Epic Leaves in Apple's Walled Garden: A Big Crack

Epic Leaves in Apple’s Walled Garden: A Big Crack

A judge made significant modifications to today’s App Store, but Epic Games and Apple are still at odds.

After a bitter legal dispute over Apple’s claimed monopoly over the iOS ecosystem, an American judge ended the tug-of war between Epic Games and Apple on Friday. Each side can take some victories. Epic Games has to pay $3.5 million to Apple for violating Apple’s developer agreements and bypassing the payment processor. Apple has to change the App Store rules so developers can use other payment methods. This will break Apple’s grip on iOS.

Despite both companies leaving the long trial feeling a bit more successful, Apple’s App store could change forever. App Store customers could soon have many options for developers to be paid, including some that do not charge a commission.

Mobile gaming’s $100 billion market is the largest frontier in the game industry. The court determined that Apple holds a huge share in this market, with more than 55 percent. Apple’s vertical integration with its systems, including the Apple iPhones and Apple App Store as well as the Apple iOS operating software, is a major source of market power. Developers have the opportunity to reach nearly a billion iPhone users if their apps are approved and published by Apple. In exchange, they were required to use Apple’s payment processor for all digital transactions. Epic slammed the 30% commission Apple took from these transactions loudly and forcefully. This was what the Fortnite developer called “monopoly taxes”.

When it filed its lawsuit against Apple last August, Epic claimed that the company had architected an “unreasonable and unlawful” monopoly in violation of antitrust laws. Apple claims that it demands developers use its payment system in order to protect customers and ensure their ease-of-use.

Apple’s 30% commission is quite standard but it doesn’t make a difference to the company’s business operations. It may not be necessary. Apple’s Small Business Program was launched in late 2020. It reduces the commission rate to 15% for those developers who earn less than $1,000,000 through the App Store. Other digital marketplaces like Epic Games have also reduced their commissions to just 12 percent.

Even though Epic Games framed their crusade to open up the ecosystem as an ideological struggle, US District Judge Yvonne Gonzalez Rogers sifted through $28.7billion of company PR-speak with her decision on Friday. She wrote that Epic Games brought this action because of the size of this market. She wrote that Epic Games had already penetrated other video games markets and the next target was the mobile gaming industry. Epic Games views Apple as an obstacle. Despite the fact that it has enormous profits, Apple does not have a monopoly in the market for mobile gaming under federal antitrust laws. Apple’s claim that it has tight control of the App Store was vital to security and distinguish iOS from Android’s more open-minded environment is accepted by her. She ruled that success is legal, and rejected Epic’s attempt to make Apple allow the Epic Game Store to open shop in iOS.

Rogers’ analysis of California’s Unfair Competition Law didn’t go well for Apple. Rogers concluded under that statute that Apple should stop preventing app developers communicating with users about alternate payment options. She ruled that this policy “illegally restrict[s] consumers’ choice”, as it hides information from users and unfairly protects Apple from price competition.

Paul Swanson is an Antitrust Attorney in Denver. He says, “I don’t know how to fit all that analysis and all the pro-competitive justifications Apple uses for its closed ecosystem. The judge said, ‘But I’m going to force Apple, to allow competitors to place signposts in Apple’s ecosystem.’ I don’t understand how these two things can go together.

Tim Sweeney, CEO of Epic Games might be inclined to agree. Sweeney tweeted Friday that “Today’s ruling isn’t a win” for either developers nor consumers. Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.” The Verge reports that Epic plans to appeal the verdict. Epic Games has not responded to our request for comment. Fortnite will not be available on iOS again until Epic Games can offer in app payment in fair competition to Apple’s in-app payments, passing along savings to consumers,” Sweeney tweeted.

Antitrust and games industry experts agree that the ruling will have an impact on their business. However, this is not unexpected. Florian Ederer from Yale School of Management, an associate professor of economics says that Epic had a difficult task in winning the case. He also said that the decision was predicated on growing international attention to Apple’s antisteering provisions. In August, South Korean regulators approved a bill forcing Apple and Google, a defendant in another Epic-led case, to allow payment systems other than their own. Days later, Japan’s Fair Trade Commission closed its investigation into Apple’s App Store, determining that Apple must let so-called reader apps–which include the likes of Netflix, Spotify, and Amazon Kindle–encourage users to sign up, and potentially make payments, through those companies’ own websites. Rogers’ decision could have an even greater financial impact because most App Store payments are made through gaming apps.

App Store developers can circumvent the 30% commission within 90 days by including in-app buttons and links to their websites using their own payment system. Ederer says that developers won’t be able to bypass the 30 percent commission completely. Ederer says that this is a huge win for developers. He suggests that any cash surplus might act as an incentive for developers to ship more products and maintain them longer.

Apple’s focus on streamlining can be hampered by the addition of more payment systems. Joost van Drieen is a New York University Stern School of Business Lecturer who wrote One up about the global gaming industry. They’re going to all be competing for the margin. It will become increasingly difficult for payment processors and transactors to obtain a share of the market. This may cause confusion among users who are used to clicking and going or swipe here and done systems. Users may also feel less trust and transparency in a digital market that is already complex, opaque and confusing due to new payment processing systems.

Epic Games may have won an important on-the ground battle but Apple could win its moral one. Apple claims that users aren’t trapped within its iOS ecosystem, they actually live in it. Apple spokeswoman said that the Court today confirmed what they knew all along, that the App Store was not violating antitrust laws. Apple faces fierce competition in all segments in which it does business. We believe that customers and developers chose us for our best products and services.

This ruling marks another breach in Apple’s walled gardens. Van Dreunen states that the walled garden is showing signs of wear. It’s not what it wanted.

Additional reporting from Gilad Edelman.

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Publited Fri, 10 Sep 2021 at 21:47.07 +0000

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