Epic Games vs Apple: what’s next for the app economy?
If you ever needed a reminder that Fortnite is part of something much bigger than a post-apocalyptic online video game, the past few months have proven it. A lawsuit in San Francisco involving Epic Games, the company that owns Fortnite, and tech giant Apple, began in the first week of May 2021 and ended in the last week of May. It brought to light a commercial battle with enough developer drama to spark the interest of competitive gamers around the world.
The main argument: Does Apple have an illegal monopoly on app distribution?
A lot of people are divided on this question of Apple’s total dominance in the market. “It’s hard to say,” suggested Herbert Hovenkamp, professor of legal studies and business ethics at the Wharton School and professor of law at the University of Pennsylvania. Hovenkamp joined host Dan Loney on Wharton Business Daily on SiriusXM Ch. 132 radio this week. “If you look at all the platforms that Epic Games is played on, and that includes both Apple and Android and the two major game consoles and traditional desktops and laptops, Apple has a market share of around 10. %. On the other hand, if the judge can find a way to identify the market as a single brand that is just Apple, then of course Apple would own 100% of the market. Case law leans in favor of Apple on this issue. This does not completely rule out the possibility of a single brand market, but it does make it quite difficult… To define a market, you have to look at the platforms, sources and outlets where a product is sold. For example, if we were talking about toothpaste, we wouldn’t think of it as toothpaste sold on Amazon. We would look at all the stores and outlets, large and small, where toothpaste is sold. And this is the law behind which Apple stands. “
The business background for the Epic Games v Apple case looks like this:
Through Epic’s eyes: You may remember about a year ago, when Epic attempted to sell virtual currency on Fortnite without going through the Apple Store payment system. This was a violation of Apple’s rules and Apple started Fortnite from its App Store, triggering the legal battle when Epic sued Apple and Google. (Maybe you’ve seen Epic’s Nineteen eighty fortnite video.) Others have complained, but Epic was the first to take direct legal action against Apple. Epic believes that since iOS users can only access apps through the Apple Store, Apple has too much control over app distribution. Apple also charges developers a 30% commission fee (in other words, they take a 30% discount on purchases), which Epic deems unfair, especially given Apple’s dominance in the mobile applications.
Through Apple’s eyes: Apple says it’s not a monopoly as it shares the phone market with Google’s Android. In addition, Fortnite players are free to play the game on other platforms, such as game consoles and computers, so the market in question is really game distribution, not more widely the distribution of games. applications. Apple also argues that it created the Apple App Store and should be able to set the rules, which app developers must follow.
Who is right? We don’t have an answer yet, although the trial is over. U.S. District Judge Yvonne Gonzalez Rogers will take a few weeks, if not months, to rule.
We turned to Wharton Business Daily on SiriusXM Ch. 132 this week to discover some potential outcomes of this important antitrust battle (click the link for a definition of Wharton’s Joseph harrington). Here is what we learned:
Apple’s 30% discount: In large part, this commission structure prompted Epic to perform a final execution so that they did not have to pay Apple’s fees, which ultimately sparked the lawsuit. There are signs that Apple is already making changes here. “It’s pretty clear that game makers pay more than a lot of other Apple platform participants, so they’re bearing the brunt of expensive Apple technology,” Hovenkamp noted. Still, he added, Apple is starting to selectively reduce its commissions on App Store sales. “Today there is a growing number of those sales that are closer to 15%, rather than 30%,” he said.
An epic victory? The market will likely see changes if the judge rules in favor of Epic and allows other companies to distribute apps. On the one hand, the prices of the applications can go down. But consumers can feel a price pinch in other ways. “Take the tough case scenario where Epic wins and Apple is forced to open up the App Store to competition,” Hovenkamp said. “I think this will result in Apple getting less revenue from the app aftermarket. This means that the price of the phone will likely increase. One of the things that is fairly well known in this industry is that Apple sells the durable part of the product, the phone, for a relatively low price and then earns its income from the subsequent business. In this case, this activity has two different sources. One is about App Store royalties and the other is a fairly large payment that Apple receives every year from Google for making Google Search the default search engine, which is also under attack. If Apple loses these two sources of revenue, then it will have to catch up with them in another way. We can see this is manifested in the higher iPhone prices. “
Playing on both sides. Throughout the trial, Judge Gonzalez Rogers has shown an interest in arguments from both sides of the business, which has prompted observers to conclude that it’s really hard to say how she’s going to rule. “Towards the start of the trial, I got the feeling from talking to antitrust experts that Apple had a really strong case,” said Sarah Needleman, a the Wall Street newspaper columnist who has followed the trial closely and joined Loney on the radio show this week to talk about the potential outcome. “But now that we’re at the end, I’ve seen signs that Epic may have a fighting chance here… the judge has shown a willingness to accept Epic’s claims and at the same time a reluctance.” to turn Apple’s business upside down. It’s really in the middle. There is no clear sign that it will go one way or the other, and experts are divided. “
Whatever the decision – which could be mixed if the judge allows Apple to maintain its current position as an app distributor, but requires changes to its developer guidelines – the pressure is on, experts say. Apple has been able to run its App Store according to its rules for over 10 years. Companies like Epic and even lawmakers are trying to change this narrative with the help of anti-trust laws. If Epic loses, who will be the next online challenger?
What is a monopoly? What are antitrust laws? How does the Epic Games lawsuit against Apple relate? Inspire a broader discussion on the topic by reading more business case examples in the Related Links tab.
How do you think U.S. District Judge Yvonne Gonzalez Rogers will rule? What is your argument in favor of this decision? Do you think Apple is a monopolist?
If you are a regular gamer, how does this lawsuit pique your curiosity about the company behind the virtual world? What other questions do you have about how your platform works and the companies that own it?