Reporter Xiao Yulin.
Edited by Gao Yulei.
Apple announced a policy adjustment in the App Store in the United States on January 16, local time, officially supporting third-party payment methods. Users will be able to subscribe and make in-app purchases on specific pages provided by the developer, and developers will also be able to get information about the user's benefits during the registration process.
This is a change brought about by the Epic Games v. Apple monopoly case that began in August 2020. In announcing the change, Apple Vice President Matthew Fischer and Apple** lawyers submitted a detailed explanation of the change to the District Court in Oakland, California, indicating that Apple complied with the court's decision in a timely manner. At the same time, as part of the lawsuit, Apple demanded $73.4 million in damages, including legal costs, from Epic Games.
At this point, the tug-of-war between Epic Games and Apple for more than 3 years has come to an end.
In August 2020, Epic Games filed a lawsuit against Apple, alleging that Apple's App Store operations violated antitrust laws and unfair competition laws.
On September 10, 2021, the court ruled that Epic Games' claims were invalid and the lawsuit was lost. But Apple, the winning party, was given a national ban. Apple has been banned from using third-party payments and has been required to disclose information about users in their apps to developers.
In November 2022, both sides unhappy with the verdict escalated the standoff to the Ninth Circuit Court of Appeals.
In April 2023, the Ninth Circuit Court of Appeals largely upheld the original verdict.
In the end, both sides pinned their hopes on the Supreme Court, which rejected it in January 2024. Both sides had to accept the initial verdict.
Epic Games originally planned to force the iOS system to open up through lawsuits, and developed a series of marketing plans to put pressure on Apple around the "Apple tax" guide**. Although the lawsuit failed, these ** are still fermenting.
Apple generally takes a 30% cut of transactions that occur in the App Store, which is known as the "Apple tax". In recent years, the debate around the "Apple tax" has become increasingly heated and almost impossible to reach a consensus. Unexpectedly, Apple, which was forced to support third-party payments, did not "back down" and still hoped to receive a commission from each payment.
According to the new policy of the App Store in the United States, Apple's commission rate for transactions that occur through third-party payment channels will be reduced from 30% to 27%; Apple requires developers to provide transaction reports within 15 calendar days of the end of each calendar month in order to settle the commission fee.
To do this, Apple has devised a complex set of rules and processes. It can be said that in this battle to defend the "Apple Tax", Apple showed its cards.
In their testimony at trial, Apple executives revealed that when it launched the App Store in 2008, Apple almost accidentally set a 30 percent commission percentage, without considering operating costs, user benefits or developer value. Steve Jobs once mentioned that "the purpose of the App Store is to add value to the iPhone" and eventually "sell more iPhones". Later, the value of the App Store far exceeded Apple's expectations.
On May 31, 2023, Apple announced that the App Store ecosystem brought 1$1 trillion in revenue and sales (see chart below), of which $104 billion came from digital goods and services. According to the calculation of the 30% commission ratio, Apple's "apple tax" in that year was $31.2 billion.
In this standoff between Epic Games and Apple, how does the court view these "Apple taxes"? Why is Apple's new app store policy in line with the court's decision?
Can Apple keep its tens of billions of revenues
The court summoned a number of Apple executives to reconstruct the creation of the App Store and the "Apple Tax" and document the process as facts. "Power Plant" found that the 30% commission ratio of the "Apple tax" was decided by Jobs and executives "patting their heads", and this arbitrariness of "patting their heads" became Apple's advantage in the trial.
When the App Store went public in 2008, there were no similar products on the market. In order to attract developers, Apple decided to give "all the funds generated in the store to developers", charging only a certain commission to cover the operating expenses of the App Store.
However, the exact operating expenses seem to be unaccountable, and Apple refers to the distribution costs of the recording software ("hard versions of software", which may specifically refer to game discs), which is about 40%-50%. On top of that, Jobs and another Apple executive, Eddy Cue, jointly decided to "dramatically reduce" the commission percentage to 30%.
The controversy surrounding the "Apple tax" is divided into two parts, is it reasonable for Apple to take commissions from the transactions of developers and users? And is the 30% commission reasonable? Apple considers the "Apple Tax" necessary to "pay for developers' use of the App Store platform, licensing of Apple's intellectual property, and access to Apple's user base." The judge agreed with Apple's claim and held that Apple was entitled to be paid based on its intellectual property.
However, the judge also noted that "this only justifies the commission, not the rate itself", and that "Apple has not sufficiently justified its 30% tax rate".
Dramatically, this seemingly unfavorable judgment for Apple is also a hurdle that the plaintiff, Epic Games, cannot overcome.
If the "30%" figure is based on market competition, it is rigorously calculated to maintain Apple's competitive advantage. Then, Apple may be suspected of restricting fair competition. However, the opposite is true, and Epic Games can hardly prove that this arbitrarily set number hurts the market competition.
In 2011, Apple executive Phil Schiller mentioned in an internal email that "once we make more than $1 billion a year in profits from the App Store, it's enough to consider reducing the 70 30 ratio to 75 25." If we can sustain a profit of $1 billion a year, it can even be 80 20? The email further illustrates Apple's arbitrariness in its commission percentage.
Notably, the judge did find that Apple's commission ratio was too high, and that this percentage increased the developer's development costs. However, there is no evidence that consumers are enduring higher ** as a result. Epic Games, as plaintiffs, is also not a consumer in the traditional sense.
Based on the judges' inquiries and debates in 16 court hearings, Power Plant can further conclude that in the judge's view, an excessively high commission ratio is a choice to maximize commercial profits, and the antitrust law does not focus on the quality of such a choice, but on the imbalance of competition it brings. The issue of excessive commission rates was not the focus of this trial.
The focus of the trial and the real impact on consumers is the App Store's "anti-steering rules." The court emphasized the importance of the flow of information in the market, and the anti-bootstrap rules limit the communication between developers and consumers, and consumers cannot obtain information from developers in a timely manner, and Apple's actions constitute anti-competition here. The court ruled that Apple was prohibited from continuing to implement anti-bootstrap rules in order to increase competition, increase transparency, and increase consumer choice.
After the anti-boot rule was banned, it became possible for developers to introduce third-party payments. However, the conclusion of the "Apple tax" also applies to the field of third-party payment, that is, the "Apple tax" is reasonable, but the specific proportion is worthy of further discussion.
Power Plant learned that many developers believe that even with strict review requirements, Apple can hardly get a 27% commission, "It's too difficult to manage, and Apple can't take all apps off the shelves." ”
Richard Schmalensee, an economist who works with Apple, once mentioned at trial that if it left the App Store for a transaction, "Apple would have to rely on the seller to remit a 30 percent commission, and if the money is withheld, there is little recourse other than litigation." Due to the huge volume of transactions on the App Store, this process can quickly become difficult to handle. ”
However, when "Power Plant" flipped through Apple's new policy, it found that Apple may avoid this difficult situation through technical means.
Some developers further mentioned that Apple's new policy is too strict, and "the ultimate goal is to keep everyone in the App Store." In addition, "users choose third-party payments because of discounts, but for developers, third-party payments have the potential to increase operational costs." ”
Tim Sweeney, founder and CEO of Epic Games, said on social media that developers pay a 3-6% rate to a third-party payment provider, and then a 27% rate to Apple, making it almost impossible to provide services at a cheaper rate.
The App Store is actually a game**
Apple has publicly mentioned that more than 90% of bills and sales in the App Store in 2022 come exclusively from developers and businesses of all sizes, without paying any commissions to Apple. As Apple suggests, the "Apple tax" that Apple is trying to keep comes from a small subset of apps.
According to documents released at the trial, games have been an integral part of the App Store since at least 2016. 81% of the App Store's transaction bills for the year came from games, and the number of game apps accounted for only about 33% of all apps.
In 2017, game transactions accounted for 76% of Apple's overall App Store revenue, compared to 62% in 20189%, compared to 68% in 2020. In his closing report, the judge wrote, "The app store is primarily a game store, followed by a variety of other app stores. "Power Plant has seen data showing that the average transaction for a gaming app is 9$65, while the average transaction for other apps is between $7 for the app$11 and $14 for the Health & Fitness appbetween $10.
Similar to the gaming industry as a whole, gaming spending in the App Store is focused on a small percentage of consumers. In the third quarter of 2017, the number of users who spent more than $450 on games accounted for 05%, and they contribute 53% of the total App Store sales7%。The proportion of users who spend $15-450 is 74%, they contribute 415%。The closing report mentions that "81. .4% of accounts did not make any spending, accounting for zero of App Store bills in the quarter. This trend has largely continued to the present day (Power Plant Note, case closed in September 2021). ”
iOS's huge user base has determined Apple's status as a hidden gaming giant. In the Epic Games and Apple lawsuit, the court defined the market in dispute as a mobile game market, which specifically refers to mobile game transactions on mobile phones and tablets, excluding handheld devices such as the Nintendo Switch. The main players in the mobile gaming trading market are Apple and Google, but also Nvidia, Microsoft, etc., which are participating in cloud gaming**.
The report cited by the court described mobile gaming as "a $100 billion industry" that accounts for 59% of global gaming revenue. According to Microsoft documents, mobile gaming generates more than half of the industry's revenue and profits, compared to a quarter of each for traditional consoles and PCs.
The court found that Apple's share of the mobile game trading market fluctuated between 52% and 57% over a three-year period from 2019 to 2021. "There is some stability in Apple's market share with its main competitor, Google. Apple has more than a majority share in a duopoly and highly concentrated market, suggesting that Apple has considerable market power. ”
In his closing report, the judge cautioned that "there is indeed evidence that Apple, with its sizable market share, is approaching the precipice of gaining enormous market power or monopoly power." Apple has been spared because its share is not high (the reference value for monopoly share is 65% in Power Plant Note) and competitors from the relevant sub-market are making inroads into the mobile gaming sub-market. ”
It can be seen that the main income of the "Apple Tax" is actually games, more precisely, a very small number of "RMB" players. In the future, it is the game developers and game companies that can really affect the size of the "Apple Tax" pie. In fact, Epic Games' lawsuit against Apple has something to do with it, with CEO Sweeney saying: "Our company's primary goal is 1 billion iPhone consumers, because Fortnite isn't just a game, it's a much larger universe. ”
With the policy adjustment of the App Store in the United States, Apple has opened iOS sideloading in the European Union in response to the Digital Markets Act. Fifteen years after the launch of the App Store, the cracks of two closed ecosystems created by Steve Jobs were torn apart at the same time. And Apple is still making a final effort to provide developers and users with more choices, while hoping to keep them in the ecosystem in an almost hard-line way. After looking at the iOS sideloading policy, a developer said, "I will never launch an app in Europe." ”