Mark Gurman: How the Epic vs. Apple trial is going

“So far, it looks like Apple is scoring most of the wins.”

Posted Friday to Bloomberg Technology subscribers:

Hey everyone, it’s Mark. I’ve been following the trial between Apple Inc. and Epic Games Inc. since Monday, and so far, it looks like Apple is scoring most of the wins.

The core issue is very simple: Epic Games is accusing Apple of monopolistic behavior on its App Store. That’s because the company requires app developers on the store to also use its payment system, which means Apple takes a 15% to 30% cut.

This week, it seems that Epic hasn’t been able to prove that the obligatory use of Apple’s payment system constitutes an abuse of monopolistic power, and it hasn’t shown that Apple is engaging in serious anti-competitive behavior. The testimonies from Epic’s side don’t appear to have moved the needle. An Apple representative said Epic is spending its time in court on irrelevant issues and continues to call witnesses that are helpful to Apple’s story.

Epic was always going to be facing difficult fight. The burden of proof is on Epic, as the plaintiff, to show why Apple shouldn’t require app makers to use its payment system and demonstrate that the company is hurting developers. Epic has done some of that, roping in representatives from the gaming divisions of Microsoft Corp. and Nvidia Corp. to testify on its behalf. But all their arguments may not be enough to sway the judge, particularly one that has sided with Apple on multiple cases in the past.

Even if Epic loses the case, its crusade may still have an impact. The trial, which has been a national story for days, has highlighted several developer concerns with the App Store. The iPhone maker may walk away from the trial freshly motivated to appease developers over the long-term, and avoid future lawsuits that could potentially be even more embarrassing than this one.

My take: John Gruber suggests that WWDC would be a good time for Apple to announce that it is taking its developer revenue cut down another notch or two.

20 Comments

  1. Fred Stein said:
    Yesterday, the judge scolded both sides for wasting the court’s time.

    Just my guess, she’ll tell them, basically, ‘Go work it out.” Epic cannot expect the courts to rule on Apple’s fee nor the details of Apple’s policies.

    The amicus briefs are mainly from other closed gaming “app store” vendors who charge the same 30%.

    5
    May 7, 2021
    • David Emery said:
      Fred, did you look at the full set of Amici briefs? I saw a couple posted on the public site, but didn’t go through the registration process to see the full set of filings on this case.

      And as I posted on Slack, the argument that “Apple App Store curation isn’t that good” is also an argument for why curation is needed and has real value.

      I still think this case turns on how ‘the market’ is defined, and I haven’t seen any strong case for the Epic definition of “App Store is its own market.” Without that finding, the rest of the legal case pretty much falls apart.

      5
      May 7, 2021
      • Fred Stein said:
        @David and @Joseph. I confess, I have not read any amicus briefs – too lazy.

        The following have joined forces in some way with Epic, and they all have closed Game stores: Microsoft, Sony, Nvidia. Epic has not taken action against any, and tries to rationalize this contradiction.

        Tencent, a 40% owner of Epic, have their own gaming store, uniquely named, Tencent Appstore, which they claim is #1 in the industry.

        Two explanations: 1) Apple has the best customers in the world. 2) Over time, Apple silicon and sw toolkits will outperform all other gaming technologies.

        1
        May 7, 2021
        • Gregg Thurman said:
          The courts have ruled numerous times that achieving monopoly status via superior product or services is not a crime, abusing monopoly status is a violation.

          It is going to be nearly impossible, sans clear evidence of abuse, to convict Apple of anti-competitive behavior as long as it continues to develop superior hardware, software and services. For sure Apple is not competing on price, as its products are virtually the most expensive offered any where on the planet.

          Now while all of the above is true, there is one glaring exception to it, and that is the perverse interpretations of anti-trust law in the EU. Margarethe Vestager and her staff have a provincial bias against anything not European. I wonder how many valid anti-trust cases she would find if her investigations were turned inward. Even if she did find cases, would they grab the public’s attention (driven by the media) in the same way as does her “findings” against US based big tech? Which makes me wonder if her anti-trust investigations are more motivated by her quest for career promoting headlines, than her desire to protect the consumer.

          5
          May 7, 2021
  2. Michael Goldfeder said:
    This case was over before it ever began. Not certain how the judge will rule on the issues and damages in Apple’s cross complaint for breach of contract, etc., but Epic will be on the very short end of the stick when all is said and done.

    The release publicly by Epic of emails obtained from Apple during discovery could also lead to sanctions for such blatant and unprofessional conduct.

    2
    May 7, 2021
  3. Bart Yee said:
    I would love to have WWDC be the venue for an important hardware announcement – dedicated development of M2X led hardware, including a new Swift based programming model for a tightly integrated 4K gaming console.

    The Apple HomePlay ™ console would feature cross iOS device play while providing additional immersive options like real-time AR game play at home via AppleAR and Apple GlassView ™. It can be viewed on any HDR HDMI-participating 4K TV.

    The M2X Apple HomePlay ™ will have 16 and 32 core versions with dedicated 12-24 core GPU, neural engine, and scaleable high performance RAM and SSD for Ultra superior performance. Wireless, Wifi and LAN based HomePod audio and U1 UltraWideband controller sensors complete the immersive physical experience for your senses. Optional AirSense ™ generators provide the smell of the battlefield for your enjoyment.

    4
    May 7, 2021
    • Bart Yee said:
      Apple M2X-based gaming platform Apple HomePlay ™ will launch in 2 years as hardware development has already been underway for 3 years. Developers will now have the opportunity to develop for (and cash in) on Apple’s high value user base plus likely many many switchers. Since the hardware is so advanced, cross-platform play is not possible without degrading the experience.

      In that light, Apple is announcing a $500 million incentive program where investments will be made to developers to assist them in creating exclusive HomePlay ™ games and applications which will run there alone – no worries about having to code for other platforms. Apple will pay developers upfront this seed money for exciting and exclusive content.

      In addition, Apple will, in a nod to other console platforms, forego its usual 30% hardware gross margin despite having spent some $5 billion in development costs, and sell the HomePlay ™ console at cost. Apple will only require exactly the same software margins as other Console App stores in keeping with industry standards and practices. Special emphasis will be on the best developers who migrate from the Epic Game Store, XBox and PlayStation. Steam developers may remain if they choose.

      3
      May 7, 2021
      • Bart Yee said:
        Apple feels highly under-represented in the game and console market, accounting for only a court documented 7% for some
        Popular games. To that end, the benefit to consumers in switching from Apple’s relatively high margin hardware model to a cost-or-loss model will allow solid price competition with demonstrably higher performance and experience.

        Software developers will benefit from much of their upfront costs being covered and sharing in this completely new revenue stream. All transactions and in-App Purchases will be via HomePlay App Store and exclusively via ApplePay for secure and frictionless transactions. Developers will also share in any HomePlay GamePlay subscriptions revenue that bundle their games. After the first year fees will reduce to ensure developer support and upgraded versions.

        SDKs will remain a nominal $100 and development M1 Mac minis will be sold for 1-2 year leases at cost.

        3
        May 7, 2021
        • Bart Yee said:
          Apple’s objective for the HomePlay platform is to become a relative peer in the console gaming world. This would amount to ~15-20% of market by unit sales. Since console unit sales are roughly 50-60 million units annually, Apple only seeks 12-15 million unit sales by 2023-2024, about 1.5% of its active user base not counting switchers. At roughly $450 per unit, that is $6.75B in gross revenue, software is accrued separately under services. Apple is pleased to provide competition to the current triumvirate of Sony, Microsoft and Nintendo, and more and exciting opportunities for Game developers.

          3
          May 7, 2021
          • Bart Yee said:
            In a separate announcement, Apple will be introducing a line of game controllers for iOS device accessories which will directly attach to iPhone 12 series and current and upcoming iPad / iPad Pro to enhance game play. These will also work in conjunction with Apple AR, AppleView AR and Apple AirPods Pro for an immersive mobile gaming experience. The controllers will feature low lag 4G LTE/5G and UWB connectivity combine with gyroscopic and haptic feedback. Special versions include an extended gun-mount Selfie-stick type system for lightweight viewing and FPS games or immersive handheld UWB physical weapons with haptic feedback and realistic heat signatures to complement AR viewing.

            “This is the type of mobile device enhancement Apple gamers will enjoy and love as we provide even more amazing experiences and value to the Apple ecosystem.”

            2
            May 7, 2021
    • Ken Cheng said:
      A console!?! Then Epic will argue that Apple HomePlay DESERVES a 30% cut.

      0
      May 7, 2021
  4. Tim Collins said:
    I am tired of this discussion. Apple provides developer tools, a storefront and a very desirable customer base. They also help protect me as buyer in the transaction.Yes, they collect fees. Let market forces drive the fee structure for this service/product. Growth in the number of apps and revenue demonstrates that Apple is not throttling commerce. No one has to engage in any transaction with Apple. It is a choice. The buyer and the seller have come to terms. If the terms were too onerous, there would be no transaction. I am not apologetic that Apple has created a great business. Participation in this great business costs $130.21, as of the close of todays market. If that is too high, I am not sorry.

    9
    May 7, 2021
  5. Jerry Doyle said:
    “…. My take: John Gruber suggests that WWDC would be a good time for Apple to announce that it is taking its developer revenue cut down another notch or two.”

    I disagree vehemently with John Gruber’s suggestion above. Part of this trail is Apple’s justification for charging the current fees to Developers. For Apple after prevailing in this court case to reverse course and trim those fees down another notch or two is exactly what Tim Sweeney is asking Apple to do and Apple would not only be playing into the hands of Tim Sweeney, but Apple through such action would be acknowledging that its current fees were unreasonable and needed to be revised downward. How can Mark Gurman be so short-sighted in understanding the ramifications of his proposal? Apple has stated repeatedly and reiterated over and over that the current fees charged to Developers are “justified.”

    4
    May 7, 2021
  6. Daniel Epstein said:
    Apple shouldn’t negotiate against itself if it wins the trial. However even if they win they might want to set up some public committee to discuss how they want to monitor the App Store rules to improve the experience for developers and users. This could include changing fees and how they are calculated. If Android marketplace tries to undercut the IOS version they may have to at least adjust what they are doing. Nothing is static forever.

    0
    May 7, 2021
    • Gregg Thurman said:
      they might want to set up some public committee

      Absolutely not. You have no idea what such a committee, unbeholden to the golden goose, would come up with, putting Apple in the position of disagreeing with its own “advisor”.

      1
      May 8, 2021
  7. Michael Goldfeder said:
    @Jerry: I agree 100% not to back down and change the fee one iota! This futile court case brought by Epic will end in a humiliating loss, and Apple needs to sit tall in the saddle and send a strong message to Vestager and everyone else that we will continue to operate our business and tailor it to the choices of Apple consumers who want to be protected while using the iOS platform.

    No need to acquiesce or kowtow to a very misguided PR campaign after prevailing in Federal District Court on a baseless antitrust claim that was seriously flawed from its inception.

    4
    May 7, 2021
  8. David Emery said:
    Has anyone seen other “scoring” of the first week of Epic v Apple? I have not. But the general tenor of articles I have read suggest (1) Epic is doing poorly on the legal front but (2) their actual strategy may be ‘court of public opinion’ and Congress.

    1
    May 8, 2021
    • Gregg Thurman said:
      their actual strategy may be ‘court of public opinion’ and Congress.

      That would be a valid strategy, excepting one tiny point. Apple’s customers love their Apple products and Services,’k so much they are more than happy to pay a premium foe Apple’s many products

      0
      May 8, 2021

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