Judging the dispute between Epic Games and Apple started this week and, as it progresses, it reveals revealing details about the App Store. One involves Phil Schiller, store leader. In an email sent to Steve Jobs and Eddy Cue (vice president of services) in July 2011, the executive suggested that the App Store charge a 20% commission instead of the current 30%.
This fee is the basis of the judicial war between the two companies. In 2020, Epic implemented its own payment method within Fortnite, but as the game was distributed via the App Store, it needed to follow the store’s rule that requires Apple to keep a 30% commission on features purchased in apps.
For Epic Games, the fee is high and therefore abusive. By not agreeing to follow this condition, the developer saw the game Fortnite be banned from the App Store.
In the current lawsuit, Epic claims that the App Store does not offer any service that can justify such a high percentage and, based on this, accuses Apple of abusing its position to extract money from developers unfairly.
In this context, Phil Schiller’s email may serve as evidence that Apple did not lower the commission charged by the App Store to sustain high profit margins.
Schiller asks, in the message sent to Jobs and Cue, if the store’s “70/30” model will last forever. The executive then suggests that the commission drop to 25% or 20% in response to increased competition (presumably, the advancement of the Android platform in the market). Schiller also talks about applying the percentage reduction when the App Store reaches more than $ 1 billion in annual profit.
I think that one day we will see enough challenges coming from another platform or web-based solutions that will make us want to adjust our model.
I know it is controversial, I just see it as another way of looking at the size of our business, what we want to achieve and how we will remain competitive.
Note that Schiller expresses concern about the risk of developers turning to web-based applications to get rid of the 30% rate. It is no coincidence that the executive attached a report from the Wall Street Journal, also from 2011, which addresses precisely this possibility.
Apple denies profit of more than 70% on the App Store
With regard to e-mail, Apple defended itself claiming that the message does not provide evidence that App Store fees are directly linked to its profit. The company uses this argument because it considers the store to be part of the iOS platform, not a separate business unit.
As a result, the company does not disclose the revenues obtained only with the App Store. But Ned Barnes, a financial analyst who appears as an Epic witness, indicated in the papers sent to the trial that, based on Apple’s own documents, the App Store recorded operating profit margins of 74.9% in 2018 and 77.8% in 2019.
These numbers reinforce Epic’s claim that the app store generates substantial profits based on the 70/30 model. However, last Saturday (1), Apple told the The Verge that Barnes’ calculations are wrong and that they will be refuted in court.
Apple also refuted the figures in court documents. In them, the company claims that Barnes’ analysis is unreliable because it isolates the App Store from the iOS ecosystem in order to artificially increase the store’s operating margins.
Let us wait for the next chapters of this novel.
With information: The Verge.