Tim Cook testified on Friday that the iPhone was one product in a “fiercely competitive” market, as he sought to bat away allegations that the company was operating an illegal monopoly in a trial that could have far-reaching consequences for 1bn iPhone users and thousands of developers.
The Apple chief executive has taken the stand in the high-stakes case brought by Epic Games, the maker of Fortnite. Epic argues that Apple abuses its position by forcing developers to distribute applications through its App Store, where it takes a commission of 15-30 per cent.
Apple expelled Fortnite from the App Store last year when Epic tried to get around the fees by giving the game’s players a zero-commission way to make in-app purchases.
At stake was “billions of dollars” of high-margin revenue for Apple and legal precedent for what constitutes a monopoly in the digital era, argued Gene Munster of Loup Ventures.
Cook reeled off a list of rival handset makers to illustrate the competitive marketplace, and said that iPhone customers valued the curated experience that came from having a single app store. “For us, the customer is everything,” he said. “We’re trying to give the customer an integrated solution of hardware, software and services.”
Apple’s software, hardware and services ecosystem is coming under increased scrutiny by regulators in Washington and Brussels, where Epic has also been remonstrating against the iPhone maker. But Epic has faced an apparently uphill battle in court, after Judge Yvonne Gonzalez Rogers said late last year that the company was arguing on the frontier of antitrust theory.
The amount spent in Apple’s App Store in 2020
Epic has drawn on economists, fellow app developers and the words of Apple’s own executives to make its case that Apple deliberately lured developers in with one set of expectations — an App Store that didn’t seek to make profits, as Steve Jobs said in 2008 — before introducing a series of mechanisms to lock consumers into its ecosystem and make it difficult to switch.
Apple said Jobs’ statement was not a pledge so much as a prediction — a wrong one, to be sure, but wrong because the App Store turned out to be, in the words of Cook, an “economic miracle”.
Jobs had said it might become “a billion-dollar marketplace at some point in time”, whereas, according to Sensor Tower, spending in the App Store reached $72bn in 2020.
Lawyers for Epic on Friday grilled Cook on whether the App Store boasts margins of close to 80 per cent — a figure that Epic’s expert witness introduced “from the files of Apple CEO Tim Cook”. Epic views this figure as a clear reflection of unduly high margins, reflecting its stranglehold on developers.
Cook did not dispute the authenticity of the report but called it a “one-off” that did not accurately reflect all the investments Apple puts into the App Store. He said Apple does not break out profits and losses for the App Store.
The serious case has at times taken bizarre turns, including an argument about whether the animated bananas in Fortnite are “naked” without their tuxedos, as Apple’s lawyer said.
The seemingly trivial comment in fact went to a core argument that Apple has used in its defence: that an exclusive and curated App Store is good for iPhone users, because it protects them from lewd content that might appear if the company was forced to give up control and allow alternative app stores on its hardware.
Epic called that argument “security theatre”, a pretext for maintaining high fees and strict control. Epic’s counsel Katherine Forrest took several minutes to show that iPhone users are allowed to search terms such as “porn” and “BDSM” on apps including TikTok, Instagram and Reddit. In the App Store itself, Apple sells ads for search terms including “escort” and takes a commission for in-app purchases on apps such as Love Positions 3D, Forrest said.
Whatever the outcome, the trial has offered a rare glimpse into the inner workings of the world’s largest company, and surfaced materials that Apple’s critics around the globe may yet use to advance claims it has acted anti-competitively.
Emails uncovered in the discovery process, for instance, showed Apple executives opposed allowing the company’s iMessage app to also be used on rival Android phones, since that would “remove [an] obstacle to iPhone families giving their kids Android phones”.
In another exchange, an Apple engineer said “it would be awesome” if Apple could sell ads in the App Store, like Google does for the Play Store, but he acknowledged this would be “at odds” with Cook “telling the world we make great products without monetising users”. Nevertheless, Apple launched the service in 2017 and expanded it last month.
Apple has complained about “trial by anecdotes”. Its lawyers maintain Epic has failed to show that Apple’s App Store rules are unusual, that its 30 per cent fee is excessive, or that its interest in preserving user safety is a pretext.
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