Insights: And The Walls Came Down On Apple’s $100 Billion Garden—A Little Bit

By 09/14/2021
Insights: And The Walls Came Down On Apple’s $100 Billion Garden—A Little Bit

Just a couple of days before the annual Apple self-celebration of its biggest moneymaker, the fall announcement of the next year’s iPhones, a federal judge sprinkled a bit of complication over the App Store, the thing that helped make those phones so fabulously successful and useful.

Lots of streaming sites, game makers, social media platforms, productivity app creators, dating services, and the like celebrated their weekend early, hoping the decision means they can keep more of more hard-earned cash rather than paying the Apple vig to secure an App Store perch.

I’m not so sure the decision’s actual impact will live up to that initial optimism, but the business of selling apps on Apple’s vast ecosystem (and Google‘s too) is clearly headed toward a reshaping, and not just because a U.S. judge said the world’s most valuable company doesn’t get to limit moneymaking opportunities for developers–at least not as much as it’s used to doing.


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Apple stock fell

The Friday decision by a judge in Silicon Valley’s backyard sent Apple’s stock tumbling, down more than $5 a share after a summer where shares had risen by nearly a third. But despite investor concerns, Apple itself proclaimed victory, and more tellingly, the company that sued it, Fortnite developer Epic Games, said it would appeal.

The crucial lines from U.S. district judge Yvonne Gonzalez Rogers are hardly the sort of thing to stir revolution: 

“Apple Inc. and its officers, agents, servants, employees, and any person in active concert or participation with them (“Apple”), are hereby permanently restrained and enjoined from prohibiting developers from (i) including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and (ii) communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.”

Wading through the double negatives, the decision means app makers can now include links in their App Store pages that send people somewhere else to buy or subscribe. Theoretically, that will allow them to avoid paying the 30% slice Apple takes on each transaction. They also can directly market those outside payment systems to people through newsletters and promotions.

Apple has prevented such outside payments and marketing on the stated theory that a simple, highly trustworthy system backed by the world’s largest company is more likely to get people to buy lots of stuff. Many tens of billions of dollars in app sales later, it’s hard to completely refute the Apple pitch. 

But companies far beyond Epic are likely to try anyway.

Good news for Netflix

For a streamer such as Netflix, which has been putting itself and consumers through contortions for a few years now rather than pay the Apple vig, this is an easy win. They’ll add a button to the system they already have in place, and perhaps further amp up the email marketing for upsells and the like.

Over at Match Group, COO and CFO Gary Swidler said his company is busily puzzling out how best to leverage the decision, motivated by the eye-popping $500 million that the dating service operator sends to Apple each year. 

But Swidler said it may not be a huge payday. One analyst told the New York Times that Match might save $80 million a year, but Swidler said it’s far too soon to make that kind of Very Large Projection.

Even for the biggest companies, though, there are a lot of unknowns here. Once you put a button on your app page, will subscribers click through to you? Or will they still prefer the Apple system, tried and true and safe?

How many potential customers will leave the App Store, laboriously enter credit card information that’s otherwise safely stored in the Apple info vault, quell any last-minute doubts about security on a new site, and then sign up?

Given the challenges of ecommerce over the past few years (though admittedly, the pandemic has trained a lot of us to buy online a lot more), the decision may not funnel that many people off-site, unless they’re a big beast like Netflix that consumers already know well. 

A different calculus for small companies

If you’re a small company, though, the calculus here gets a lot more complicated. For many small companies, they’re just happy to get their apps built, approved, and on the site. They haven’t spent resources to build separate billing systems, though likely this decision will spur a rush of third-party providers. Then the question becomes, Can you make enough through the contract service to make up for lower volume of sales and their costs while you’re off the Apple ecosystem? 

Epic CEO Tim Sweeney tweeted (in response to an Apple post about the decision being a victory) that, “Today’s ruling isn’t a win for developers or for consumers. Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers.”

The money train known as This Year’s Models of iPhones will leave the station today, chugging toward what early projections suggest may be yet another year of historically epic returns, somewhere past $135 billion dollars in iPhone sales alone, with another $60 billion-plus from the services the company sells on top of them. 

So, don’t count on this decision, regardless of the outcome of any appeals, to notably move the market. Apple came out with an extremely modest fee break for the smallest developers, only on their first-year combined revenues of less than $1 million. More impactful are decisions already handed down by regulators in South Korea and Japan have forced some changes this year. Expect much bigger markets, with even more aggressive regulators, to do even more. 

One estimate suggested the decision will clip several billion dollars in App Store revenues. That sounds like a lot until you remember the truly gargantuan size of Apple, with a market capitalization of nearly $2.5 trillion.

Maybe they could use that money to make a few more episodes of Ted Lasso (and I wouldn’t object), but more likely, developers will be able to use that money to make more and better new apps, which seems like a good thing in the long run for all of us, Apple included. If the decision somehow helps make that happen, then it will be a bigger deal after all. 

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