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The Epic vs. Apple Results Are In — What Does This Mean For Apps?

Technology

Isadora Teich wrote this article

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It’s no secret that a lot has been going on with Apple lately.

The legal battle with Fortnite creator Epic Games has made headlines around the world before coming to a highly publicized conclusion last week.

This is a new development in a hard fought battle that has been waging on the tech front for years, with governments, major app creators, and companies all having their own misgivings.

If you want to learn more about actions that the US government has been taking against Apple lately, check out our blog post on the topic.

Amid all of this negative attention, of course, Apple has been pressured to make some positive changes. Let’s take a look at Apple’s actions in the lead up to the court case conclusion with Epic Games.

Ultimately, will the changes be a win for developers and growing businesses? We’ll look at that, too.

Pre-Trial Momentum

One of the biggest controversies has long been Apple’s 30% tax on app publishers.

It came out in court that this was the biggest yearly expense for Match Group, the company behind Tinder.

US Government officials have gone as far as calling Apple and Google “predatory,” accusing them of stifling the US economy and harming tech innovation in general.

In response, Apple didn’t get rid of this fee entirely, but instead lessened it for apps under specific circumstances. If you make a certain kind of app, this is big news for you.

For example, News publishers who participate in Apple News are now eligible to cut Apple’s charge of first-year in-app subscriptions in half. It will now be 15%, rather than 30%.

Experts have been pointing out that this is not exactly a huge concession for Apple.

For one, as news publishers will have to go through Apple News as well to get this cut-rate, it gives Apple more content and oversight. Also, news is hardly one of the highest-grossing categories on the app store.

But Apple has a history of making concessions in areas that won’t cut too much into their profit margins.

At the same time, Apple has been busy throughout 2021 making improvements to their own App Store guidelines, including setting a better standard of quality for all app submissions, and an improved appeals system for App Store rejections, historically a true pain point for developers uploading bug fixes and new apps to the store.

The Results of the Apple vs Epic Trial

Last Friday, Judge Yvonne Gonzalez Rogers issued a permanent injunction in the Apple vs Epic case.

According to this new ruling, Apple is:

Permanently restrained and enjoined from prohibiting developers from including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.

To put it simply, Apple is breaking the law by forcing users to pay for apps, subscriptions and in-app items through the App Store. They’ve been asked to ease up within 90 days, or face further rulings. At the same time, the App Store’s general business model was deemed legal.

Even if developers could entirely stop using the IAP (in-app payment) system, “Apple could still charge a commission on developers. It would simply be more difficult for Apple to collect that commission,” Gonzalez Rogers writes.

Most importantly, Apple also can’t ban developers from guiding users to outside payment options anymore.

This ruling directly applies to so-called reader apps spanning content like magazines, newspapers, books, audio, music and video. To date, Apple has forced such applications to use its in-app purchase system, which gives Apple up to a 30% commission on all downloads and in-app subscriptions.

At the same time, other apps of this nature (most famously, Netflix) have always been exempt.

The old rule will still apply to mobile games, the most lucrative class of mobile apps, as well as in-app purchases representing items or services which would not exist were it not being facilitated by the app itself. And Apple itself can still collect a fee for their service and effectively pressure merchants to use their payment platform.

But they cannot discourage users and developers from sharing other methods of access via the app when it comes to downloads and payments.

On top of this, there were other important items decided at the conclusion of the trial.

Despite Apple having to change its rules, the court also ruled that Epic breached this very rule itself by implementing an alternative payment system in its Fortnite app before it was allowed.

As a result, Epic has to pay Apple 30% of the revenue it earned via this system since it was implemented. This comes to more than $3.5 Million.

A History Of Controversy

If you look at the history of the Apple corporation, they have actually run into some similar issues before. For example, in 2009, a year after they launched the App Store, the FCC investigated them. This was because they refused to approve the Google Voice app.

Apple’s response to the FTC was essentially that it had the right to reject any app it wanted, as well as entire categories of apps. Finally, due to pressure from the FCC, the Google Voice app was approved by Apple in 2010.

Spotify has been having issues with Apple since 2015, when they began emailing subscribers directly to tell them that it was cheaper to subscribe to Spotify directly, rather than through the App Store. Spotify actually removed Apple from their in-app purchase options entirely (guiding users to an external web page for any subscription sign-ups) and has been challenging Apple using government regulators around the world ever since.

Epic Games broke free from App Store policy in 2020 when it implemented its own platform for in-app purchases and subscriptions, effectively circumnavigating the ‘Apple Tax’. Fornite’s prompt dismissal from the App Store is what prompted this whole legal battle in the first place.

A few months later, the multi-platform SaaS email app ‘Hey,’ launched by the social media savvy development team at Basecamp, encountered similar difficulties, with Apple suddenly denying their bug update after granting initial App Store approval.

The issue? There was no in-app payment method included for an app which was mostly intended to be web-based.

Most fortuitously, the European Commission announced an Antitrust investigation into Apple and Apple Pay pretty much the same day, making some serious media waves and bringing renewed scrutiny and new eyeballs around to the idea of the ‘Apple Tax’ being a bad thing for tech innovation.

And as we all know, Epic Games has been coming for Apple’s policies (not financial damages) in court for months now on several different continents — the basis of the case being Apple’s predatory fee, mandated in-app payment system and unevenly applied rules. A separate case Epic filed against Google is scheduled to go to trial this year.

Back in 2020, Spotify, Epic Games and Match Group joined forces to form the Coalition for App Fairness to help lobby the US government for positive legislation to reel in Apple and Google’s reach.

There’s been multiple attempts to ratify legislation at the state-level and now a federal inquiry into Apple’s policies. Globally, several European countries have sued Apple for devices which seem to worsen methodically over time.

These trials have brought other less desirable actions taken by Apple and Google alike to stifle developer competition. That there is a culture of fear created by the reliance developers are forced to have on these two giant tech entities to get their apps approved and ultimately, be financially successful.

It is possible with more oversight, we may one day have more alternate app stores that truly compete with Apple and Google’s. But that reality seems far away at present, with Apple and Google walking away from this ruling with an actual court stamp of approval for their respective models.

Is Apple A Monopoly? 

A big point of contention around the world is whether Apple is a monopoly or not.

According to this specific ruling, they have not been deemed a monopoly but are engaging in anti-competitive behavior.

According to Judge Gonzalez Rogers:

“The evidence does suggest that Apple is near the precipice of substantial market power, or monopoly power, with its considerable market share,” Gonzalez Rogers writes. “Apple is only saved by the fact that its share is not higher, that competitors from related submarkets are making inroads into the mobile gaming submarket, and, perhaps, because [Epic] did not focus on this topic.”

Reactions to this so far have been mixed.

The Effects So Far

While Apple’s relaxation of rules actually caused shares of major corporations like Spotify, Netflix, and Match Group to rise in price, some are saying it’s not enough. The new rules allow streaming businesses to have higher margins on subscriptions already.

Of course, the most groundbreaking news of all is the fact that this winter, alternative payment options will have to be allowed through the App Store for many apps. News organizations who chose to distribute via Apple News also enjoy a 50% discount on App Store fees.

According to Spotify Chief Legal Officer Horacio Gutierrez:

“Apple’s selective tweaks to its App Store rules are welcome, but they don’t go far enough.”

However, despite all of this controversy, it is important to remember that Apple already reduced its cut to 15% for all developers that earn less than $1 million a year starting January 1st, 2021, almost as a show of good faith.

So, close to 95% of all developers and businesses with an app store presence have already benefited from a lower rate for several months now.

As such, many small businesses may not experience many changes in this specific area. And this hard-won concession barely even made a dent in Apple’s bottom-line.

Was This Really A Big Change for Apple?

According to CNBC, these sweeping changes are actually part of a longstanding Apple strategy going back to 2008.

In response to backlash, Apple is known to make small concessions over time, while keeping its own interests top of mind. While it is making changes to its infamous Apple tax, this was not the store’s largest stream of revenue to begin with.

According to an analysis based on Apple disclosures, its most powerful moneymaker is the 30% it takes from all in-app gaming purchases.

In 2020 alone, this category netted Apple at least $64 billion. Apple is framing the results of the Apple vs Epic trial as a win, as they have not been deemed a monopoly.

When The Verge reached out to them for comment, Apple had this to say:

“Today the Court has affirmed what we’ve known all along: the App Store is not in violation of antitrust law. Apple faces rigorous competition in every segment in which we do business, and we believe customers and developers choose us because our products and services are the best in the world. We remain committed to ensuring the App Store is a safe and trusted marketplace.”

Keep in mind, Apple has every right to appeal this ruling (and almost certainly will). And there’s a lot that can change in the court-allotted ninety days. And don’t forget, Google is absolutely a part of this investigation, too.

The Complaints Against Apple

In the face of years of complaints from regulators and developers, even excluding Epic Games, one could argue that Apple has not done that much in the past to assuage concerns.

However, this new ruling will force them to make big changes, like ones they have already made in Japan, in the US and possibly elsewhere. The main complaints have always been more or less a combination of the following:

– Apple takes too much money from developers

– Its cut of in-app gaming purchases is too high

– It applies rules unevenly and arbitrarily

– Apple depresses prices for software

– It has convinced consumers that all updates should be free

To put it in simple terms, it appears that Apple has historically done the tech corporation version of something we have all experienced before interpersonally.

If you have ever confronted someone about a number of ways they have wronged you, and they address the least serious offense only, you have definitely seen this before.

Final Thoughts

This is a very hot topic with a lot of opposing viewpoints. The headlines alone are an incredible mix.

For example, Forbes reports that there are no clear winners here. Apple Insider reports that Apple’s loss is everyone else’s win. Cnet reports that Apple has thrashed Epic. CNN reports that this is a huge blow to Apple.

They are all talking about the same results.

Regardless of the philosophical gray areas, big changes are likely on the way for app stores, and if you are in the business of apps, it is critical that you know what’s to come.

Remember, this will have a huge impact across the whole industry.

Keep in mind that this decision in court may not be final, as Epic told NPR they have plans to appeal it and in fact just launched their appeal. The judgement also included a 90-day window to allow for Apple to enact the necessary policy changes before further ruling.

Epic Games CEO Tim Sweeney tweeted that he considers the results a loss. Also, while the current ruling says that courts cannot currently deem Apple a monopoly, this ruling does not say that it outright is not one, and no one will or could ever find them to be one. And that is an important distinction.

It’s certainly a lot to take in.

Tell us what you think below.

About ChopDawg.com: Since 2009, we have helped create 350+ next-generation apps for startups, Fortune 500s, growing businesses, and non-profits from around the globe. Think Partner, Not Agency.

 

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