Why Apple’s App Store Is Under Siege

Amid the growing outcry against Big Tech’s anticompetitive practices, Apple’s enormously lucrative App Store could be one of the first fortresses to fall.

In 2019, the App Store generated an estimated $50 billion in gross sales — and Apple kept $15 billion of that. Now the App Store, which is the only way to get iOS apps for Apple mobile devices, is in the crosshairs of app developers, lawmakers and regulators over its virtual monopoly.

At the front of the anti-App Store phalanx: Epic Games, creator of massively popular battle royale game “Fortnite.” Epic sued over the 30% cut Apple takes on all in-app purchases and its policy that bars outside payment methods. After Apple kicked “Fortnite” off the App Store, the game’s iOS players dropped 60% in less than a month, Epic claims.

Apple is “flexing its enormous power in order to impose unreasonable restraints and unlawfully maintain its 100% monopoly over the iOS In-App Payment Processing Market,” Epic said in the lawsuit. The case is set to go to trial in May 2021 — and the outcome could set a broad precedent for how apps including Netflix, Disney Plus and HBO Max reach consumers on Apple devices.

“This is a massive case for the technology industry,” says professor Andy Wu, who teaches technology business strategy at Harvard Business School. “It will have a huge impact on not just Apple but the whole landscape.”

Fueling the fire was a report issued last week by House Democrats summing up an antitrust probe into four Big Tech companies — Apple, Amazon, Facebook and Google — and urging Congress to enact new laws to curb the companies’ power. The 449-page report called on Congress to enact new laws to curb the companies’ power, including prohibiting companies like Apple from operating “adjacent lines of business” (in other words, preventing it from offering its own apps in the App Store that compete with those from third parties).

“Apple’s monopoly power over app distribution on iPhones permits the App Store to generate supra-normal profits,” the House Judiciary Committee report said.

That was preaching to the growing choir of those opposed to the Apple App Store status quo.

Last month Spotify — which has long butted heads with Apple over the App Store — led the formation of an anti-Apple consortium calling for app stores to follow specific principles of fairness, including allowing app providers to not be required to use in-app payment systems. Microsoft last week adopted policies based on those proposed by the Coalition for App Fairness; while the Redmond, Wash., software giant didn’t call out Apple by name, it cited “concerns about app stores on other digital platforms.” Facebook also has loudly criticized Apple’s App Store policies, and the European Union launched an antitrust probe of the App Store after a formal Spotify complaint.

Apple’s defense? It denies that it has a monopoly on mobile apps, given that iOS represents about a 45% share in the U.S. and even less overseas. “Our company does not have a dominant market share in any category where we do business,” Apple said in response to the House report. It said it requires developers to comply with App Store policies to ensure users’ safety and security.

In addition, the company has pointed out that the 30% fee is common in the industry, collected by other app stores including Google Play. But Google’s app store doesn’t have a complete lock on how Android apps are distributed.

There’s no certainty Congress will act soon to rein in Big Tech, while regulatory action could be tied up in legal wrangling. In any case, Apple is protected from drastic measures because it is the “least exposed” of its peers “from a breakup/antitrust perspective,” Wedbush Securities analyst Dan Ives says.

The Epic case, though, and industry pressure might lead Apple to change the App Store’s terms of doing business. The high legal hurdle for Epic is to persuade the judge or jury that Apple does indeed represent a “monopoly,” by expanding the traditional definition under existing U.S. law to consider high lock-in costs for iOS users — who, in practical terms, can’t easily switch to Android.

“I think Epic will put together a tough fight, but it’s hard to imagine they will come out with a strong win,” says Harvard’s Wu. That doesn’t mean it will be for naught: If Apple and Epic reached a settlement that lets “Fortnite” avoid the Apple in-app payment mandate, it could be just as big a victory. For now, companies including Netflix and Spotify avoid the 30% cut by simply preventing users from paying for subscriptions through their iOS apps. 

Compared with government intervention, the App Store feuds can be resolved more quickly and efficiently through private sector dealmaking, says Jessica Melugin, policy analyst at free-market think tank Competitive Enterprise Institute. It’s worth noting that Epic, in its campaign against Apple, has made a play in the court of public opinion: The game-maker released a slickly produced parody of Apple’s famous “1984” ad, portraying the tech company as Big Brother.

If app makers like Epic and Spotify band together to boycott the App Store, she says, “maybe that will make Apple think twice about the percentage fee it charges.” 

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