Tim Cook had an uncomfortable three hours in a California courthouse Friday – or at least that’s what it sounded like with the muffled call-in audio available – as he defended the iOS App Store as an “economic miracle” but repeated the oft-ridiculed company line that no one at Apple knows how profitable it is — not just that they don’t release the figures, but that they don’t know.
“It’s not a separate, stand-alone feature. It’s a feature of our devices. So we don’t have a separate profit and loss statement for the App Store,” said Cook in testimony towards the tail end of a three-week trial around antitrust charges brought by Epic Games, the company behind Fortnite. It’s a bench trial, meaning it will be decided by U.S. District Judge Yvonne Gonzalez Rogers.
Epic, with support from some other developers, is protesting Apple charging hefty commissions of up to 30% on all App Store revenue. Apple also makes it hard for developers to direct customers outside of the store to collect the payment elsewhere, minus the fee. Why shouldn’t it, said Cook — facilitating a move “would be akin to Apple going down to Best Buy and advertising that you can go across the street to the Apple store and get an iPhone.”
Epic counsel Gary Bornstein joked, “I have an iPhone, sir, I hope it still works after the examination today.”
Epic Games defied Apple by updating the Fortnite iPhone app so gamers could pay Epic directly, bypassing Apple’s payment system and commission. Apple hit back by yanking Fortnite from the App Store. Epic launched a “FreeFortnite” ad campaign and sued.
“Developers found themselves caught in a trap of Apple’s making. They had accepted Apple’s assurances that it would not make profit on the App Store and once they committed themselves to working in the ecosystem they found non-negotiable termination provisions … a ‘take it or leave it’ infrastructure,” said Epic attorney Katherine Forrest, back when the trial kicked off May 3.
Emails shown at trial showed that Apple executives had in fact discussed the profitability of the App Store but Cook said the numbers weren’t “fully loaded” rather informal and not used to make business decisions. He acknowledged the App Store was profitable. Asked how he knew, he said, “We have a feel.”
Wall Street analysts have estimated the App Store could make up as much as 30% of Apple’s services division, which posted revenue of $16.9 billion for the March quarter. The suit is a big deal because a ruling against Apple on fees could slow its sales growth.
Cook said the App Store provides a massive audience for developers and is streamlined, secure and convenient for consumers. “We always put the user at the center of everything,” he insisted.
“I think it’s been an economic miracle,” he said, noting the 1.8 million apps on the service and almost 2 million people working in the “iOS job economy.” The iOS operating system has about a 30% share of the U.S. market and 15% of the market globally — where Android has the dominant share.
Spotify and Facebook a group called the Coalition for App Fairness have come out against the fees, which Apple lowered to 15% for small businesses last year. Snap CEO Evan Spiegel, however, defended the Cupertino, CA, giant today.
“We really feel like Snapchat wouldn’t exist without the iPhone and without the amazing platform that Apple has created,” Spiegel said on CNBC’s TechCheck segment. “In that sense, I’m not sure we have a choice about paying the 30% fee, and of course, we’re happy to do it in exchange for all of the amazing technology that they provide to us in terms of the software but also in terms of their hardware advancements.”
Cook was peppered with questions on App Store curation, competition data, privacy and China. Asked if he was familiar with gaming streaming services, he said, “Somewhat; I’m not a gamer.”
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