Apple Says 'We Won't Make an Exception' for Epic Games in App Store Dispute

[AAP8]

I’m saying it makes no sense to compare physical stores to digital stores.

I dont understand this - are you saying its cheaper to run a digital store? If so - I dont think you understand the economics and complexity of a data center - I would bet its much closer than you think in terms of raw costs. Especially when the average person involved in the work of a data center, from admins to programmers etc generally make a higher salary than those in retail. I would bet the cost per square foot for a WalMart or Target store is actually lower than an Apple or Google center when completely stocked and fully operational.

The incremental cost of physical retail and digital retail is quite different - but its not like digital is free after the fact. The long term cost is lower on the digital side for sure, that is why physical retail can't keep up and will slowly become 2nd place in overall retail, but the argument does completely make sense when you look at it over a multi-year cost spend - as digital has a higher cost up front.

 

[78Bandit]

I think the difference is if I’m using those apps, I’m using a service or storefront they provide, and I know who to go to when something has gone wrong.

when it’s just indie Joe Schmo and his payment system, the average customer might find it more difficult to track down and contact someone if there’s been a problem.

But Joe Schmo can use whatever payment system he wants as long as it isn't for digital goods, yet Epic with a billion dollars in revenue can't because of "security"? I understand the argument but that isn't how Apple is applying it. Someone selling thrift-store clothing out of their bedroom can use a different payment system but Epic can't. That has little to do with security.

 

[macsimcon]

so instead of contributing to the conversation you just hope that Apple gets hacked and everyone’s personal information becomes available because you can’t argue against it?

One reason I'm an Apple customer is their focus on privacy, and I'm willing to pay extra for that. And I take comfort in knowing that the law requires Apple to disclose data breaches, and so far, they haven't disclosed any big ones.

 

[Ethosik]

What are those ranges (5-15%) based on? Do you have insider information regarding how much it costs Apple to run the app store (i.e., what their specific margins are for the app store and not broader company products and services)?

In 2019, Apple reported paying developers $35 billion, which means the app store had revenues of around $50 billion (this isn't exact though because many apps drop down to 15% commission after the first year). We can safely say Apple had at least $42 billion in revenue so the true range of app store sales is 42-50 billion). Apple therefore earned $7 - 15 billion.

If Apple charged only a 5% fee (which would be significantly lower than any other company in the world with a similar service), they would earn $2.1 - 2.5 billion. Does running that app store cost less than that? Do we allow any room for profit margins? Apple also doesn't receive money for truly free apps but they still provide a platform and general background support of them.

Let's go with 15% (which a number of subscription apps already receive). Apple receives $6.3 to 7.5 billion. Is that enough to run the app store? Maybe. Does it leave much margin? I don't know.

About 10 years ago it was estimated Apple ran the app store at just over break-even: https://www.cnet.com/news/figuring-apples-app-store-gross-profit/

While it's unlikely (but possible) they are still doing that, none of us know how much it costs Apple to run the app store. Saying Apple "should" make the commissions lower is just guessing.

Here's a way to look at it and make a more realistic criticism of Apple's app store fees. This isn't valid but is more valid than just making blanket statements about what the fees should be. Apple has high margins on services (but not necessarily the app store specifically). However, they have company-wide net margins around 20%. This means, if we are going to make up numbers about how much commission Apple should receive, we can safely reduce the current fees by 20%. The new fees are 24% for the first year and 12% after that for ongoing subscriptions. Again, we don't know if Apple would be losing money at those rates because we don't know how much money Apple makes from the App store (we can guess general revenue but don't know profits).

Thank you. Seriously. It seems that people are the CFOs at Apple and know exactly how much it costs to run the App Store. Should we cut it down to 5% but make the Apple Developer Platform $1,000+ a year instead of $99? As you said, free apps still need the infrastructure and support. Does $99 a year cover all of that? Who knows. I certainly don't. And I don't think anyone here does either. It costs an awful lot to not only host something that gets downloaded millions of times, but to do it at a CDN level costs even more (I pay my CacheFLY bill and I don't have that many downloads and it gets expensive).

People do not understand infrastructure. I was a Director of Infrastructure at a company for some time. I know how much it costs from the servers, storage, network, server rack space (or with Apple, probably property costs since they probably have their own building) and so on.

 

[sence]

Ah, but Tim won't offer you two different prices, right? You'll get an iPhone without a charger at the same price as last year...but now Apple keeps the money that they would have spent on a charger.

What about this: the iPhone is the same price, but Apple asks you at checkout if you want a charger. If you want one, they give you one for free. If not, you've just helped out the environment. Yeah, who are we kidding, Apple under Tim is never going to do that.

I Just see a nut at the McDonalds counter screaming evil capitalist at the poor clerk for eliminating the redundant box and wrapping the burger. WHERE IS MY BOX! I WANT THE OPTION TO HAVE A BOX!!

 

[Abazigal]

This take by Stratechery is spot on.

I don’t know if Epic anticipated that Apple would go as far as they may have, but it seems like they just may have bitten off more than they can chew here.

 

[4jasontv]

It depends WHAT you want to backup. If it is your contact list and phone settings It’s more than enough to backup.

It’s not a backup because the file can be remotely edited.

 

[dguisinger]

Your analogy is just as bad.

You walk into a restaurant... or the App Store / iOS

You don't like the price of the wine... or the price of Fortnite's in-App prices on iOS.

You just go buy wine at the grocery store... or go play Fortnite on PC, where it's on Epic's turf.

Just stop, please.

I prefer the analogy of walking into a store and buying a magazine. I know, many in this forum probably have never done this since we are now in 2020....

If you take it home and subscribe to the magazine, the store you bought it from has nothing to do with it. The magazine company who does everything (writing, editing, graphics design, publishing, mailing) has all of the overhead involved with the subscription, not the store who isn't involved.

Nothing you do with in-app purchases from Epic and many others has anything to do with Apple... at all. Its not adding more code to the installed app, its not using apple's servers for content, or more of their bandwidth. Many of these companies are only using Apple for processing a payment because they are forced to by a contract they have no choice but to accept if they have to have an app on 50% of north american smartphones (and tablet market is what, more like 80%?)

 

[cmaier]

I Just see a nut at the McDonalds counter screaming evil capitalist at the poor clerk for eliminating the redundant box and wrapping the burger. WHERE IS MY BOX! I WANT THE OPTION TO HAVE A BOX!!

“Sir, this is a Wendy’s.”

 

[macsimcon]

Bad analogy. If I don't like the price of wine at the restaurant, I can buy it much cheaper at the grocery store, a liquor store or online from a multitude of wine sellers websites. Where can I get Fortnite? ONE PLACE.

But the wine analogy isn't even equal to this, because the winemaker doesn't sell direct to restaurants, they sell to a distributor who also takes a cut. The only one that gets screwed at the restaurant is the customer and I, for one, skip buying wine at restaurants that are clearly doubling the price of wine for just the service of popping the cork.

iOS and Android are not interchangeable. You purchase the device with the features you want. If you want an open platform, buy Android. If you want better software, but on a closed platform, buy iOS.

 

[Rogifan]

The majority of those "free" apps have sponsored ads in them. That's who pays for the apps. They aren't free.

OK but Apple isn’t getting 30% from them unless someone chooses to pay to remove the ads.

 

[sence]

It depends WHAT you want to backup. If it is your contact list and phone settings It’s more than enough to backup.

Thinking more of it, there are currently 728 million iPhones active. Giving them each just one gb extra would result in a increase in server space of 72 800 Terabytes. Perhaps that gives some perspective.

 

[Rogifan]

Ya'll really need to stop praising Epic. Fortnight is a slot machine that doesn’t payout, not entertainment.

And how many game apps on the App Store are exactly the same way? How much money does Apple make off all those games via IAP?

 

[DanTheMan827]

Apples hypocrisy is the most annoying part about the whole company. I still like their products itself but their whole marketing BS about "WE CARE ABOUT YOU AND NOT THE MONEY" is just off putting.

we don't think it's right to put their business interests ahead of the guidelines that protect our customers.

sit down Apple. Lets see ... 5 GB base storage that does not even fit a back up in most cases and leads to corrupt back ups is totally to protect the customer! Same with offering 64 GB as the base model (totally not done for upselling purposes) or the iCloud storage jump from 200 GB to 2 TB or everything being glued together in the MacBook. So environmental!

If anything, Apple is protecting their business interests since services make up a HUGE part of their sales now

64GB is on the smaller side, but for a lot of people it is sufficient

5GB of backup space shared with cloud file storage and the photo library that they push when your device gets low though, that's pathetic

 

[macsimcon]

I Just see a nut at the McDonalds counter screaming evil capitalist at the poor clerk for eliminating the redundant box and wrapping the burger. WHERE IS MY BOX! I WANT THE OPTION TO HAVE A BOX!!

This made laugh out loud.

 

[AAP8]

A developer can't just decide to charge whatever they want, they have to charge what people are willing to pay. If people are only willing to pay $5 for certain category of app, then the developer can't just charge $7.14.

As a developer - I would say - if your app isn't able to be profitable knowing that the 30% cut exists - why did you build the app? Thats the problem I have with all of this - its not that Apple or Google hid this cut for the past 10+ years - its been there, so if you have a business model that you cannot support that cut on, why did you start the business. The applications my company provides are free, but thats because the strategy for them was to compliment our other paid services, we didn't need to build an app, but it was a good business decision.

 

[4jasontv]

And how many game apps on the App Store are exactly the same way? How much money does Apple make off all those games via IAP?

I would hope 30%.

 

[DanTheMan827]

Silly question. Has Epic stated what they feel is fair besides independent app stores? From what I understand Apple only charges a $99 fee for being a developer. Does this fre fairly compensate Apple for the time they spend developing the OS, APIs, etc? Maybe they should increase the fee based on developer size but then that could hurt indie developers? To me that fee is nothing compared to the amount of research and development app does for iOS on a year basis. Maybe 30% is too high but Epic also should be allowed to use the time and money Apple spends building the OS for nothing either.

The App Store is billed as a feature of the device just like the OS, so that cost should be included in the cost of the device.

I've always assumed that was the case with Mac, charge insane amounts for hardware that costs half as much because of the operating system.

 

[dguisinger]

As a developer - I would say - if your app isn't able to be profitable knowing that the 30% cut exists - why did you build the app? Thats the problem I have with all of this - its not that Apple or Google hid this cut for the past 10+ years - its been there, so if you have a business model that you cannot support that cut on, why did you start the business. The applications my company provides are free, but thats because the strategy for them was to compliment our other paid services, we didn't need to build an app, but it was a good business decision.

Ah yes, if paying people to create the product can't be supported because Apple's greed made you unprofitable in an anticompetitive environment, why did you even try?

 

[Rogifan]

I dont understand this - are you saying its cheaper to run a digital store? If so - I dont think you understand the economics and complexity of a data center - I would bet its much closer than you think in terms of raw costs. Especially when the average person involved in the work of a data center, from admins to programmers etc generally make a higher salary than those in retail. I would bet the cost per square foot for a WalMart or Target store is actually lower than an Apple or Google center when completely stocked and fully operational.

The incremental cost of physical retail and digital retail is quite different - but its not like digital is free after the fact. The long term cost is lower on the digital side for sure, that is why physical retail can't keep up and will slowly become 2nd place in overall retail, but the argument does completely make sense when you look at it over a multi-year cost spend - as digital has a higher cost up front.

Yes I think it is cheaper to run a digital store. I also think Apple needs to come up with a different way of funding the cost of the store. And I think they should run the store at break-even. The store (and apps in it) should be there to make Apple’s hardware more valuable and worth the price they charge. I think every app on the store should have to pay for their share of the cost of the store. That’s different than what Apple is doing now which is rent seeking.

 

[Rogifan]

I would hope 30%.

So those kinds of games are fine if it’s Apple getting 30%?

The App Store is billed as a feature of the device just like the OS, so that cost should be included in the cost of the device.

I've always assumed that was the case with Mac, charge insane amounts for hardware that costs half as much because of the operating system.

This is an interesting question. How would Apple break down the cost of a $1000 iPhone? Surely a percentage of that price would be attributable to running the App Store? Just like a percentage is for developing the OS, R&D costs, BOM etc.

 

[Azrael9]

Epic don't have to go on Apple's store.

30% is cheap commission to reach a 1 billion unit base.

Their party. Their rules.

Epic have their own rules for their services.

Azrael.

 

[TiggrToo]

Never thought I'd say it.... I'm now eagerly awaiting the day Apple has a payment system breach so this stupid talking point gets shut down

Wow, so you want people to suffer just so you can make a point? That's weak, real weak.

 

[4jasontv]

So those kinds of games are fine if it’s Apple getting 30%?

As long as everyone recognizes they are just disposable re-app-ility TV.

 

[oneMadRssn]

I get the logic, and that Apple can’t review every single app’s payment system so it is indeed safer from their pov for everyone to use apple’s... but.... I don’t believe it for a second.

There’s no ‘safety’ reason why bigger companies wouldn’t be sufficiently secure. They could even hire the same vetting teams that Apple does to prove this.

So of course it’s about protecting an income stream and nothing to do with consumer safety.

I expect Apple will relent on this eventually and build a payment processing API where they can have some control and oversight of the process but let other payment processors to process payments in apps. Maybe not this year, but it will happen. Just as with Apple Sign On, they will require Apple Pay to be there alongside it and up top.