What makes it worse, now somebody's bought Fortnite in the app and they're using it on their phone, then in the game, they press a button, that button says I want to buy Louis Vuitton boots. Fortnight's made the game, done the hoops, given Apple their money, and then now Fortnite, because of the game that they make, somebody's inside that game. They're on their phone, they paid for it. And they want to buy the Louis Vuitton boots or whatever. They have to give apple 30% of that too. Google has the same in the Google play store. It's the same rules. They get the same money.
Henry : It's a classic business model.
Mike : It’s a monopoly.
Henry : He who controls distribution makes most of the money.
Mike : They make the hardware, they make the software, and they control the distribution. It’s like a mob. It's run like a mob. It's like trying to get your garbage taken away in New Jersey. You don't have any choice who takes that garbage away and you don't have any choice as to what you pay for. The Epic guys say that's crazy. We are the guys that are making this game that's real popular. People are buying these things not because it's something to do with their iPhone, it's because it's something to do with the game they made. They say we want to interact directly with our customers. That's the other thing you can't do with Apple. We want to offer them a discount. Rather than paying $3 for the avatar clothes, you can pay $2 if you buy it directly from us. Then we don't have to pay Apple this fee. So Epic says, we're going to do this Apple and Google both said if you do that we're going to de-platform you because that violates the laws of our garbage collection service in New Jersey here, good sir. They did it anyway. They poked the bear and they opened this up expressly for this purpose to take a crack at breaking Apple’s monopoly.
I cheered when I read it as an app developer. They said it's a permanent injunction. Apple now, theoretically, of course, they've probably got a billion lawyers. Things are going to be dragged through the courts for the next 10 years. But this injunction basically says that if you are an iOS Apple app developer, Apple cannot stop you now from directly communicating to your customers and putting a direct link in your app that takes you directly to the person who programmed the app so that you can offer them a better price on an upgrade or the funky avatar close or whatever it is.
Henry : So Geoff, if we want to be fair to Apple, they invented all of the technology. An app store didn't exist before they created it. They created an entire market that changed the world of business. So aren't they entitled to take their piece when people utilize their distribution service? What do you think of that? That would be their defense.
Geoff : The difference here is if people choose to use their distribution service. Take Windows 10, on windows 10 Windows has an app store. If I want to use Netflix, I can go to the Windows 10 app store, I can download the Netflix app onto my Windows 10 computer, and I can run it. But I can also just go to Joe's software website and download a program and install it on my computer. It is up to Joe's software to decide whether or not he wants to use the Microsoft app store. It is possible that over time those gates may close and the Walled Garden will come around Microsoft. Where it will likely happen with Microsoft is some Uber cheap version of Windows that's on some little box that is Walled garden, the very foreseeable future in real Windows and in real Mac OS, for that matter, you will be able to just download software and run it. It's similar to Android. With an Android phone, you can go to Google play and you can tap Candy Crush and you can download it onto your phone. But if you want to install the Manyone app, you can just sideload it and stick it in there. In fact, it's not even in the Google play store. You just download it and copy it onto your phone. That is the key difference for Apple. There is no other way to get an application onto your phone than from the app store. When you say they created this distribution network, it's like mafia-run New Jersey garbage trucks 30 years ago. There's no other way to get your garbage picked up. So you have no choice. If you, if you had another choice to get your applications on there, then so be it.
Mike : What if they were cheaper?
Geoff : For those of us who've been dabbling in computers since the eighties, fundamentally it comes down to whether it rubs you the wrong way. You've bought this device. An iPhone is over $1000. The price is hidden in the monthly amount you pay your mobile carrier and whatever. If you were to just go to Best Buy and buy one, you'd pay over $1000, in some cases $1,500. You've bought this thing and now you're told you own this little pocket computer, but you can't put anything on it that you want unless we say that it's okay to put it on there.
Mike : And we get our cut.
Geoff : And we get our cut. Apple would say we are protecting the experience for the user. I would argue let the user opt into being protected for that experience. The other challenge is, this is the case with Epic, what if your application is cross-platform? What if you can play it on your PC and play it on your phone or tablet and perhaps play it on your Nintendo Switch or your Xbox? You have this avatar, you have this guy, you are at home, I'm going play it on my computer. I'm on the bus, I'm going to play it on my phone. I'm at my buddy's house, I'm going to play it on his Xbox. How can Apple build this Walled Garden around one piece of a cross-platform application?
Henry : I see.
Geoff : It just doesn't make any sense. If I buy a magic sword on my PC and pay a dollar, that magic sword should be available for my avatar when I go and play it on my phone. It just doesn't make sense that in one place I can do it this way, and in one place I can do it that way, and in another place I can do it a different way. It should be uniform across all those platforms.
Henry : Mike, we know that Epic is appealing the decision. Shouldn't they be happy with the ruling? Can you explain exactly why they're appealing the decision or part of it?
Mike : Don't get me wrong, I think Epic's happy. They have to be happy with this injunction. To me what this injunction is, is the first let's say a chink in the armor. Apple, like all these other big tech companies, is constantly being accused of being monopolistic and anti-competitive. I think the reason why I think it’s Eric Sweeney who's the CEO of Epic is continuing to fight this because he senses potentially that there's vulnerability now in Apple’s model. This is very funny and this judgment is crazy. The judge said something like 55% of Apple’s revenue comes from these apps store purchases. 55% of the market or something crazy like this. Apple says they don't know how much money they actually make from the app purchases.
Henry : What kind of response is that? They don't know how much they make from the app store?
Mike : Tim Cook is the CFO, or was the CFO before he became CEO. It's comedic. But at the end of the day, what you've got is Epic seeing that from their purposes what we've described, what Geoff just described is in all definition, a monopoly. You can not put any software on that $1,200 computer you're carrying in your pocket. That $1,200 computer will not talk to anything else unless Apple allows it. It's a monopoly. He senses that because they got the injunction he can push. He’s got them on the ropes. He feels like they're on the ropes. The best thing that can happen for all of us is that Apple is no longer allowed, and Google too, are no longer allowed to operate these mobile operating systems like they were something completely different than what they are, which is an operating system.
I bought the thing, this operating system runs it. Think of the app store. What is it? It's a button on your screen or an online thing that you can look at a catalog of things and buy something. That’s e-commerce. What do they actually do on the back end? They didn't program Fortnite. They didn't make the game and come up with all this. They didn't program Manyone, our app, and everything. And yet we had to jump through their hoops. It's a monopoly. They decide they don't want you on their platform, done. So Sweeney's going after them.
Henry : Essentially you're saying Eric Sweeney, the CEO, is perhaps seeing the very first cracks or the first chisels in the Berlin Wall.
Mike : He senses this is the thing that could lead to the Microsoft Internet Explorer breakup that they had 20, 30 years ago.
Henry : Not that long.
Mike : It was ‘96 maybe or something like that. He senses that that's possible because you know how the legal system works. There’s a precedent set. Then you go in and you argue around that precedent. The judges said these things are why I couldn't consider it a monopoly, These things are why I can't consider a monopoly, but I'm going give you half of that by letting you get it once they've already purchased it. So he senses he can get it all now.
Geoff Glave: The other thing to you consider is when people say monopoly, the natural responses say what do you mean monopoly. I can still buy a Pixel phone. I can buy a Samsung phone. I can buy a Linux phone. I have all these other options that are available to me. But the monopoly relates to the app store monopoly on the iPhone and the iPad. They have a monopoly on how apps get onto the device. So if Epic wants to run their own app store that has all of their games on them that you can install their app store app and tap it in and download and manage your games and whatever. That's not allowed. That's the monopoly. It's not the gadget itself, but the monopoly on getting stuff onto the gadget. And that's why I think that this appeal will have some umph behind it. Even to a casual observer, it does appear to meet the definition of a monopoly.
Henry : Absolutely. Well, you know what? This is going to be fascinating to watch. I have a feeling, gentlemen, that we're going to be doing part three of the Apple-Epic-Epic battle.
Mike : I agree. I think we will too. Hopefully, we will, and hopefully, it'll be a celebration.
Henry : Absolutely. Michael, thank you very much. Geoffrey, your insights are very much appreciated as always.
Geoff : Thank you, Henry.
Mike : Thank you, gentlemen. Have a good day.