We won’t know a verdict until August for the courtroom showdown between Epic Games and Apple that ended earlier this week. But if we’re to protect fair competition in the new frontier of tech policy, then Epic’s case should be thrown out.
Epic’s argument that Apple
is a monopoly and should provide free and unfettered access is akin to Impossible Meats asking for free access to Whole Foods for product placement without offering a cut of the sales or profits in exchange. Why? For three reasons:
- Apple is a private enterprise and can choose whom to put in or not put in to its app store. These are private networks and Apple does not have to provide access to anyone. They have chosen to provide a fairly wide range of apps that meet their standards, which they have every right to set.
- The 30% fee is standard across the industry and has been in place for decades by many ecosystems. This fee provides the right balance between ensuring quality, safety, privacy, and convenience. Apple tests the apps for issues and simplifies monetization. They are not unfairly monetizing the market or shutting down access. They are treating all partners in a consistent manner.
- Apple has app store dominance but not without massive competition. Any company with millions of users can create their own ecosystem and use the internet to download their apps. Google Play Store is also an option that reaches 80% of the world. Epic has many opportunities to build its own ecosystem and distribution.
Epic wants to use Apple’s ecosystem at a discount and at a special price without paying what others are paying. It is asking for special treatment without respecting the rest of the members of the ecosystem and the business model Apple has spent billions and years building. If Apple wanted to participate in Epic’s future ecosystem, would it be able to receive the treatment Epic expects of Apple? Probably not if it had created their business model the same way Apple chose to.
Often Apple is portrayed as a monopoly, but in fact it faces many threats. The battle between the Apple App Store and the Google Play Store (owned by parent Alphabet
) is a great example of two digital giants duking it out for dominance in the market for mobile apps that my firm estimates will reach $402 billion by 2025.
The competition is not a traditional head-to-head battle over pricing. The battle is over who can attract a healthy ecosystem of innovation partners or suppliers to build their IP in the app stores.
In this digital duopoly, Android has more than six times the market share of users for their operating system than Apple does. Google Android’s market share hovers between 85% and 87% with Apple at a mere 13% to 15%. One could say Google’s Android has a monopoly based on market share.
Yet Apple dominates in revenue on a scale of two to one, with $32.8 billion in the first half of 2020 compared to Google Pay App Store’s $17.3 billion in the first half of 2020. So market share determined solely by the number of mobile operating system users apparently doesn’t tell the full story. While Google’s Android devices are everywhere, Apple monetizes its phones and digital services much better and is the dominant revenue player.
Quite frankly, Apple has simply done a better job of compensating developers. From 2008 until January 2019, developers have earned over $155 billion from software sales. Android developers just make less or in many cases very little. Why? The strong ad-based model that allows free apps usage on Google works great for user adoption but not monetization by developers and content creators.
Apple has shown that its ecosystem is fair. Epic is abusing the public pressure on tech giants to make a point and challenge the distribution model.
Free market capitalism requires fair and free markets. Preserving “access rights to markets,” especially the marketplaces built by digital giants, ensures that all players in the ecosystem can participate in a fair market. While these marketplaces are proprietary and belong to private companies—the digital giants—they raise concerns when the operators of these marketplaces are also vendors in that marketplace, selling advertising, products, services, memberships or subscriptions. In the Android and iOS marketplaces, both Apple and Google can write apps that compete with those created by third parties.
In e-commerce, Amazon
often competes against other sellers with its own branded merchandise. The inherent conflict of interest that emerges when the operator is also a competitor raises a red flag for many regulators. As new markets are created, for example in energy trading or autonomous vehicle networks, proactive governments may step in to design, build, operate and maintain the actual marketplace and network.
However, in this case, there is no conflict of interest and Apple has not unfairly given its own apps any special treatment when compared to Epic. In fact, quite the contrary.
Epic doesn’t deserve special treatment at the detriment to other members of the ecosystem. And Apple doesn’t deserve to go to court.
R “RAY” WANG is the founder and principal analyst of Constellation Research, a Silicon Valley tech research firm, and the author of the forthcoming book “Everybody Wants to Rule the World: Surviving and Thriving in a World of Digital Giants.” He hasn’t done any consulting work for either Apple or Epic.