Apple Inc. has been ordered to make the most significant change to its App Store business model since the platform’s launch in 2008, and it could cost the tech giant a few billion dollars a year.
In a ruling on Friday, U.S. District Judge Yvonne Gonzalez Rogers said the company must give developers the ability to bypass its commission on in-app purchases – a reduction of up to 30%. This includes allowing iOS apps to use “buttons, external links, or other calls to action that direct customers to shopping methods” other than Apple’s payment system.
It’s a big blow to Apple, but a blow the world’s most valuable company can possibly absorb. And Apple dodged an even greater risk – that the judge could determine that it was a monopoly under federal or state law. This may have helped some investors make the decision on the heels, although they still lowered stocks 3.3% to $ 148.97 on Friday, marking their worst drop in a day since May.
Apple’s App Store commissions generated around $ 6.3 billion last year in the United States, with most of it coming from in-app purchases and subscriptions. That money is what’s at stake as games and other apps gear up to take consumers away from Apple’s payments system.
So how much does Apple have to lose? It all comes down to the number of developers trying to bypass its payment system. Longtime Apple observer Gene Munster of Wolf Venture has put the range between $ 1 billion and $ 4 billion, depending on how many developers are taking advantage of the new policy.
Apple described the move as a victory, signaling that it is not too concerned about the financial impact.
“The court said what we knew from the start: the App Store does not violate antitrust law” and “success is not illegal,” Apple said in a statement. Kate Adams, general counsel for the iPhone maker, called the decision a “resounding victory” that “underscores the merits” of her company.
Apple’s opponent in the lawsuit – Epic Games Inc., the maker of Fortnite – also argued that the judge sided with Apple. This “is not a victory for developers or for consumers,” Epic chief executive Tim Sweeney said on Twitter.
Earlier this month, Apple said it would allow developers of so-called reading apps to direct users to external purchasing methods. This category includes media services such as Netflix and Spotify, as well as news and book apps. But Friday’s decision means that rule will also have to apply to games and other categories, which have historically generated significantly more revenue for Apple.
Apple said it was still too early to determine how or when exactly the changes would be implemented and that it needed to have conversations with the judge. He also said he would engage in an ongoing dialogue with the developers on the changes.
Gaming apps make up about 70% of all App Store revenue, and that comes from less than 10% of platform users, according to the ruling. These big spenders help offset the over 80% of App Store accounts that generate virtually no income.
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Apple made about $ 3.8 billion in US revenue from games in 2020, most of which came from in-app purchases, according to Sensor Tower estimates.
But even though the move ends up costing Apple a few billion dollars a year, it’s still a small fraction of its total revenue. In fiscal 2021 alone, the company is expected to bring in over $ 360 billion, meaning the change won’t make or break its overall financial performance. And many developers can choose to stick with Apple’s payment system so that they don’t have to build their own online payment platform.
The judge also didn’t force Apple to change its fees or leave third-party app stores on its platform, which would have dealt a much bigger blow to the company’s revenue.
The ruling states that Apple must allow developers to communicate with customers “via touchpoints voluntarily obtained from customers through in-app registration.” Last month, in minor concessions designed to settle a class action lawsuit with app makers in the United States, Apple had already agreed to allow such direct communications between developers and end users.
The Epic lawsuit ruling only applies to the United States, while previous changes to Apple’s App Store – relating to communications and reading apps – were designed to be global.
The judge’s ruling could ultimately mean Epic’s Fortnite is returning to the App Store. The popular game was initially phased out last year for using its own payment method, bypassing Apple’s fees. Now that an injunction is in place for Apple to allow this approach in one form or another, Fortnite could be on the verge of returning.
Sweeney said on Friday that Epic would only restore Fortnite to the App Store “when and where Epic can offer in-app payment in fair competition with Apple in-app payment, passing the savings on to consumers.”
The move would mean that users could make purchases through the web, rather than having a competing payment system in the apps themselves. This means that Epic would have to create a website for users to make purchases and include a link to that site in Fortnite in order to comply with the rules. This is something Sweeney seems to imply that Epic doesn’t want to do. Epic wants an integrated payment system, not the ability to head to the web.
In a briefing, Apple said the reasons for the Fortnite ban far eclipsed Epic’s decision to offer an alternative payment method, and it’s not clear if Fortnite will return. He did, however, point to previous comments that he would allow Fortnite to come back if it returned to App Store rules compliance.
Sweeney said Epic will continue to “fight for fair competition between integrated payment methods and app stores for a billion consumers.”
The ruling did not apply to revenue Apple previously lost as Epic bypassed its payment system. The judge ruled that Epic owed Apple $ 3.7 million for missed charges for Fortnite purchases made between August and October 2020. She also said that Epic had to pay Apple its 30% discount for purchases. carried out between November 2020 and the decision.
Apple has argued that its tight control of the App Store helps protect consumers and prevent developers from defrauding users.
“We’re still analyzing the decision, which is 180 pages long,” Apple’s Adams added, “but the headline is that the Apple App Store business model has been validated.”
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