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Epic takes a tiny bite out of Apple

Epic takes a tiny bite out of Apple

Good morning! This Monday, Apple won the Fortnite court battle but might lose the app store war, Facebook apologizes to researchers, and Twitch sues some users for "hate raids."

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The Big Story

How Epic v. Apple ended

Days before the next big iPhone reveal and following weeks of surprise Apple policy reversals, Judge Yvonne Gonzalez Rogers issued a verdict on Friday saying Epic Games failed to prove Apple is an illegal monopolist.

The judge also struck down Apple's anti-steering provisions that prevent developers from advertising other, potentially cheaper ways to buy digital goods on the iPhone. So while Epic largely lost the trial, the aftereffects of the ruling may have huge implications for Apple's business and may signal the definitive end to the company's top-down control of iOS.

Apple is not an illegal monopolist, but its conduct is still anticompetitive. The core of the judge's verdict is that Epic failed to prove Apple operates an illegal monopoly, in part because it failed to adequately define the market. In wanting a broad ruling that could potentially crack open the iOS platform, Epic overreached, the judge says. But Apple isn't completely off the hook.

  • Gonzalez Rogers found that the market was not the iOS app market or the app distribution one, but the mobile game transactions market. And because neither side focused on that, she couldn't "conclude that Apple is a monopolist under either federal or state antitrust laws."
  • Still, Gonzalez Rogers found that Apple's conduct with regard to steering was anticompetitive because it increased Apple's market power and harmed consumers by keeping prices artificially high.
  • Now, developers will be able to link to and advertise payment options existing outside iOS, bypassing Apple's 30% cut.

Apple had already begun unraveling many of its steering rules. Perhaps seeing the writing on the wall, Apple made a series of App Store policy concessions in the weeks before the verdict. Though none of them went as far as Gonzalez Rogers' permanent injunction, together they did dampen the impact this ruling could have had if Apple had stuck to its guns.

  • Last month, Apple settled a class-action lawsuit with U.S.-based app developers. As part of the settlement, Apple agreed to "clarify" its policies around anti-steering, essentially making it more clear that developers are able to advertise cheaper payment options so long as they do so through a communication format, like email, that a customer has provided with consent.
  • In a settlement with Japanese regulators shortly after, Apple rolled back another anti-steering rule around linking to these alternative payment options within the app itself, though it applied only to so-called reader apps like Amazon's Kindle, Netflix, Spotify and other media platforms.
  • A landmark South Korea law that passed last month effectively achieved what Epic was trying to have imposed by the courts by forbidding Apple from forcing developers to exclusively use its payment system. Epic has tried to use this law to republish Fortnite on the iPhone in Korea, but Apple struck it down. It remains to be seen what Apple will do when compliance becomes mandatory.

Apple hasn't said it would appeal the decision, but Epic has already started doing so. Tim Sweeney was quite dissatisfied with the outcome of the trial, saying Epic would keep Fortnite off the App Store indefinitely and concluding in defiance, "We will fight on." Apple, on the other hand, called it a victory and reaffirmation that "success is not illegal." But this is just the beginning.

  • We don't know if major mobile game makers will start promoting alternative payment methods, but if they did in large enough numbers, it could hurt Apple.
  • Gonzalez Rogers revealed in her ruling that the App Store's revenues largely come from games: 76% of all App Store revenue in 2017 came from gaming, and a shocking 6% of players that spend money on games account for a vast majority of that revenue.
  • If game developers can lure enough of those big-spending "whales" outside the App Store, there goes billions in lost revenue for Apple.
  • Additionally, future appeals and the eventual outcome of Epic v. Google, which has yet to go to trial, could complicate the app store antitrust debate even further.

It's hard to look at the Epic v. Apple verdict as a win for either party. Epic didn't get most of what it wanted, and Apple now risks losing billions of dollars in revenue per year by complying with the court's order. But for a company as flush with cash as Apple, the App Store business is just a piece of the larger pie, and one that won't shrink overnight.

What happens now will largely depend on whether Epic can sustain its fight, and whether more developers decide they're still unhappy with this outcome. Consumers can expect to find more links in their iPhone apps, because Apple's walled garden finally has a door to the outside.

— Nick Statt (email | twitter)

A MESSAGE FROM FACEBOOK

Facebook supports updated regulations, including four areas where lawmakers can make quick progress:

  • Reforming Section 230
  • Preventing foreign interference of our elections
  • Passing federal privacy law
  • Setting rules that allow people to safely transfer data between services

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PROTOCOL EVENT

Join Protocol on Sept. 15 for a special event on creating the right hybrid work environment, something literally every company is facing these days. Speakers include folks from Trello, Twitter and Slack, and Menlo Ventures partner Naomi Ionita. Sign up here.

People Are Talking

On Protocol: President Biden's vaccine mandate takes the onus off companies, Gartner's Brian Kropp says:

  • "They don't have to deal with any of the fallout that's associated with putting in their own mandate. They can just blame the government for it."

Give it a decade, and everyone will be taking pictures with glasses, Facebook's Andrew Bosworth thinks:

  • "It'll be like, 'Of course. Why, don't your glasses take pictures?'"

The Epic v. Apple decision is a big win for crypto, Fred Wilson said:

  • "Apps that use crypto rails for payments cannot be blocked by Apple anymore ... That is so fucking awesome."

Tech workers may try to avoid Texas altogether under its anti-abortion law, said Richard Alm, who studies the state's economy:

  • "This has potential to impact the supply of labor if workers are less willing to relocate to Texas."
  • Salesforce also promised to help relocate employees and their families who are concerned about the effects of the law.

COMING THIS WEEK

SECtember starts today. The week-long cloud computing conference takes place in Bellevue, Washington.

The AI Hardware Summit begins today. The first day is virtual, and the rest of the week happens at the Computer History Museum in Mountain View and on a livestream.

Apple's "California Streaming" event is happening tomorrow. The company is expected to unveil new iPhones and other products.

Xiaomi is hosting a product launch event on Wednesday. The company could introduce new phones or smart home devices.

Amazon Career Day is Wednesday. The event will feature a few livestreamed speaker sessions, including one with Andy Jassy.

For more upcoming events, check out Protocol's tech calendar.

In Other News

  • China is reportedly planning to break up Alipay. The government is apparently concerned that Alipay controls too much of the country's loan market, and wants to separate it and put it under more state control. Beijing also reportedly told Alibaba and Tencent they need to learn to play nice.
  • Facebook reportedly apologized to researchers for giving them flawed, incomplete data meant for them to study misinformation on the platform. Researchers said the error cost them months of work and put doctoral degrees in jeopardy.
  • Grubhub, DoorDash and Uber Eats are suing New York City over its law capping food delivery fees. The companies want an injunction and monetary damages, saying it's cost them hundreds of millions of dollars in lost fees.
  • IPOs aren't going away. Quizlet is reportedly planning to go public, Stripe is said to be trying to decide between a direct listing and IPO for early next year, and Outdoorsy may be looking to go public as early as the end of this year.
  • Tinder and Yahoo are getting new leaders: Jim Lanzone is leaving Tinder for Yahoo's top post, and Renate Nyborg will become the dating app's new CEO. Lanzone was Tinder's CEO for just over a year.
  • Twitch is responding to "hate raids" on the platform by suing two users allegedly responsible for a series of attacks. The lawsuits say that the users sent racist, anti-gay, sexist and violent messages and content to others.
  • Google managers realized they'd underpaid temporary staff members for years, but they didn't just fix the issue and move on. Fearing bad press, managers decided to instead only pay the proper rates for new hires starting in 2021, according to a report by The New York Times.
  • On Protocol: Unions at Chinese tech giants don't work like you think. They're a little more superficial, acting as a way to address issues when they come up rather than pass along worker grievances. Still, some workers think it's better than nothing.

One More Thing

Microsoft's remote work toolkit

Microsoft knows remote work isn't going away anytime soon. Maybe that's why it's rolling out a few new features that aim to make it easier for companies to hold conferences online.

  • A "new category of intelligent cameras" can detect who in a Teams Room is speaking, allow for in-room participants to be placed in their own video pane, and identify and show the profile name of people in their video pane.
  • Microsoft Teams also has new support for hot-desking, which allows employees to book a "flexible" workspace on Outlook or Teams. Users can also indicate whether they'll attend a meeting in person or online using accompanying tools.
  • Microsoft will also add support for Apple CarPlay, allowing users to pull up Teams calls while they're driving.

A MESSAGE FROM FACEBOOK

Protecting privacy means something different than it did in 1996 — the last time comprehensive internet regulations were passed. We've introduced tools like Privacy Checkup that help people control their information. Now we need updated regulations to set consistent data protection standards.

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