Apple Fined $12 Million in Russia for Violating Anti-Monopoly Rules With App Store

[pasamio]

What is the IP licencing you're referring to? Bearing in mind developers effectively pay Apple a fee for IP etc with their dev programme membership, and if IP licences are required to participate in a market, they would likely come under FRAND protection.

Every time you agree to a software license agreement you're agreeing to a form of IP licensing arrangement. To be honest it feels more like the $99 is an administration fee with the revenue sharing being the main form of recouping investment. It's not an uncommon mechanism either, many SDK's have an option for a percentage of sales for their royalties, for example Unreal Engine takes a cut when you monetise using their IP.

The primary thing about the way consoles operate as loss leaders, is that the losses the console makers take on the hardware don't just benefit them, as would be traditional for loss-leading products (eg printers and printer ink, before the court cases that more or less broke that business model). The console makers take a loss on the hardware to increase the sales of third party developers.

This is something Apple absolutely does not do, and it is a fundamental difference in the business model of Apple, vs Games Console makers. Which is why there is no valid comparison between them for arguing whether it's "ok" for MS/Sony to make whatever commission, or mandate whatever sales channel.

You keep talking about consoles as loss leaders but keep ignoring that Nintendo sells their consoles for profit. I'm still yet to understand the legal distinction that selling a device for a loss versus selling a device for a profit makes but I'm happy to read any references on why that matters. If it's not ok for Apple then why is it ok for Nintendo? Or is it not ok for Nintendo?

What regulators are indicating they want, is to prevent Apple requiring developers to buy a service from Apple which they don't wish to use (Apple's payment processing, or Apple's App Storefront, or Apple's Binary Download Hosting) in order to participate in a market for which Apple currently acts as the sole gatekeeper (native applications on iOS).

The basic principle of "owning" a market carries responsibilities, not just rights. Apple is not a feudal lord, with a divine right to rule as it sees fit, and, as seems to be the trend in opinions from regulators, "then go make Android apps if you don't like the iOS conditions" is not an acceptable solution to that problem.

At what point though does a platform lose the ability to define what runs on their devices? The consoles already limit what runs on their devices, does that mean that they should also be opened up? What is the criteria where you can't control what software runs on a device you manufacture?

As I've said before, Apple is as bound by market regulations, as a person building a house on "their" land is bound by building codes. Apple can't just decide the rules for themselves, in the same way that a person can't just ignore rules about the maximum number of treads in a staircase before a landing is required. Just as a building regulator will demolish a house that fails to comply with building regs, market regulators will dismantle business models that fail to comply with competition policy.

What concerns me is that Apple's business model has been around for a decade without too many changes. It's been a 30% revenue sharing arrangement since the beginning and they've been pretty adamant that payments in the app should be through their payment infrastructure. None of these are new within the last few years, they're all a decade old. The walled garden and these restrictions have been written about since they were created and there are ample articles lamenting Apple's approach and how Google's approach is much better. Apple have something like 30% marketshare in the EU, similar numbers globally, so it's hard to see them as a monopoly. It's not like there isn't an alternative to the Apple ecosystem, if anything it's the minority. There's something wrong about going after the minority player in a market and calling it a monopoly.

tl;dr Console games can be purchased from multiple 3rd party vendors outside of the console's marketplace. That is not true of Apple's ecosystem. Even if you think the Russian position is ridiculous, your opinion isn't supported by the analogy in your quote. Two totally different marketplaces dynamics are at play with consoles vs iOS.

Sony, Microsoft and Nintendo still requires that regardless of where the product is sold be it digital via their own stores or physical via any other marketplace that they still take a percentage of the game.

If Apple permitted third party stores but still required the appropriate revenue sharing amount (15% or 30%), would this be acceptable? That'd be the same as what happens on the console where Sony/Microsoft/Nintendo still get their cut per game sale regardless of the channel it was sold through.

 

[mattspace]

Correct, but the principal in my opinion is applicable.

I disagree, and given we have word coming down the pike that Microsoft is in the process of winding the Xbox store take down to 12% to match the Windows store, the point will soon likely be even less relevant.

Apple is entitled to its margins, the same way any other business is. This seems like a case of revisionist law making.

Your entire premise is incorrect, Apple is not being retrospectively punished by new laws, they are being regulated by competition policy that was applicable at the time the actions in question were committed.

The justice system for competition policy is not fast, certainly slower than most would like, but then if it were to operate at a faster pace, people would complain that it takes insufficient time to properly observe the effects of behaviours.

 

[mattspace]

Every time you agree to a software license agreement you're agreeing to a form of IP licensing arrangement. To be honest it feels more like the $99 is an administration fee with the revenue sharing being the main form of recouping investment. It's not an uncommon mechanism either, many SDK's have an option for a percentage of sales for their royalties, for example Unreal Engine takes a cut when you monetise using their IP.

Civil contracts have to conform to the law - you can't enforce a civil contract that conflicts with a law. What regulators are clearly saying, is that Apple's civil contract with developers, is in conflict with competition law in their jurisdictions, so therefore saying "developers agreed to this" is irrelevant.

You keep talking about consoles as loss leaders but keep ignoring that Nintendo sells their consoles for profit. I'm still yet to understand the legal distinction that selling a device for a loss versus selling a device for a profit makes but I'm happy to read any references on why that matters. If it's not ok for Apple then why is it ok for Nintendo? Or is it not ok for Nintendo?

Selling the device for a loss to increase the sales of developers products.

You keep ignoring that critical distinction, that the point of the loss is to increase the sales volumes of the developers, and therefore their 30% to the console maker buys them a material benefit vastly outside the value of the actual appstore and transaction processing service.

ALL Apple gives a developer for their 30% is a storefront and transaction system, that on the open market sells for about 6% of revenue. Microsoft/Sony give the developer a massively increased subsidised market, and therefore sales opportunity.

Or, to put it another way, Microsoft/Sony don't actually charge any commission to developers, they simply delay charging the consumers a portion of their console purchase price, by adding it on to the game price at a later date.

As for Nintendo, perhaps they should be forced to allow direct sales, I suspect the reason Microsoft is dropping Windows Store share to 12%, and there's documentation that they're planning on dropping Xbox store cut to 12% is they can see the way the wind is blowing.

But someone has to be regulated first, and Apple is the most egregious violator of competition policy, so they're a good target to establish precedent.

At what point though does a platform lose the ability to define what runs on their devices? The consoles already limit what runs on their devices, does that mean that they should also be opened up? What is the criteria where you can't control what software runs on a device you manufacture?

At the point they sell it to a customer, and it becomes the customer's device.

That probably means console makers will eventually (have to) sell a non-restricted, non-subsidised version. But again, looking at the scale of the subsidy, an XBox Series X retails for ~$700-$800 here. A gaming PC with similar capabilities, bought as a turnkey system with a single warranty & not a DIY parts build, you're looking at around $1500-$2000.

So that would give you a guide to what a games console should cost if it was unrestricted and unsubsidised (and the degree to which Apple would have to discount the cost of the iPhone to make it comparable with Sony/Microsoft).

What concerns me is that Apple's business model has been around for a decade without too many changes. It's been a 30% revenue sharing arrangement since the beginning and they've been pretty adamant that payments in the app should be through their payment infrastructure. None of these are new within the last few years, they're all a decade old. The walled garden and these restrictions have been written about since they were created and there are ample articles lamenting Apple's approach and how Google's approach is much better. Apple have something like 30% marketshare in the EU, similar numbers globally, so it's hard to see them as a monopoly. It's not like there isn't an alternative to the Apple ecosystem, if anything it's the minority. There's something wrong about going after the minority player in a market and calling it a monopoly.

You're continuing to ignore that the definition for the "market" Apple is being investigated over, is iOS.

Smartphones is not a market for regulator's purposes, as they keep indicating. Apple's first argument is always "we're not the majority of smartphones, developers can go elsewhere" and regulators keep rejecting that argument. It's like arguing that Lamb is an alternative to Beef, and therefore it isn't possible for there to be anti-competitive or monopoly violations in either the Lamb or Beef industries.

iOS is a market, Android is a market. They might have similarities, and partial functional alternatives, but the mere presence of overlaps does not ipso facto exclude the possibility of antitrust violation within those markets.

Apple controls 100% of the marketshare of iOS, and is using their position as the market owner, to advantage businesses they run within that market, and ban competitors from operating alternatives to their sub businesses.

As I've said before in other threads, the App Store, Apple's Payment Processing etc are no different in regulator's eyes, to email clients, music streaming services etc.

Just like in the Microsoft antitrust case, when it was found that Internet Explorer was not a part of Windows, the App Store is not a part of iOS, Apple's payment processing infrastructure is not a part of iOS, they are separate products and services, and Apple is being busted for using their monopoly position as the gatekeeper of iOS, to protect and promote those separate products and services.

And yes, it has taken 10 years for regulators to move on this. Arguably, they have been asleep at the wheel, or in America's case, chloroformed by administrations that were anti-regulation on principle, and purchased by the tech industry in practice. But nevertheless, regulators are moving, and the status-quo is a very bad bet right now.

Apple's making an ~80% margin on the app store - in other industries and jurisdictions, that margin alone would be cause for special "Super-Profits" legislation, on the basis that it's radically increasing costs to consumers.

Sony, Microsoft and Nintendo still requires that regardless of where the product is sold be it digital via their own stores or physical via any other marketplace that they still take a percentage of the game.

If Apple permitted third party stores but still required the appropriate revenue sharing amount (15% or 30%), would this be acceptable? That'd be the same as what happens on the console where Sony/Microsoft/Nintendo still get their cut per game sale regardless of the channel it was sold through.

What will probably end up happening, is there will have to be a huge transparency project (imposed upon Apple via a consent decree), to ascertain the true cost to Apple of providing their services, like developer tooling etc, amortised across the total number of developers. THEN there'd have to be an accounting for how much value developers contribute to Apple by making apps for iOS.

Remember - when iOS was first released, it wasn't the wild success until 3rd party apps were available (and Apple made "there's an app for that" their primary marketing message), and as internal emails are showing at trials, the MAIN reason Apple allowed 3rd party native apps, was because Google etc could do web apps SO well, there would be zero platform lock-in to Apple's hardware once Google released Android as an iPhone-like OS, rather than a Blackberry-like OS.

Apple has strongly advanced the idea that by making iOS, by making a 3rd party dev toolchain, they should be entitled to something in return from everyone who uses that system to make revenue, but regulators might look at that and say "the presence of 3rd parties is a virtuous circle that advantages Apple through higher sales of their devices, so that alone is their upside".

With Apple's margins on the App Store being ~80%, you can forget Apple getting a revenue share of 15% for software sold by 3rd party stores. When an indy developer can roll all that themselves for 6%, Apple might be lucky to get away with having to sell their developer tooling as their sole cost recovery option, and even then they'd have to compete with 3rd parties who might create competing IDEs.

Actually, app developers could mount a very good case that Apple should in fact be distributing a portion of their hardware sales to the third party dev community, to account for the value the App Developers bring to Apple's platform by giving it utility Apple does not provide themselves. Imagine that - instead of Apple taking a 30% cut of the app's revenue, Apple had to give a 30% top-up to the developers, as their share for contributing to Apple's hardware revenues, as a return on their investment in Apple's ecosystem.

Personally, I suspect Apple's lowest-cost exit from their current strife, will probably be to make iOS just like macOS - offer a store that's profitable enough to them, but which trades on the low effort & Fairplay DRM to developers, and (myth of) security to consumers, and just let developers do their own thing if they want to.

 

[69Mustang]

Sony, Microsoft and Nintendo still requires that regardless of where the product is sold be it digital via their own stores or physical via any other marketplace that they still take a percentage of the game.

If Apple permitted third party stores but still required the appropriate revenue sharing amount (15% or 30%), would this be acceptable? That'd be the same as what happens on the console where Sony/Microsoft/Nintendo still get their cut per game sale regardless of the channel it was sold through.

Is it acceptable? Don't know. Don't care. Has nothing to do with my quote that you parsed. My quote was pointing out the false notion that Apple and the iOS app store is like the console app stores and their respective owners. It is not.

If Apple permitted 3rd party stores then they would be more similar. Again though, the acceptability of such a change is not what I was discussing. My opinion is Apple can do whatever they want. It's their store and ecosystem. They just have to be willing to accept the consequences of their actions. Good or bad.

 

[I7guy]

I disagree, and given we have word coming down the pike that Microsoft is in the process of winding the Xbox store take down to 12% to match the Windows store, the point will soon likely be even less relevant.

I disagree. Microsoft is afraid? But to each their own.

Your entire premise is incorrect, Apple is not being retrospectively punished by new laws, they are being regulated by competition policy that was applicable at the time the actions in question were committed.

The justice system for competition policy is not fast, certainly slower than most would like, but then if it were to operate at a faster pace, people would complain that it takes insufficient time to properly observe the effects of behaviours.

IOS/Appple is definitely Apples' crown jewel and part of that reason is that things are done one way, even it it means a few fines here and there. It's a good thing that Apple is guiding ios/functionality and the app store in a direction Apple believes it should go in...the total control gives it a lot of polish, but at the same time issues like this will continue to crop up. However, it gets resolved is out of my bailiwick, but I applaud Apple for production of a really good product.

 

[Ethosik]

They are not, and never have been, the only marketplace for Playstation games.

They are absolutely the gatekeeper of what games are allowed on their platform. Even if I make a purely physical game on a SINGLE mom and pop common goods store, I STILL need to get Sony's approval for the game.

There is no way for me to fire up visual studio, create a game, burn it on a blu ray, and sell it WITHOUT any involvement from Sony - so they take costs.

 

[69Mustang]

They are absolutely the gatekeeper of what games are allowed on their platform. Even if I make a purely physical game on a SINGLE mom and pop common goods store, I STILL need to get Sony's approval for the game.

There is no way for me to fire up visual studio, create a game, burn it on a blu ray, and sell it WITHOUT any involvement from Sony - so they take costs.

Attempting to move the goal post won't make your claim any more valid.
You claimed: Sony is the one and only supplier of the Playstation operating system, and marketplace for Playstation games...Same applies to Xbox and Nintendo Switch.

↑↑↑That's not true at all. That analogy failed. There is no equivalency you can create to make it valid. The Russian claim of monopoly is based on Apple's soup to nuts control over 1. the iOS hardware, 2.controlling OS, and 3.the only marketplace; the App Store. All three. You can't do it with consoles because the marketplace(s) for consoles are many and varied.

As I said before, you can disagree with the Russian opinion all day long. Your analogy still won't valid. I was criticising the analogy, not whether the Russian opinion is right.

 

[mattspace]

IOS/Appple is definitely Apples' crown jewel and part of that reason is that things are done one way, even it it means a few fines here and there.

The fine the EU is bringing over Apple's market abuse regarding Spotify was being stated as 10% of global revenues on an ongoing basis, last I looked.

That's well outside cost-of-business levels, and would likely see the board in receipt of a shareholder lawsuit if they fail to make whatever changes are necessary to the company's business model in order to avoid it.

 

[I7guy]

The fine the EU is bringing over Apple's market abuse regarding Spotify was being stated as 10% of global revenues on an ongoing basis, last I looked.

That's well outside cost-of-business levels, and would likely see the board in receipt of a shareholder lawsuit if they fail to make whatever changes are necessary to the company's business model in order to avoid it.

We won't know for years as this drags on in the courts. Apple isn't going to cut a check for $.01, much less for billions of dollars.

 

[mattspace]

We won't know for years as this drags on in the courts. Apple isn't going to cut a check for $.01, much less for billions of dollars.

From my reading of the EC's antitrust webite, it's the body which found Apple to be in breach of competition law that issues fines directly - while their website states:

The European Courts review all aspects of Commission decisions and have full powers to vary the fine imposed. The Commission’s record in front of the Courts is good – with over 90% of the value of fines maintained on appeal.

That doesn't read like the courts that will be involved can alter the decision itself, merely the severity of the punishment.

 

[I7guy]

From my reading of the EC's antitrust webite, it's the body which found Apple to be in breach of competition law that issues fines directly - while their website states:



That doesn't read like the courts that will be involved can alter the decision itself, merely the severity of the punishment.

Good luck with the EU collecting $.01 much less billions of dollars. This will drag on for years. (I mean I could be wrong, but the Ireland tax case is one example)

Clearly speculation is varied based on what one believes to be the outcome.

 

[Ethosik]

Attempting to move the goal post won't make your claim any more valid.
You claimed: Sony is the one and only supplier of the Playstation operating system, and marketplace for Playstation games...Same applies to Xbox and Nintendo Switch.

↑↑↑That's not true at all. That analogy failed. There is no equivalency you can create to make it valid. The Russian claim of monopoly is based on Apple's soup to nuts control over 1. the iOS hardware, 2.controlling OS, and 3.the only marketplace; the App Store. All three. You can't do it with consoles because the marketplace(s) for consoles are many and varied.

As I said before, you can disagree with the Russian opinion all day long. Your analogy still won't valid. I was criticising the analogy, not whether the Russian opinion is right.

Yes it is. I did not move the goal post. NO MATTER WHAT, you need Sony approval and payments EVEN if it’s a PURELY physical game. Therefore, Sony is the only gatekeeper. I can’t make a game and not pay Sony ANYTHING. That’s my entire point. Physical media doesn’t solve Sony’s involvement to releasing a game.

 

[69Mustang]

Yes it is. I did not move the goal post. NO MATTER WHAT, you need Sony approval and payments EVEN if it’s a PURELY physical game. Therefore, Sony is the only gatekeeper. I can’t make a game and not pay Sony ANYTHING. That’s my entire point. Physical media doesn’t solve Sony’s involvement to releasing a game.

Being the gatekeeper isn't the only criterion used by the Russians to claim monopoly, so your reliance on that single aspect is less than convincing. You can't apply the same 3 criteria used by the Russians to Sony, MS, nor Nintendo.

That also wasn't your point. Go back and read your comment if you don't believe me. It's what your point changed to after I pointed out the difference between Apple and those company's stores. The goalpost moved.

 

[Ethosik]

Being the gatekeeper isn't the only criterion used by the Russians to claim monopoly, so your reliance on that single aspect is less than convincing. You can't apply the same 3 criteria used by the Russians to Sony, MS, nor Nintendo.

That also wasn't your point. Go back and read your comment if you don't believe me. It's what your point changed to after I pointed out the difference between Apple and those company's stores. The goalpost moved.

It is exactly what my point was. Like I said, you cannot avoid the overhead of payments if you release a physical game. You STILL pay Sony.

So why is it wrong for Apple to do it?

 

[mattspace]

So why is it wrong for Apple to do it?

Because Sony's take from the game's retail price is their recouping a subsidy they provide the consumer by selling them the console below cost, so that more consumers can afford to have consoles, and therefore more developers can sell their games.

This is a completely different business model to Apple's.

 

[Ethosik]

Because Sony's take from the game's retail price is their recouping a subsidy they provide the consumer by selling them the console below cost, so that more consumers can afford to have consoles, and therefore more developers can sell their games.

This is a completely different business model to Apple's.

Perhaps its the same with Apple just not selling at a loss. The 30% allows Apple to create all these APIs, tools, documentation, events, payment processing, outsourced billing customer service center, and training. Therefore, more developers can sell their apps.

 

[mattspace]

Perhaps its the same with Apple just not selling at a loss. The 30% allows Apple to create all these APIs, tools, documentation, events, payment processing, outsourced billing customer service center, and training. Therefore, more developers can sell their apps.

Console makers carry all those same expenses. So the subsidised nature of the hardware remains a distinction that makes the business models incomparable.

If Apple sold the iPhone for a third of its current cost, so that it was so cheap that they literally outsold Android phones, there might be a case for them to say "we lose money on every phone, so as to deliver you this huge market, and for that reason we need to make that loss up on your app sales". But they keep the iPhone an expensive premium product, choosing to limit its sales numbers, and developers' addressable markets, for Apple's own benefit.

But regulators are more likely to suggest that Apple should be meeting the fixed costs of everything that is not directly related to the provision of the App Store itself (ie what Fastspring etc can do for ~6% of revenue) from income sources that are tied more directly to the activities i.e. meeting the cost of the Dev tools and API development from the Dev Programme membership, or else just eating that cost as a cost component of the iPhone itself.

 

[pasamio]

Is it acceptable? Don't know. Don't care. Has nothing to do with my quote that you parsed. My quote was pointing out the false notion that Apple and the iOS app store is like the console app stores and their respective owners. It is not.

I don't understand how a hardware device sold by a single manufacturer with an operating system specific for that hardware and not made available otherwise with a third party developer agreement in place for revenue sharing is any different between consoles and the iPhone. Apple, Microsoft, Sony and Nintendo sell hardware that ships with their own proprietary operating systems which include their own app stores, revenue sharing agreements and gatekeeping/approval processes.

The question was trying to understand your view point and what would make sense per your view.

Civil contracts have to conform to the law - you can't enforce a civil contract that conflicts with a law. What regulators are clearly saying, is that Apple's civil contract with developers, is in conflict with competition law in their jurisdictions, so therefore saying "developers agreed to this" is irrelevant.

The point I was trying to make is that the Apple revenue sharing model for licensing software that leverages their IP is not unique and that many others leverage similarly authored contracts without issue. What Epic are trying to claim is that their contract was invalid as a matter due to Apple having

Selling the device for a loss to increase the sales of developers products.

You keep ignoring that critical distinction, that the point of the loss is to increase the sales volumes of the developers, and therefore their 30% to the console maker buys them a material benefit vastly outside the value of the actual appstore and transaction processing service.

I'm not ignoring the distinction, I'm trying to understand how Apple, the sole distributor of iPhone's and iPad's which is combined with the Apple iOS/iPadOS operating system to run on those devices which includes Apple's App Store which requires approval from Apple for software that leverages Apple's SDK's to run on that platform is different to the consoles who work in an identical manner: hardware from a single vendor who has an operating system tied directly to that hardware and a SDK for that platform with an approval mechanism that also enforces a revenue sharing arrangement for transactions on their platform.

If Apple is a monopoly because it is the gatekeeper of apps that run on iOS devices, regardless of their marketshare in the wider marketplace they sell in, then the consoles that have a similar approval and revenue sharing requirement is different. The three consoles operating in a similar fashion though only Sony and Microsoft selling their devices at a loss, Nintendo reportedly profiting from each Switch they sell.

It's not that I'm ignoring the distinction, I'm lost how that changes the definition of a "monopoly".

ALL Apple gives a developer for their 30% is a storefront and transaction system, that on the open market sells for about 6% of revenue. Microsoft/Sony give the developer a massively increased subsidised market, and therefore sales opportunity.

Last I looked Apple sold significantly more than Xbox and Playstation at lower and more accessible price points. If anything Apple has drastically reduced the price point for apps and created a much larger ecosystem around them.

If we wanted lament value, Steam doesn't even provide you with the game engine and SDK to make a game, purely a storefront, transaction and distribution system. Steam doesn't charge 6% for this though, they charge 30% and in many respects you get significantly less than what Apple provides it's developers.

If I was to compare developer tooling historically Sony has relied upon third party tooling, Microsoft ship their own Visual Studio product (there is a free tier however you'll likely end up purchasing the pro copy if you're serious about development) and Apple obviously have their Xcode tooling without any paid option there.

One could suggest that Apple is using it's revenue sharing system to subsidise their developer ecosystem including funding developer tooling and services as well as subsidising the distribution costs of apps that don't make revenue directly on the platform. Apple's moves to reduce the barrier to entry to developers could consider that they get a sales opportunity and the revenue sharing model means that, outside of the $99 fee, there are no upfront costs to selling their product.

Or, to put it another way, Microsoft/Sony don't actually charge any commission to developers, they simply delay charging the consumers a portion of their console purchase price, by adding it on to the game price at a later date.

As for Nintendo, perhaps they should be forced to allow direct sales, I suspect the reason Microsoft is dropping Windows Store share to 12%, and there's documentation that they're planning on dropping Xbox store cut to 12% is they can see the way the wind is blowing.

Near as I can find there is a 30% revenue sharing arrangement that was originally pioneered by Nintendo back with the original Nintendo Entertainment System back in 1984.

Microsoft is pushing a different strategy with their Xbox subscription model. They're creating a rundle for games and their broader strategy around studio acquisition is in aid of that. They're going to be much more successful at this than Apple Arcade, I suspect they likely already have more money through their Xbox subscriptions if we ever got any numbers broken out for Apple Arcade.

Microsoft tried a Windows Store only approach and it didn't pick up in the market, they didn't have a product that people want and their Store was seen as an imposition (in addition to not having the apps people wanted).

But someone has to be regulated first, and Apple is the most egregious violator of competition policy, so they're a good target to establish precedent.

Apple have had a target on their back for decades, it's always been trendy to hate on Apple and it's easy to punish someone for being successful, that's simple jealousy. Apple didn't do anything particularly innovative or unique with the iPhone or the App Store, having devices which are restricted to the apps the seller lets you run on it wasn't new (even in the phone space that wasn't unique) and they weren't the first company to build an app store. They just made it easier than their predecessors for end users to engage with.

At the point they sell it to a customer, and it becomes the customer's device.

That probably means console makers will eventually (have to) sell a non-restricted, non-subsidised version. But again, looking at the scale of the subsidy, an XBox Series X retails for ~$700-$800 here. A gaming PC with similar capabilities, bought as a turnkey system with a single warranty & not a DIY parts build, you're looking at around $1500-$2000.

So that would give you a guide to what a games console should cost if it was unrestricted and unsubsidised (and the degree to which Apple would have to discount the cost of the iPhone to make it comparable with Sony/Microsoft).

If we want to factor in the scale of the subsidy there are two aspects you're missing: the first is the retailer cut and the second is the volume purchase discount.

If we take that ~$700 that you pay for the Xbox Series X, that's a consistent price generally regardless of retailer that you purchase that device from. If you purchase it direct from Microsoft then obviously they get more of it however if you buy it from a retailer like Best Buy, they're going to have their own margin on top of that (generally 30%) so Microsoft will get even less than the $700 that you quote.

However on the other side is that Microsoft is purchasing a single SKU of hardware, manufactured to order in a volume almost any other "turnkey" system will never see. Microsoft have shipped something like four million Xbox Series X devices already and Xbox One sold something like 50 million.

You're continuing to ignore that the definition for the "market" Apple is being investigated over, is iOS.

Smartphones is not a market for regulator's purposes, as they keep indicating. Apple's first argument is always "we're not the majority of smartphones, developers can go elsewhere" and regulators keep rejecting that argument. It's like arguing that Lamb is an alternative to Beef, and therefore it isn't possible for there to be anti-competitive or monopoly violations in either the Lamb or Beef industries.

iOS is a market, Android is a market. They might have similarities, and partial functional alternatives, but the mere presence of overlaps does not ipso facto exclude the possibility of antitrust violation within those markets.

Apple controls 100% of the marketshare of iOS, and is using their position as the market owner, to advantage businesses they run within that market, and ban competitors from operating alternatives to their sub businesses.

If the market that Apple is being investigated over is iOS, then surely the market for Sony is Playstation, the market for Microsoft is Xbox and the market for Nintendo is Switch. If Apple has a monopoly over iOS then the consoles have a monopoly over their platforms. If Apple controls 100% of the marketshare of iOS, then the consoles also have a 100% control over their market as well and also similarly limit competitors to operating alternatives to their businesses.

Generally in the US the courts haven't found that it is inappropriate for a company to have a monopoly over a product that they make. We get to see that tested with Epic and Apple in the coming weeks.

Just like in the Microsoft antitrust case, when it was found that Internet Explorer was not a part of Windows, the App Store is not a part of iOS, Apple's payment processing infrastructure is not a part of iOS, they are separate products and services, and Apple is being busted for using their monopoly position as the gatekeeper of iOS, to protect and promote those separate products and services.

The Microsoft antitrust case involved Microsoft threatening OEMs that if they shipped the competing browser, Netscape, that Microsoft wouldn't license to them the Windows operating system to put on their computers. Microsoft used it's monopoly over the operating system market as one of the few operating system vendors to interfere with the relationship of Netscape and OEMs. Microsoft also deliberately introduced private APIs into their operating system, the one with almost the entire market, with the express purpose of making Netscape uncompetitive.

Arguably it didn't mean much because Microsoft appealed the verdict successfully and then agreed to a settlement with the DOJ that they wouldn't interfere with OEMs and that they've make the private APIs accessible. Microsoft weren't further limited from any future bundling and have gone on to bundle more software into their operating system over time, if only to copy Apple.

And yes, it has taken 10 years for regulators to move on this. Arguably, they have been asleep at the wheel, or in America's case, chloroformed by administrations that were anti-regulation on principle, and purchased by the tech industry in practice. But nevertheless, regulators are moving, and the status-quo is a very bad bet right now.

Arguably if Apple had not been successful then they'd likely continued to be ignored and written off as the walled garden for iSheep. Only problem is that the paddock in the US market has slowly crept up, the sheep are multiplying.

Apple's making an ~80% margin on the app store - in other industries and jurisdictions, that margin alone would be cause for special "Super-Profits" legislation, on the basis that it's radically increasing costs to consumers.

Making a profit is not inherently illegal though and whilst it's always the prerogative of the government of the day to pass legislation to tax profitable endeavours, that's a different situation to an illegal business practice.

What will probably end up happening, is there will have to be a huge transparency project (imposed upon Apple via a consent decree), to ascertain the true cost to Apple of providing their services, like developer tooling etc, amortised across the total number of developers. THEN there'd have to be an accounting for how much value developers contribute to Apple by making apps for iOS.

Do you have an example of a previous case where such a consent decree like this has been enacted?

Remember - when iOS was first released, it wasn't the wild success until 3rd party apps were available (and Apple made "there's an app for that" their primary marketing message), and as internal emails are showing at trials, the MAIN reason Apple allowed 3rd party native apps, was because Google etc could do web apps SO well, there would be zero platform lock-in to Apple's hardware once Google released Android as an iPhone-like OS, rather than a Blackberry-like OS.

When they first released the iPhone, it was available exclusively on AT&T and the iPhone launch it crashed AT&T processing systems. Apple sold six million units of the first generation iPhone, in spite of being limited in it's carrier support. We have out of the Epic depositions some of the background and reasonings but none of them mention Google. If anything the camp pushing for web apps spoke about how they didn't want to have rely upon developer to update their applications like they were with other processor shifts.

Apple has strongly advanced the idea that by making iOS, by making a 3rd party dev toolchain, they should be entitled to something in return from everyone who uses that system to make revenue, but regulators might look at that and say "the presence of 3rd parties is a virtuous circle that advantages Apple through higher sales of their devices, so that alone is their upside".

That's your usual IP licensing arrangement though, if you build some intellectual property of value you own that property and have the ability to license it to others on the terms that you set. We wouldn't be having this conversation if the property were valueless though, it is because it has demonstrated value that this entire processes arises.

With Apple's margins on the App Store being ~80%, you can forget Apple getting a revenue share of 15% for software sold by 3rd party stores. When an indy developer can roll all that themselves for 6%, Apple might be lucky to get away with having to sell their developer tooling as their sole cost recovery option, and even then they'd have to compete with 3rd parties who might create competing IDEs.

An indy developer is welcome to build what ever they want so long as they agree to the licenses of the intellectual property they leverage to make that software. If they want to build on iOS then they've got to agree to Apple's terms. Anything less raises broader questions around investment in intellectual property if you can exploit it for profit.

Because Sony's take from the game's retail price is their recouping a subsidy they provide the consumer by selling them the console below cost, so that more consumers can afford to have consoles, and therefore more developers can sell their games.

This is a completely different business model to Apple's.

I don't think anyone questions that the business model is different, I think people struggle to see how if it's a monopoly when Apple does it why it's not a monopoly when Sony does it? If the market is defined as iOS then the market is equivalently Playstation. Nobody can sell a Playstation game without approval by Sony.

Perhaps I'm missing the piece that says "if you sell something for a loss then it's ok to have a monopoly", maybe you can help me with that?

Console makers carry all those same expenses. So the subsidised nature of the hardware remains a distinction that makes the business models incomparable.

You keep talking about business models but the question is if it's a monopoly and if it has applied that monopoly power inappropriately. It seems that if iOS is a monopoly by virtue of it's own existence then the consoles are also monopolies by virtue of their own existence.

If Apple sold the iPhone for a third of its current cost, so that it was so cheap that they literally outsold Android phones, there might be a case for them to say "we lose money on every phone, so as to deliver you this huge market, and for that reason we need to make that loss up on your app sales". But they keep the iPhone an expensive premium product, choosing to limit its sales numbers, and developers' addressable markets, for Apple's own benefit.

Actually I suspect if Apple did release their iPhone devices at a third of it's current cost that they'd get hit with market manipulation and dumping lawsuits for trying to wipe out the competition. It's not like they don't sell their older models at a discount or have products like the iPhone SE that are geared towards a cheaper market ($399 vs $799), they're just not completely at the bottom of the market.

But regulators are more likely to suggest that Apple should be meeting the fixed costs of everything that is not directly related to the provision of the App Store itself (ie what Fastspring etc can do for ~6% of revenue) from income sources that are tied more directly to the activities i.e. meeting the cost of the Dev tools and API development from the Dev Programme membership, or else just eating that cost as a cost component of the iPhone itself.

Do you have an example where a monopoly marketshare case has been resolved by the monopolist working in such a way?

 

[mattspace]

You keep talking about business models but the question is if it's a monopoly and if it has applied that monopoly power inappropriately. It seems that if iOS is a monopoly by virtue of it's own existence then the consoles are also monopolies by virtue of their own existence.

I think the fundamental difference can be summed up as this - even though all the console makers maintain a monopoly over developer access to their respective platforms, only Apple maintains a monopoly over customer access to the developer's products.

The fact that you can buy console games in multiple competing retail outlets would seem to be the fundamental distinction as far as regulators are concerned.

That makes a certain sense, because the primary crime in Antitrust is using a monopoly position in one aspect of a business, to defend said monopoly from competition, or generate a unique advantage when moving into another. Apple's dual monopolies are self-reinforcing, in that they both increase costs for customers, AND increase costs for developers.

It really comes down to that - for console makers to be regulated like Apple, or even considered for regulation like Apple, they have to be 100% identical, they have to have every feature of Apple's business model, and that would mean non-subsidised hardware, and only a single option for where customers can buy games.

 

[Ethosik]

Console makers carry all those same expenses. So the subsidised nature of the hardware remains a distinction that makes the business models incomparable.

If Apple sold the iPhone for a third of its current cost, so that it was so cheap that they literally outsold Android phones, there might be a case for them to say "we lose money on every phone, so as to deliver you this huge market, and for that reason we need to make that loss up on your app sales". But they keep the iPhone an expensive premium product, choosing to limit its sales numbers, and developers' addressable markets, for Apple's own benefit.

But regulators are more likely to suggest that Apple should be meeting the fixed costs of everything that is not directly related to the provision of the App Store itself (ie what Fastspring etc can do for ~6% of revenue) from income sources that are tied more directly to the activities i.e. meeting the cost of the Dev tools and API development from the Dev Programme membership, or else just eating that cost as a cost component of the iPhone itself.

But with out that 30%, Apple could not offer ALL those things and more that make this a great platform for developers. SO taking the 30% away, will cause the same harm as it does on consoles. I still fail to see how a business decision to sell your system at a loss is enough to break them out of monopoly issues. So Apple can easily avoid this by selling their iPhone $1 below cost?

And believe its or not, you do know I can get an iPhone 12 Pro for about $50 a month from my AT&T bill right? Whether AT&T pays Apple in full or not, its still subsidized on the customer.

 

[ipponrg]

I don't understand how a hardware device sold by a single manufacturer with an operating system specific for that hardware and not made available otherwise with a third party developer agreement in place for revenue sharing is any different between consoles and the iPhone. Apple, Microsoft, Sony and Nintendo sell hardware that ships with their own proprietary operating systems which include their own app stores, revenue sharing agreements and gatekeeping/approval processes.

I am wondering if the consoles prevent you from advertising payment gateways off device even though that is far worse experience than something on a mobile phone. If so, that would be one key difference. The thing that people are pissed about with Apple is it doesn’t allow direct billing adverts. Some companies prefer to use their own payment gateways.

 

[mattspace]

But with out that 30%, Apple could not offer ALL those things and more that make this a great platform for developers. SO taking the 30% away, will cause the same harm as it does on consoles. I still fail to see how a business decision to sell your system at a loss is enough to break them out of monopoly issues. So Apple can easily avoid this by selling their iPhone $1 below cost?

All of Apple's expenses in making the dev tools for the app store are just repurposing the tools they have to build for themselves, and if they didn't do it, third parties would. So there's no real valid argument that the dev community causes Apple to experience significantly higher costs, especially given the 80% margin on the app store shows that Apple has been chronically under-investing in it, and just milking the golden pie.

There were third party native apps, apps which worked, before Apple released any dev tools to make them.

As I mentioned before, what breaks the monopoly issue for consoles vs Apple is probably the presence of third party retail channels. Apple may not want iOS to be like Android, but the idea Apple advances that just because they make something, they get to decide how it exists within society is profoundly naive.

 

[I7guy]

All of Apple's expenses in making the dev tools for the app store are just repurposing the tools they have to build for themselves, and if they didn't do it, third parties would. So there's no real valid argument that the dev community causes Apple to experience significantly higher costs, especially given the 80% margin on the app store shows that Apple has been chronically under-investing in it, and just milking the golden pie.

There were third party native apps, apps which worked, before Apple released any dev tools to make them.

As I mentioned before, what breaks the monopoly issue for consoles vs Apple is probably the presence of third party retail channels. Apple may not want iOS to be like Android, but the idea Apple advances that just because they make something, they get to decide how it exists within society is profoundly naive.

How does this dovetail into removal of the Kaspersky app?

 

[mattspace]

How does this dovetail into removal of the Kaspersky app?

Well given the sheer volume of malware / scamware on the App Store (as documented by @keleftheriou on Twitter), I'm sure Kaspersky could make a case that Apple removed their security apps in order to preserve a myth that the App store is a safe, trustworthy source for apps.

"there's no need for an anti-malware app on iOS, as there's no malware to protect against"

The MCP doesn't like this Tron program looking over its shoulder, putting seatbelts in cars makes people think they're unsafe etc etc.

 

[pasamio]

I think the fundamental difference can be summed up as this - even though all the console makers maintain a monopoly over developer access to their respective platforms, only Apple maintains a monopoly over customer access to the developer's products.

All of the consoles require approval of a game before it can be sold on their platforms.

The fact that you can buy console games in multiple competing retail outlets would seem to be the fundamental distinction as far as regulators are concerned.

This doesn't make sense, the fact that a developer could be making even less money (30% markup from Best Buy, 30% from Sony and 40% left over for the dev?) means that the Apple App Store is worse?

That makes a certain sense, because the primary crime in Antitrust is using a monopoly position in one aspect of a business, to defend said monopoly from competition, or generate a unique advantage when moving into another. Apple's dual monopolies are self-reinforcing, in that they both increase costs for customers, AND increase costs for developers.

It really comes down to that - for console makers to be regulated like Apple, or even considered for regulation like Apple, they have to be 100% identical, they have to have every feature of Apple's business model, and that would mean non-subsidised hardware, and only a single option for where customers can buy games.

This distinction is without legal precedent under section 2 of the Sherman Act. Indeed, Sony, Nintendo and Microsoft all operate similar walled gardens or closed platform models as Apple, whereby the hardware, operating system, digital marketplace, and IAPs are all exclusive to the platform owner. As such, a final decision should be better informed regarding the impact of the walled garden model given the potential for significant and serious ramifications for Sony, Nintendo and Microsoft and their video game platforms.

Those aren't my words though, they're from the preliminary injunction in the Epic v Apple case.

I am wondering if the consoles prevent you from advertising payment gateways off device even though that is far worse experience than something on a mobile phone. If so, that would be one key difference. The thing that people are pissed about with Apple is it doesn’t allow direct billing adverts. Some companies prefer to use their own payment gateways.

Not only do the consoles limit advertising payment gateways off device, Sony apparently even drafted a policy where off device revenue can be attributed back to Sony[URL].