Epic vs. Apple – A battle royale final?

Epic lands a blow but not the knockout it was looking for.

• The verdict is a big win for Epic Games when comes to money, but Epic has failed to convince the judge that Apple is an evil monopolist empire that should be dismantled.
• This was always very much on the cards as the judge had previously stated before retiring that neither side would like the ruling.
• Epic Games went all out in its complaint which was far more wide-reaching than the now notorious 30% revenue share and it wanted the platform to be opened up for alternate app stores and sideloading.
• The ruling falls into two pieces:
  • First, App store fees: This is a big win for Epic as the judge found that “Apple’s anti-steering provisions hide critical information from consumers and illegally stifle consumer choice.”
  • The remedy for this is that Apple will be forced to allow 3^rd party payment options for all apps in the USA (it is likely that this will be applied globally).
  • Apple had already begun to do this albeit through gritted teeth as the most lucrative sector, games, had seen no concessions.
  • How this will work in practice remains to be seen as Apple will probably ensure that the experience of using a 3^rd party is clunky and difficult to use in order to keep as many users as possible using the existing system.
  • Second, illegal monopoly: Here, Epic failed in its burden of proof to demonstrate that Apple operates an illegal monopoly and such that change was ordered to the ability to sideload or 3^rd party app stores.
  • In fact, the judge went so far as to say “Apple provides a safe and trusted user experience on iOS, which encourages both users and developers to transact freely and is mutually beneficial”.
  • This means that there will be no unlocking of the app store and with exception of the payment mechanism, everything will continue as it has before.
  • This is the bit that Apple’s council refers to as “a huge win” and against which Epic has already said that it will appeal but I suspect that it is going to have an uphill battle to get anywhere with it.
• The net result is that I think we are going to see Apple split the 30% revenue share arrangement into two pieces.
• This is because the 30% also includes the developer services that Apple provides to support the ecosystem and 3^rd party payment processors will only be processing payments.
• Consequently, with the single 30% share, these processors would be in a position to compete at a much lower price than Apple due to the fact that they have no costs other than processing the transactions.
• This will also be an excellent way for Apple to limit the degree to which its effective revenue share is hit by this ruling.
• This is because by splitting it into two pieces, the payment processors will only be able to compete for one piece of it, leaving the other part intact.
• This will ensure that the revenues from the app store are not greatly affected for Apple and given how small this revenues stream is in the grand scheme of things, I don’t see any real impact on Apple’s financial performance.
• Apple’s shares fell by 3.3% on Friday in response to the news which looking at the fundamentals is a reaction that is way overblown.
• However, in the wider scheme of things, I continue to think that Apple’s valuation needs to moderate considerably before one could become interested in holding it again.