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Amid mounting outcry against big tech anti-competitive practices, Apple’s hugely lucrative App Store could be one of the first strongholds to fall.
In 2019, the App Store generated an estimated $ 50 billion in gross sales, and Apple was left with $ 15 billion of that. Now the App Store, which is the only way to get iOS apps for mobile devices from Apple, is in the crosshairs of app developers, legislators and regulators over its virtual monopoly.
Leading the anti-App Store phalanx: Epic Games, creator of the popular battle royale game “Fortnite.” Epic sued for the 30% cut that Apple takes on all in-app purchases and its policy prohibiting external payment methods. After Apple banned “Fortnite” from the App Store, the game’s iOS players fell 60% in less than a month, Epic claims.
Apple is “exercising its enormous power to impose unreasonable restrictions and illegally maintain its 100% monopoly on the payment processing market in the iOS app,” Epic said in the lawsuit. The case is scheduled to go to trial in May 2021, and the outcome could set a broad precedent for how apps – like Netflix, Disney Plus, and HBO Max – reach consumers on Apple devices.
“This is a huge case for the tech industry,” says Professor Andy Wu, who teaches technology business strategy at Harvard Business School. “It will have a huge impact not just on Apple, but on the whole landscape.”
Fueling the fire was a report issued last week by House Democrats that summarized an antitrust investigation at four big tech companies – Apple, Amazon, Facebook and Google – and urged Congress to enact new laws to curb the power of the companies. The 449-page report called on Congress to enact new laws to curb corporate power, including prohibiting companies like Apple from operating “adjacent lines of business” (in other words, preventing it from offering its own apps on the App Store. that compete with those of third parties).
“Apple’s monopoly power over the distribution of applications on iPhones allows the App Store to generate above-average profits,” said the House Judiciary Committee report.
That was lecturing the growing chorus of those who oppose Apple’s App Store status quo.
Last month, Spotify, which has long taken on Apple on the App Store, led the formation of an anti-Apple consortium that called for app stores to follow specific principles of fairness, including allowing providers to applications are not required to use payment in application systems. Microsoft last week adopted policies based on proposals by the Coalition for App Fairness; While the Redmond, Washington-based software giant did not call Apple by name, it cited “concerns about app stores on other digital platforms.” Facebook has also strongly criticized Apple’s App Store policies, and the European Union launched an antitrust investigation of the App Store after a formal complaint from Spotify.
The defense of Apple? It denies having a monopoly on mobile apps, given that iOS accounts for about a 45% share in the US and even less abroad. “Our company does not have a dominant market share in any category in which we do business,” Apple said in response to the House report. He said it requires developers to adhere to App Store policies to ensure user safety.
Additionally, the company has noted that the 30% fee is common in the industry, charged by other app stores, including Google Play. But the Google app store doesn’t have a complete lock on how Android apps are distributed.
There is no certainty that Congress will act soon to curb big tech, while regulatory action could be linked to legal disputes. In any case, Apple is shielded from drastic measures because it is the “least exposed” of its peers “from a breakout / antitrust perspective,” says Wedbush Securities analyst Dan Ives.
However, the Epic case and industry pressure could lead Apple to change the commercial terms of the App Store. The big legal hurdle for Epic is persuading the judge or jury that Apple really represents a “monopoly,” broadening the traditional definition under existing US law to consider the high blocking costs for iOS users, who, in practical terms , they can not easy to switch to Android.
“I think Epic will put together a tough fight, but it’s hard to imagine they will come out with a solid victory,” says Harvard’s Wu. That doesn’t mean it will be in vain: if Apple and Epic reached a deal that allows “Fortnite” to bypass Apple’s in-app payment mandate, it could be a huge win. For now, companies like Netflix and Spotify avoid the 30% cut simply by preventing users from paying for subscriptions through their iOS apps.
Compared to government intervention, App Store disputes can be resolved more quickly and efficiently through deals with the private sector, says Jessica Melugin, a policy analyst with the free market think tank Competitive Enterprise Institute. It’s worth noting that Epic, in their campaign against Apple, has made a play in the court of public opinion: The game’s creator released a cleverly produced parody of Apple’s famous “1984” ad, portraying the tech company as Big Brother.
If app makers like Epic and Spotify team up to boycott the App Store, he says, “maybe that will make Apple think twice about the percentage fee it charges.”
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