IF APPLE'S PR operation has a centrepiece, it is the Worldwide Developers Conference (WWDC)

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IF APPLE'S PR operation has a centrepiece, it is the Worldwide Developers Conference (WWDC). The covid-19 pandemic forced this year's jamboree, which began on June 22nd, online. Instead of the usual cheers and whistles at the keynote speech, viewers were treated to a slick pre-recorded video of Tim Cook, Apple's boss, listing the usual slew of announcements: a new version of the iPhone's operating system, new chips for Apple's desktops and laptops, plans to let iPhones unlock some BMW cars.Perhaps that is just as well—for this year Mr Cook may have heard a few boos. A week before the WWDC the European Union had announced antitrust probes into Apple's App Store. That, in turn, came amid an outbreak of restiveness among the developers who provide software to Apple users, and at whom the WWDC is ostensibly aimed.The EU's investigation follows complaints from Spotify, a Swedish music-streaming firm, Tile, which makes tracking devices, and Kobo, a maker of e-book readers. They are unhappy about rules that force app-makers that sell digital services on Apple devices to use Apple's own system for handling purchases made in their apps. Apple takes a cut of up to 30% from each such transaction. At the same time the rules limit firms' ability to guide users to other payment options (via their websites, for instance). Since the App Store is the only way to sell software to iPhone users, the firms allege that Apple's rules amount to an abuse of its control over the platform.The grumpiness extends beyond firms that have formally complained. Just before the WWDC, Basecamp, which makes an email app called Hey, publicly fell out with Apple for the same reason. Match.com, an online-dating firm, says it is unfair that purveyors of digital services must fork over 30% to Apple, while other businesses, such as ride-hailing apps like Uber, do not have to. Other developers grouse in private, fearing reprisals if they speak up. Apple, for its part, has dismissed the complaints as mere moaning from companies keen to get a "free ride", though it did quietly make a few small concessions, such as promising to loosen restrictions on non-Apple web browsers, music-streaming apps and other software, and letting developers appeal when their products are said to violate App Store rules.Apple's legal troubles extend beyond its payments systems, and beyond the EU. Besides charging for in-app transactions, the firm also takes a 30% cut from every sale of 15of any app in the App Store. A court case inAmerica alleging that the App Store's monopoly has driven up prices for consumers was given the green light to proceed by the Supreme Court last year. Attitudes towards the tech industry in general are hardening on both sides of the Atlantic. Google, Facebook and Amazon all face their own scrutiny from trustbusters. On June 18th Brad Smith, the president of Microsoft—which lost a landmark antitrust case in 2001—gave the pot a vigorous stir when he opined that Apple and Google exert far tighter control over smartphones than Microsoft ever had over desktop PCs.Mr Cook and Sundar Pichai, who runs Google's corporate parent, Alphabet, may beg to differ—not least because each can claim to have to compete with the other. Either way, Apple may be tempted to carry on squeezing its developers even as regulatory storm clouds gather. Smartphones, which have powered the firm's transformation from also-ran to colossus over the past decade, have become a mature market. Sales of iPhones are stagnant. Those who already own a device replace it less frequently. And the number of people buying an iPhone for the first time has fallen by 63% from its peak in 2016, calculates Neil Cybart of Above Avalon, a tech-analysis firm (see chart 1).Apple plans to replace revenue from selling phones with that from services. This includes proceeds from, among others, warranties and video-streaming, as well as App Store fees and commissions. A new study, financed by Apple, estimates the size of the global market for everything that the App Store has created, from food-delivery to online shopping, at $519bn a year (see chart 2). One way to read this is as an advertisement for Apple's benevolence. Advertising and digital goods, from which the firm takes a cut, make up just a fifth of the total. On the other hand, the study also highlights just how much more digital terrain remains to be harvested. ?

 

Storing up trouble The Epic-Apple courtroom battle commences A judge in California hears the opening arguments in what promises to be a drawn-out—and consequential—disputeOct 3rd 2020FITTINGLY, THE legal deathmatch is happening online. On September 28th a court in California heard arguments, via video call, in a case that pits Apple against Epic Games, the maker of "Fortnite", a hit video game. At issue is whether the tight control Apple exerts over the software that can run on its smartphones amounts to a monopolistic abuse of power. The verdict, when it comes, may determine what other digital marketplaces can and cannot do.Apple's software practices have seen challenges before (see table). But Epic's is the most brazen. In August Epic offered "Fortnite" players 20% off in-game purchases on iPhones if they paid Epic directly, not via Apple's App Store, which takes a 30% cut on most transactions made in apps. This violated App Store terms; "Fortnite" was booted from the platform. Expecting this, Epic responded with the lawsuit (and a cheeky PR campaign).The hearing concerned the narrow question of whether Epic could force Apple to return "Fortnite" to the App Store while the case proceeds. But it offered a preview of both sides' arguments. Epic contends that Apple's "walled garden"—in which iPhone software can be downloaded only via the App Store—stifles competition. In 2018 Epic launched a PC games store, charging a 12% commission. Steam, the dominant store, then dropped its cut from 30% to 20% for top-selling games. Tim Sweeney, Epic's feisty boss, argues that Apple prevents something similar on iPhones.Apple retorts that those who dislike its rules have plenty of alternatives. "Fortnite" is available on desktop PCs, games consoles and smartphones that run on Android, a of 35rival operating system made by Google. In a statement, Apple accused Epic of forcing its hand and "putting customers in the middle of their fight". It has countersued Epic for breaching its App Store contract.Mark Patterson of Fordham University sees parallels with Microsoft's run-in with trustbusters in 2001. The software giant's bundling of a web browser with its Windows operating system was eventually found to be anticompetitive. Apple exerts more power over iPhones than Microsoft did over Windows PCs, Mr Patterson says. But its market share in smartphones is smaller than Microsoft's was in desktops.The Epic case may hinge on how the court defines the relevant market. In Apple's eyes the App Store is part of a broader universe of digital platforms in which it can reasonably claim not to be a monopolist. Epic takes a narrower view, arguing that iPhones are a market unto themselves.Most lawyers think Apple had the better of the initial exchanges. The judge seemed unconvinced by Apple's attempts to stop Epic from updating the iPhone version of the software behind "Fortnite", which is licensed to other gamesmakers. But she reserved her strongest words for Epic, which she admonished for inviting trouble.The case looks likely to go to a jury trial next year. With no clear precedent, big ramifications for the tech industry and the odds that the losing party will appeal, the dispute may end up in the Supreme Court.In the meantime, Apple is facing other pressures. Epic is being cheered on by fellow members of the "Coalition for App Fairness", like Spotify, a music-streamer, and Match Group, owner of Tinder and other dating apps. In June, at Spotify's urging, the EU opened an antitrust probe into the App Store, and David Cicilline, who chairs a committee in America's Congress that examines antitrust issues, described Apple's fees as "highway robbery" and lamented the lack of "real competition" on iPhones.While it battles Epic in the courts, Apple may tweak its rules to placate some developers. It has done so on occasion in the past, for instance exempting Amazon from the 30% commission on in-app purchases for the e-commerce giant's Prime Video streaming app. On September 25th, following criticism from Facebook, Apple announced a temporary waiver on the 30% fee on in-app purchases for companies that had been forced by the covid-19 pandemic to switch to online-only events.Such concessions may be as far as Apple will go, at least willingly. When Steve Jobs launched the App Store in 2008, he didn't think it would ever make much money. He was wrong. Although the company does not break out the platform's financial results, it probably makes up the bulk of its services business, which accounts for nearly 20% of revenues—and rising (see chart), as iPhone sales slow. Seeing what a promising profit engine it has turned into, Apple's late boss would doubtless have fought tooth and nail to hang on to it. ?This article appeared in the Business section of the print edition under the headline "Storing up trouble"

 

Apple drops its cut of App Store revenues from 30% to 15% for some developers The cut benefits only developers who pull in less than $1 million annually.ArsTechnica | SAMUEL AXON - 11/18/2020, 9:20 AMIn one of the biggest changes to the App Store model ever, Apple todayannounced that the majority of third-party developers releasing apps and games on the company's App Store will see a reduction in Apple's cut of revenues from 30 percent to 15 percent. The company calls it the App Store Small Business Program, and it aims to improve the company's standing in public perception and antitrust battles while minimally impacting its own bottom line.The program is opt-in, and any developer whose combined revenue across all their apps was less than $1 million in the previous year (or any developers new to the App Store) can apply and be accepted. The revenue measure at play here includes not just app purchases, but also in-app purchase (IAP) and subscriptions revenue.If during the course of the year the developer surpasses the $1 million threshold, the 30-percent rate will kick back into effect for the remainder of that year. If the developer falls below the threshold again, they'll receive the 15-percent rate once more the following year.Apple CEO Tim Cook released the following statement alongside the news:"Small businesses are the backbone of our global economy and the beating heart of innovation and opportunity in communities around the world. We're launching this program to help small business owners write the next chapter of creativity and prosperity on the App Store, and to build the kind of quality apps our customers love... The App Store has been an engine of economic growth like none other, creating millions of new jobs and a pathway to entrepreneurship accessible to anyone with a great idea. Our new program carries that progress forward—helping developers fund their small businesses, take risks on new ideas, expand their teams, and continue to make apps that enrich people's lives."Though Apple has not released specific numbers, it's likely that the vast majority of App Store developers are eligible for the program, but they together make up only a small portion of Apple's overall App Store revenue, which was $50 billion last year. This is because big players dominate the revenue, while a sea of smaller developers outnumber the big players in number but definitely not in user spending.This way, Apple is able to deflect some criticisms that its rates are onerous for independent developers while seeing only a relatively small impact on its own bottom line.It won't change the dynamic between Apple and very large developers that have complained about the 30-percent cut, such as Epic Games, though. Those battles are likely to continue.It might be useful ammunition in the PR and legal battles over proposed antitrust regulation or action that the company faces,particularly in the European Union but increasingly in the United States as well.