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Apple could lose its app cash cow

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Toby Shapshak is publisher of Stuff (Stuff.co.za) and Scrolla.Africa.

Apple’s annual iPhone launch extravaganza was overshadowed by a critical legal loss to Epic Games that threatens 30% commission on in-app purchases, which are estimated to generate $20bn per year for the tech giant.

First published in the Daily Maverick 168 weekly newspaper.

It’s not often that Apple’s big iPhone launch event is upstaged. But a ground-breaking legal defeat last week and its own software update to overcome a recently exposed iMessage vulnerability to a zero-click attack threatened just that.

On 13 September Apple released the iOS patch to counter a security flaw exploited by the Pegasus software used to hack the phones of world leaders (including potentially President Cyril Ramaphosa), activists, journalists and even family members and other leaders in the same country. If you’re not an iPhone user you’ll be unfamiliar with Apple’s messaging app, which is also the recipient of SMSes and therefore these zero-click attacks – so named because you don’t even have to click on something for your security to be compromised. You know this is mainstream news when music radio stations do interviews about whether Apple itself has been “hacked”.

The patch is welcome news, albeit months since the Pegasus breaches were exposed, but the legal loss to Epic Games, the maker of hugely popular game Fortnite, is very bad news.

Epic took Apple to court because of the iPhone maker’s contentious 30% commission on purchases made via the app on a customer’s phone. This is the only way Apple allows app developers to charge for their service – which Epic bucked at and offered its gamers an alternative. Apple promptly dropped Fortnite from its App Store and the legal fees started piling up. By the way, Fortnite earned some $5-billion last year.

Last week US District Judge Yvonne Gonzalez Rogers found that Apple had acted anticompetitively by forcing consumers to pay higher prices. Users should be able to pay through an alternative mechanism, she ruled, which could be cheaper.

“Apple has not adequately justified its 30% rate,” she said. “Merely contending that its commission pays for the developer’s use of the App Store platform, licence to Apple’s intellectual property, and access to Apple’s user base only justifies a commission, not the rate itself.”

Crucially, however, Gonzalez Rogers stopped short of declaring that Apple was a monopoly – a ruling Epic, ironically, is appealing. “Given the trial record, the court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws,” she said.

There is a lot at stake here for Apple: a potential $100-billion market for mobile gaming, as well as its tight hold on the App Store, which is increasingly a driver of repeat revenue.

Selling apps and taking a 30% commission is estimated to be a $20-billion business a year, say analysts, with a very juicy 75% profit. That is a lot of easy money Apple might not be getting a bite of.

On 14 September, CEO Tim Cook headlined an overly orchestrated video presentation that used Apple’s HQ and famous San Francisco piers as the settings for launching four new variants of the iPhone 13, a new Watch and new iPads. It was a stunning display of hyperbole and the clever use of statistics of how much this year’s model has improved over last year’s model. Just like they did last year.

That’s not to say any of these new shiny things aren’t marvels of technology and (minor) upgrades over last year. The iPhone 13 Pro models have quite spectacular cameras (I’m using a 12 Pro now) and the new cinematic mode for video does really look impressive. Visually, and size-wise, the iPhone 13 looks exactly the same as the 12 – and even has fancy new names for a similar range of colours.

Interestingly, the newly launched iPad Mini now also uses the USB-C connection standards used by just about every device in the world except the iPhones and Apple’s Bluetooth keyboards, trackpads and mouse devices. Upgrading everything to USB-C would make all our lives so much easier. Ag pleez, Oom Tim. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.

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  • Toby, my take on the judgement is a bit different. Apple may lose maybe a percent or two from their commission. Couple of issues concerns me:
    (1) Yes theoretically Apple may lose a chunk of the 30% commission it charges the developers as per court ruling. However, do you think customers will choose to buy apps in the Apple’s App Store and then go outside to a third-party platform/payment system to complete the transaction? Will customers feel that’s an inconvenience they cannot afford to carry?
    (2) I know many publications have termed the court decision a loss for Apple and win for Epic Games. At best a pyrrhic victory for Epic games because in addition to paying Apple 30 percent commission for sales outside the App Store, Epic is effectively at the mercy of Apple for its return. In fact Eric has already turned it down in South Korea.
    (3) in any event Apple has already announced that it will cut the commission to 15 percent for small developers who make $1 million or less per annum previous years.
    (4) the ruling did not say Apple cannot charge developers 30 percent commission even if the transaction was concluded outside the Apple store. Silicon Valley Tech laywer Paul Gallant is reported to have saidApple could still tell developers that it intents to collect a commission of up 30% despite court ruling, and if developers refuse to pay, Apple can de-platform them.
    (5) The biggest winner here is Apple since the judge did not find the company a monopoly. Your thoughts Toby!!

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