A verdict without clear winners
Apple has 90 days to allow in-app payment options beyond those that go directly through the App Store, according to a federal judge’s ruling on Friday’s multi-month legal battle between Apple and the manufacturer of “Fortnite” Epic Games.
The decision, which takes effect on December 9, will benefit Epic Games. The video game maker, led by Tim Sweeney, created its own integrated payment system to avoid Apple’s 30% discount on its in-app purchases, which resulted in “Fortnite” being banned from the App Store . Shortly after, in August 2020, Epic sued Apple, arguing that Apple was abusing its monopoly position and engaging in anti-competitive practices by only allowing Apple payment systems in apps. But the verdict, written by U.S. District Judge Yvonne Gonzalez Rogers, also didn’t fully support Epic.
“The Court does not find that Apple is an antitrust monopoly in the mobile game transactions submarket,” Judge Gonzalez Rogers wrote. “However, he finds that Apple’s conduct in enforcing the anti-management restrictions is anti-competitive.”
The judge also spoke of Epic’s covert efforts to bypass Apple’s payments system, saying he had broken his contract with the Cupertino, Calif., Based company run by Tim Cook. Epic will have to pay Apple 30% of the revenue collected on its own system, which is roughly $ 3.5 million. Epic did not immediately respond to a request for comment.
Analysts agree that the move has little financial impact on Apple. According to Dan Ives, analyst at Wedbush Securities, the decision is “a manageable legal blow for Apple”. According to his estimates, less than 5% of App Store revenue is at risk due to this change. “The Apple App Store remains a ditch and that doesn’t move the needle significantly.”
Apple currently receives 15-30% of revenue from app developers if payments were made through its App Store.
A statement from Apple released shortly after the ruling focused solely on Judge Gonzalez Rogers’ conclusion that Apple is not an antitrust monopoly. “Today, the court confirmed what we have known from the start: the App Store does not violate antitrust law,” the statement said. “As the court recognized, ‘success is not illegal.’ Apple faces stiff competition in every segment in which we operate, and we believe customers and developers choose us because our products and services are the best in the world. We remain committed to making the App Store a safe and trustworthy marketplace.
No mention of the new requirement for App Store alternative payments. “The decision is certainly not as positive as Apple is trying to make,” said Harsh Kumar, analyst at Piper Sandler. “The decision is irrelevant in terms of the financial impact it will have on Apple. But Apple wants full control [over the App Store], and that is clearly not what happened.
Gene Munster, managing partner and co-founder of venture capital firm Loup Ventures, agrees. “It’s a mixed bag for Apple and Epic,” he said. “Epic won the executive tally and Apple won [in] that it is not a monopoly. In terms of impact, overall the App Store accounts for around 7% of total revenue and 14% of profits. I expect this to have a headwind of at most 2% on overall revenue and 4% on profits. ”
The deeper implications of the App Store with this decision remain to be seen. Currently, app developers like Epic Games can publish their apps to Apple’s operating system for free. “I suspect that what will happen is that the App Store model could be changed as an app developer, you will have to pay up front if there is to be a significant number of transactions on any the line, ”said Pipe Sandler’s Kumar. “There’s no point in Apple keeping an app on its App Store if it doesn’t want to make money from it. ”
Regardless of whether or not Apple will impose an upfront cost on app developers, it has the largest app market. “Still, the App Store is the world’s most popular place to find apps,” Kumar said. “I suspect that most app developers will find a happy medium at some point. “