Apple CEO Tim Cook will defend Apple’s iPhone app store in the witness stand on Friday, alleging that the company has developed into an illegal monopoly, which is more than 13 years old than his predecessor, Steve Jobs. It was much higher when it was established a year ago.
The technology company is counting on Cook’s appearance to put an end to Apple’s antitrust case against Epic Games, the maker of the popular video game Fortnite.
Epic is trying to overturn the so-called “walled garden” of iPhone and iPad apps, which welcome users and developers while maintaining a competitive advantage. One year after the iPhone debuted in 2007, Jobs created the App Store, which has now become Apple’s main source of revenue. This is a money-making machine that helped Apple achieve $57 billion in profits in the previous fiscal year.
Epic is trying to prove that the store has evolved into a price fraud tool that can not only get 15% to 30% commissions from in-app transactions, but also prevent apps from offering other payment methods. Expanded to only show a link, the link will open a web page, providing a free way to pay for subscriptions, in-game items, etc.
Apple firmly defends these commissions and provides app makers with a fair way to help them pay for innovation and security controls that benefit both iPhone users and app developers (including Epic). Apple said it has invested more than $100 billion in these features.
It also believes that the App Store will charge mirroring fees from major video game consoles (Sony’s PlayStation, Microsoft’s Xbox and Nintendo’s Switch) and similar app stores operated by Google for 3 billion mobile Android devices. This is approximately twice the number of active iPhones, iPads and iPods relying on apps provided by the Apple Store.
Regulators and legislators in Europe and the United States are already investigating Apple’s strict controls on the App Store.
Epic Games’ lawyers are expected to spend several hours grilling Cook at the booth. Questioning may parse the strategy that Cook has developed since he became CEO ten years ago, just a few months after Jobs died of cancer in October 2011.
During Cook’s reign, the App Store ranks among Apple’s greatest successes. Since providing only 500 apps in 2008, the store has surged to 1.8 million apps, most of which are free. Apple has used its commissions and proprietary in-app payment system to help its service division’s annual revenue increase from US$24 billion in fiscal 2016 to US$54 billion last year, more than doubling.
Jobs did not foresee this prosperity. Soon after the store opened, Jobs publicly stated that Apple did not think the App Store would make money. Epic’s lawyers repeatedly cited these comments as evidence that once the popularity of mobile apps became clear, Apple reorganized its stores to boost its revenue growth.
During the three-week trial period, how profitable the App Store actually is has been the focus of debate. Based on a review of Apple’s confidential documents, accounting experts hired by Epic estimated its profit margin to be between 70% and 80%. But Apple insists that these figures are inaccurate because they do not reflect the scattered expenditures throughout the company’s operations.
Phil Schiller, a longtime Apple executive and former confidant of Jobs, admitted earlier this week that the company’s commission system had generated more than $20 billion in revenue by June 2017. EpicGames lawyer Katherine Forrest (Katherine Forrest) provided him with this estimate, which was publicly released in mid-2017 based on Apple’s data.
Epic’s questioning of Schiller may indicate how Epic’s lawyers intend to hunt down Cook. Cook usually struggles in public and pays close attention to his information when dealing with reporters and legislators.
Epic’s lawyers repeatedly referred to internal communications involving Jobs and other executives to describe Apple’s investment in security and personal privacy as an excuse to retain huge profits from its app store.
For example, when Schiller testified, Epic’s lawyers submitted an email that Jobs sent to Schiller and another executive in 2008. In that note, Jobs wanted to know whether Google was targeting the emerging advertising market that relied on the iPhone at the time, which relied on an operating software called iOS. Jobs wrote to Schiller: “The more energy they put into iOS, the better.”
Then Forrest posed two questions to Schiller. “Do you want Google to fall in love with Apple?” She then asked: “Are you destroying a company’s business?”
Schiller did not answer both questions.