Judge: Apple Must Relax Restrictions on Developers Seeking Payment Methods in its Apps

On Friday, Judge Rogers ruled that Apple must relax restrictions on developers seeking payment methods in its apps

The judge Yvonne Gonzalez Rogers who presides over the video gameFortnite” developer Epic Games v. Apple‘s antitrust case ) Made a ruling on this case. Rogers issued an injunction against Apple, requiring it not to prohibit app developers from providing links and other communication methods that guide users to use in-app purchases other than Apple, and also demanded that the plaintiff Epic Games pay at least US$4 million in damages for breach of contract.

Apple said in a statement: “The court has confirmed what we have always known, that the app store did not violate antitrust laws, and success is not illegal.” The company’s general counsel Kate Adams said that the ruling was An “overwhelming victory” “highlights the value of the Apple App Store business”. However, the plaintiff Epic Games argued that the ruling “is not a victory for developers or consumers.”

The commission received by the Apple App Store from the United States last year was estimated to be approximately US$6.3 billion, most of which came from in-app purchases and subscriptions. As games and other applications prepare to steer consumers away from Apple’s payment system, this revenue may be significantly reduced. Prior to this, Apple has allowed some so-called “reader app” developers to guide users to use external purchase methods, including media services such as Netflix and Spotify, as well as news and book applications. But the latest ruling means that this move will also apply to games and other categories of applications, which have brought more revenue to Apple.

According to the ruling, the commission for game apps accounts for about 70% of the app store’s total revenue, while game apps account for only 10% of all apps on the platform. Sensor Tower’s data shows that Apple will receive approximately $3.8 billion in revenue from games in 2020, most of which come from in-app purchases.

However, even if this ruling ultimately results in Apple losing billions of dollars each year, this is still a very small percentage of its total revenue. In fiscal year 2021 alone, Apple’s revenue is expected to exceed $360 billion, which means that changes in the app store will not affect or destroy its overall financial performance. At the same time, many developers may choose to stick to Apple’s payment system so that they do not have to build their own online payment platform. The judge did not force Apple to change its fees or allow third-party app stores to use it on its platform, which would be a much bigger blow to Apple’s revenue.

Judge Rogers’ ruling may ultimately mean that Epic Gamespopular video game Fortnite will return to the Apple App Store. The game was initially taken off the shelves last year because it used its own payment options, thereby bypassing Apple’s commissions. Now, Apple has stated that if “Fortress Night” re-obeys the rules of the app store, it will allow it to return.

On Friday, Judge Rogers ruled that Apple must relax restrictions on developers seeking payment methods in its apps, but she retained the app store as the only way to download apps to iPhones and iPads. The judge held that: “The court does not consider Apple to be an anti-monopoly in the sub-market of mobile game transactions. However, the investigation did find that Apple’s actions in implementing reversal restrictions were anti-competitive.”

This high-profile case highlights wider concerns about online platforms and digital commerce. Regulators and legislators in the United States, Europe, and other places are seeking to control large technology companies. This trial has aroused repercussions in the technology community. Companies such as Alphabet, Amazon, Facebook, and Microsoft are all watching how their world may change. sign.

Apple’s late co-founder Steve Jobs considered the iPhone to be a well-planned device, with applications running in a “walled garden” of Apple’s hardware and software, and Epic Games CEO Tim Si Tim Sweeney hopes to build a more open ecosystem. Sweeney is always pushing mobile phones to be like personal computers, allowing users to download any software they like.

After the ruling was issued, Apple’s stock price fell 3.2%, but many Wall Street analysts are still optimistic about its long-term prospects. Evercore ISI analyst Amit Daryanani wrote in a research report to investors: “We believe that for Apple, the ultimate impact of this case is controllable. ”

This ruling greatly expands Apple’s concessions to streaming video companies last week, allowing them to direct users to external payment methods. This concession will extend to all developers, including game developers, who are the largest source of revenue for the Apple App Store.

Apple’s legal team said they don’t think this ruling will force Apple to allow developers to implement their own in-app purchase system. The company is still debating how to enforce the ruling and whether it will appeal.

However, the challenge to the rules of the Apple App Store is far from over. Friday’s ruling indicated that its fate is more likely to be determined by Congress than by the courts. Legislators in the United States and Europe are considering introducing a bill to force Apple to allow third-party in-app payment systems, and the South Korean parliament has passed such a law.

Match Group has challenged Apple’s practices in Europe and owns the popular dating app Tinder. The company said in a statement: “The latest ruling shows that outdated antitrust laws cannot be completely amended by the courts. Only when our laws are brought into the digital age will the monopoly of Apple and Google end, just like South Korea last week. As it did.”

Faced with 10 accusations from game developer Epic Games, Apple won 9 victories, but Federal Judge Rogers issued a ban, requiring it not to prohibit app developers from providing links and other in-app purchases that lead users to use in-app purchases other than Apple. Means of communication. Wall Street analysts and Apple’s long-term trackers believe that this will have very limited financial impact on the company.

A person familiar with Apple’s thinking said that developers can only push links, and cannot establish their own alternative payment mechanisms in their apps. This limits the effectiveness of the promotion, because for consumers, Apple’s in-app payment is still easier than putting a credit card on the website. JPMorgan Chase analyst Samik Chatterjee said the ruling did not change the bank’s outlook for Apple’s services or app store business.

Gene Munster, founder of Loup Ventures and senior Apple analyst, also believes that the worst-case scenario for Apple is that Apple’s earnings may decrease by 4% next year, but it is more likely that the impact It will only get closer to 1%. He said: “Investors have big reasons: First, Apple will return to its normal growth rate 12 to 18 months after the reform measures are implemented. Second, Apple’s long-term potential will not be affected by this change.”

Apple believes that Judge Rogers’ ruling is a victory for it because it did not challenge Apple’s right to determine which software can be used on its app store, nor did it find that Apple is a monopoly under federal or state law.

But investors will pay close attention to Apple’s service business, which has grown strongly in the past few years. In addition to online subscriptions, it also includes sales from the Apple App Store, search licensing income from Google, and AppleCare warranty income. The service business accounts for about 20% of Apple’s revenue, but it is Apple’s profit engine, and the profit margin is significantly higher than that of the hardware business. Apple’s service business sales in fiscal 2020 were US$53.77 billion, with a gross profit margin of 66%, which is much higher than Apple’s hardware business’s 31.5%.

Music streaming service Spotify and dating app Tinder’s parent company Match Group are also competitors of Apple. The former sued Apple for alleged anti-competitive behavior in the United States and Europe. In the weeks leading up to the verdict, Apple made several adjustments to its App Store policy to possibly prevent further criticism of its practices. In late August, the company announced a settlement in a class action lawsuit, allowing app developers to send emails to users informing them of alternative payment methods.

Just a few days ago, Apple said it would further relax restrictions on “reader apps”. This change applies to companies that publish media such as Spotify and Netflix, and allows these apps to link to external websites, allowing users to create and manage accounts.

However, these changes have been questioned by the main developers who are competing with Apple. A Match Group spokesperson said in response to Apple’s class action settlement agreement to relax its email rules against developers: “This is Apple’s stark demonstration of its monopoly power: as legislation, regulatory review, and developer complaints are approaching, for them They have made capricious changes to stimulate public relations. We hope everyone can recognize the facts. This is a scam.”

University of California, San Francisco Law School Professor Josh Davis (Josh Davis) said that the actual result of the latest ruling may be that Apple App Store developers no longer need to use Apple’s in-app payment system to charge iOS users. He added that Apple will have to execute this order carefully to avoid being convicted of contempt of court after the ban takes effect within 90 days.

The only thing Epic Games has lost is the ability to spin off its own iOS app store. In the ruling, they will be able to direct consumers to pay outside the device. Epic Games and other large developers may be able to find creative ways to use the new ruling to make more revenue.

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Judge: Apple Must Relax Restrictions on Developers Seeking Payment Methods in its Apps

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