Apple chief executive, Tim Cook, faced some tough questions from the judge in its ongoing court battle with game developer Epic Games, on May 21. As the case nears its last legs, the judge, Yvonne Gonzalez Rogers, noted that an “incredibly significant” part of Apple’s App Store revenues from gamers, particularly the in-app purchases they make, which require the use of Apple’s own payment systems.
Rogers asked Cook why Apple won’t allow game makers to direct users to payment methods out of the App Store. Rogers asked, “If they wanted to go and get a cheaper Battle Pass or V-Bucks, and they don’t know they’ve got that option, what is the problem with Apple giving them that option? Or at least the information that they can go and have a different option for making purchases?”
“If we allowed people to link out like that, we would in essence give up our total return on our IP (intellectual property),” Cook said in response. This is a core point of contention between Epic and Apple. Apple doesn’t allow developers to sell digital items without using its built in payment methods (and hence pay a commission to Apple). While developers are free to sell the same items through a website or other means, Apple doesn’t allow them to direct users to those sites through their apps. This, according to Epic and many other developers, takes a toll on their revenues and increases the price of digital items on the App Store.
Rogers said that the gaming industry seems to be generating “a disproportionate amount of money” relative to the IP that Apple is giving them and everybody else. “In a sense, it’s almost as if they’re subsidizing everybody else,” the judge said. While Cook agreed, he said that having a large number of free apps on the App Store increases the overall traffic to the store “dramatically” and benefits everyone because they get a larger audience to sell to.
“So your logic then is that it’s more of a customer base, not an IP, then?” said Roger in response to Cook’s answer. “It’s both, because we need a return on our IP. We have 150,000 APIs (application programming interface) that we create and maintain, and numerous developer tools, and the customer service piece of dealing with all these transactions,” said Cook.
The judge noted that Apple doesn’t charge banking apps, like Wells Fargo or Bank of America, so gamers are essentially subsidizing those apps. “In the gamers example, they’re transacting on our platform,” Cook said in response. While Cook agreed that there are other ways to monetize, he said the model Apple has chosen right now is the best in its opinion. “Well it’s quite lucrative. But it seems to be lucrative and focused on purchases that are being made frankly on an impulse basis — that’s a totally different question, about whether that’s a good thing or not, it’s not really right for antitrust law — but it does appear to be disproportionate,” said Rogers.
“I understand this notion that somehow Apple’s bringing the customers to the users. But after that first time, after that first interaction, the (developers) are keeping the customer with the games. Apple’s just profiting off that, it seems to be,” she added.
The judge’s questions and arguments seem to be tipped in favour of Epic and thousands of other developers who seek changes in Apple’s App Store regulations. Of course, that doesn’t tell us what the final outcome of the case will be. Epic Games has asked for the ability to have alternative payment systems for in-app purchases, and to be able to tell users that there are alternate ways of paying for these purchases. It has also asked the court to direct Apple to allow users to install apps from outside the App Store, something Google allows on Android.
Epic’s demands in the case are demands Indian startups have made off Google, and its Play Store as well. In fact, the 30% commission that both Apple and Google charge for sale of digital items through in-app purchases is opposed by developers worldwide.
Both companies have also announced a cut in the app store fees over the past year, but offers lower commissions only to developers who make less than $1 million. Apple calls this the Small Business Program, which was also brought up during Rogers’ argument. She argued that the company came up with the program not because of competition, but as “result of pressure” from investigations and lawsuits.
Cook said that Apple’s Small Business Program led Google to drop their fees as well, arguing that “it was competition that made Google drop theirs to 15 percent”. “I understand perhaps that when Google changed its price, but your action wasn’t the result of competition,” said Rogers in response.
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