A Crack in the App Economy
Bloomberg Businessweek|September 20, 2021
Apple says it won its lawsuit with Epic, but the court’s decision shows how app store gatekeepers could lose control
By Mark Bergen, with Mark Gurman and Olga Kharif

When Apple Inc. introduced its App Store in 2008, the company’s founder and chief executive Steve Jobs had a message for iPhone app developers. “We are not trying to be business partners,” he told the New York Times. Jobs meant that developers didn’t have to feel threatened because Apple’s main business was selling phones, not taking 30% commissions on app sales. But the comment could be interpreted very differently today when many developers—and government officials—see Apple less as a partner negotiating in good faith than as a feudal lord levying an unavoidable tax.

On Sept. 10 a federal judge partially vindicated the critical view of the company by ruling it had to allow app developers to direct users to web payment systems to complete transactions. The decision stems from a feud with Epic Games Inc., the creator of the smash-hit Fortnite, over whether it could use its own billing service within the game, skirting Apple’s standard fee. When Epic did so over Apple’s objections the phonemaker removed Fortnite from its app store, and Epic sued.

In her ruling on the case, Judge Yvonne Gonzalez Rogers wrote that loosening Apple’s payment system would beneficially increase competition. She didn’t, however, agree with Epic that Apple was a monopolist. “Success is not illegal,” the judge concluded, and she told Epic to pay Apple $6 million in royalties. Epic intends to appeal; Apple has declared victory. But while Apple avoided the worst possible scenario, the case could be the first major crack in the foundation of the $142 billion smartphone app industry it and Alphabet Inc.’s Google created when they launched parallel app stores 13 years ago. The ensuing wave of mobile apps revolutionized the way consumers interact with devices while concentrating a massive amount of power—financial and otherwise—with the companies who’d established themselves as gatekeepers.

Many app developers have done well with this arrangement, but there’s been a growing swell of discontent. Epic, Spotify, and Tinder-owner Match led the charge against the app stores, blaming them for taking huge cuts while promoting their own rival services. (Both Apple and Google run music services that compete with Spotify. Match Group LLC and Spotify praised the Epic decision.)

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