Because of the disagreement over profit sharing, Epic and Apple started with a verbal battle on social media and eventually went to court.
As the two sides interacted with each other, many secrets were exposed, and large technology companies such as Microsoft were involved. Is the 30% profit sharing reasonable? Why can Epic tolerate the 30% commission of PS and Xbox platforms but cannot tolerate Apple?
Some questions can be answered based on court records, while others may not be resolved by a lawsuit. Epic: The App Store's 30% commission is not reasonable
The origin of the fight between Epic and Apple is that the popular game "Fortnite" avoided the App Store's payment channels, so Apple could not get a share of the revenue. This obviously violated the rules that Apple has always set for the App Store, so naturally it chose to remove the game "Fortnite" operated by Epic.New payment methods added by Epic Epic was extremely angry about the removal, and not only criticized Apple on social media, but also took Apple to court. The lawsuit between Apple, Epic and Apple went to court in May this year.
In Epic's view, Apple has become the "Big Brother" it once hated, relying on the App Store to control the entire iOS software ecosystem, and using it to monopolize and restrict competitors, opening the door to its own services and even companies that contribute super high profits.
In court, Epic also gave the reason why it believed the App Store's 30% commission was unreasonable. As a cross-platform game, "Fortnite" was originally run on multiple platforms such as PS, Xbox, and iOS, and the revenue sharing of each platform was also 30%.But compared to the App Store, Sony's PS and Xbox businesses mostly rely on consoles to distribute games. Not only do Microsoft and Sony spend a lot of resources on console research and development, production, and sales, but the actual console prices do not always cover the costs.
This is also the reason why the pricing of PS5 was delayed last year. Lori Wright, vice president of development of Microsoft Xbox, stated in court that Xbox hardware has always been sold at a loss, and it relies on software commissions to generate revenue to develop the platform.
Epic believes that as a comprehensive application platform, the App Store does not provide game developers with support of equal value compared to gaming platforms such as Xbox, so the 30% share is unreasonable, and the profits Apple has gained from the App Store are far beyond imagination.According to statements made by Epic witnesses in court, Apple's annual operating profit margin on the App Store exceeds 70%, including 77.8% in 2018 and 77.8% in 2019.
In addition, Epic also has doubts about whether the App Store is fair competition, with Netflix being a special case.
In 2018, Netflix planned to test the payment method of not using the App Store in some markets where it operates to see what choices users would make. This move attracted Apple's attention. According to internal emails disclosed in court, in order to get Netflix to give up this test, Apple considered providing Netflix with a customized interface and even providing a specific recommendation position in the App Store, without Netflix having to pay for it.Another example is the sandbox gaming platform Roblox, which provides a game creation tool that allows creators to build games and set rules so that other users can play and earn revenue.
However, Roblox agreed to Apple's statement that Roblox developers do not make games shortly after the court debate. There is also a saying in the industry that Roblox is a social platform rather than a game platform. There is still a lot of debate about Roblox's evaluation, but it seems that it does not intend to participate in the lawsuit between Epic and Apple, and even changed the game column on its official website to "Explore".Of course, the reason why the small company Epic dares to fight against the industry giant Apple is not without support. The App Store channel does not bring it as much profit and user volume as expected. According to court documents, the number of active users of "Fortnite" on the App Store is only 10%, and the revenue share is only 7%.
Sony PS, Xbox and other platforms are the main sources of its profits. After Apple removed "Fortnite" from its App Store, the prices of second-hand iPhones with this game installed have continued to rise, even more than doubling.Apple: A “free” App Store is not reasonable
Faced with Epic's relentless pressure, Apple did not sit idly by, and several executives took turns to confront Epic.
Apple first denied Epic's claim that the App Store's annual operating profit exceeded 70%, saying that the witness's data came from an estimate of Apple's public data and was inaccurate, and that Apple had never tracked App Store profits.
Image via: Game World ObserverSimilarly, in order to maintain a good App Store environment, Apple, like Sony and Microsoft, has spent a lot of money. Take the WWDC Developer Conference as an example. This is not only an event for Apple to launch new systems, but also an event for communicating and cooperating with developers around the world.
According to the testimony of Phil Schiller, Apple's former vice president of global marketing, Apple spends about $50 million on the WWDC developer conference every year, and Apple will later build a developer center on its headquarters campus to serve more external developers.
In recent years, Apple has also launched the "App Store Small Business Program" to reduce the operating difficulties of small and medium-sized enterprises. Starting from January 1, 2021, if the developer's annual revenue is less than 1 million US dollars, their commission rate will be reduced from 30% to 15%.Schiller also said that 90% of developers are eligible to participate in the App Store Small Business Program, and the commission will be reduced from 30% to 15%. The real problem hindering this program is money laundering and fraud, and Apple has been looking for solutions.
As to how much revenue changes the adjustment in revenue sharing will bring, it is still unknown.
In addition, Schiller also cited the history of Apple's construction of the App Store, saying that they built it at great risk at the time, and used it to provide ordinary consumers with better iPhones and provide developers with a stable development environment and revenue channels.
Interestingly, in the documents provided by Epic, Schiller discussed with Eddy Cue, Apple's head of services, ten years ago whether the 30% commission could continue. He believed that Apple would face challenges and discussed the possibility of reducing the share.
When the App Store's profit exceeds $1 billion, can the commission rate be further adjusted?It is not known how much operating profit the App Store makes now, but Apple has indeed faced questions about its profit sharing, including from Epic and Spotify.
In addition to the profit sharing, Epic has also criticized Apple's closed control over the App Store. In its view, it is precisely because Apple prohibits third-party application stores and third-party payment methods from entering the App Store that it has absolute power, and now this right has been abused.
Apple believes that closed control is the reason why the App Store maintains good development. On the one hand, it reviews applications and games to reduce the emergence of low-quality, fraudulent, and security extortion software. At the same time, it also gives the iPhone excellent security. In comparison, the Mac, which supports downloading third-party software, is less secure than the iPhone.
Mac allows users to download third-party appsCook stated in court that Apple has created and maintained 150,000 development interfaces to serve developers, which has involved a lot of human and material resources. At the same time, the good store environment has also attracted many developers. There are many free games in the App Store, which have attracted a huge number of users to the App Store.
At the same time, these users will also become potential users of paid game applications. The App Store provides a large number of users for game developers. By embedding the payment interface in the App Store and charging a 30% commission, Apple is obtaining intellectual property income and filling the cost of building the App Store environment.Apple provides the market, so naturally it has to charge "rent". Up to this point, the court has gradually become tense, with both sides refusing to give in and more and more information being revealed.Struggle for interests or monopoly?
The fight between Epic and Apple was initially just a dispute over interests, but later it escalated to whether the App Store was suspected of monopoly. This depends on whether ordinary consumers benefited from it, how big the benefit was, and whether the profits brought to Apple by the App Store were reasonable.
This brings us to the monopoly case of Standard Oil in the United States. Initially, Standard Oil transformed the refining technology and acquired most of the U.S. oil market through acquisitions and alliances. At this time, consumers also gained real benefits from it. Thanks to the support of refining technology and railway transportation, oil prices actually fell under the manipulation of Standard Oil.
Standard Oil Sales OfficeThe real reason why Standard Oil was convicted of a monopoly was that it controlled the rise and fall of oil prices by controlling railways, refining alliances, etc. Ordinary consumers did not benefit from it, and Standard Oil was also broken up because of its control over oil prices.
In comparison, the Apple incident is more complicated than the Standard Oil incident. On the one hand, as a multinational company, Apple is involved in many countries and regions, and there will be some legal differences. On the other hand, Apple still has a large number of competitors. This is also what Apple has always claimed: players can choose Android, PS, Xbox and other platforms in addition to iOS.
Image from: Tech talk todayWhether Apple, which controls the App Store, has used closed management to suppress competition also requires a lot of information to prove, but this is also an obstacle. The lawsuit between Epic and Apple involves a large number of companies, and not every company is willing to disclose business information.
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