Policy

What Apple’s App Store settlement means for the Epic Fortnite lawsuit

Apple's $100 million class-action settlement didn't concede much of anything.

An image of the Apple App Store icon on an iPhone.

Apple just muddied the waters around the App Store antitrust fight.

Photo: James Yarema via Unsplash

Apple's developer settlement Thursday night significantly muddied the waters of the ongoing App Store antitrust fight, and it just might threaten the eventual outcome of Epic Games' Fortnite case.

The class-action settlement was widely reported as a "concession" from Apple to please developers by allowing them to email users about alternative payment options that bypass its 30% App Store commission. It also included a few minor commitments and a $100 million payout to small developers, of which $30 million would go to the lawyers involved if approved.

Except it wasn't much of a concession at all. The wording in Apple's press release and the reality of its existing policies don't translate into any meaningful new changes for iOS app makers, and therein lies the problem.

Apple has agreed to something it already allows. The company's new App Store guidelines, released in June during its WWDC event, outlined that developers were in fact allowed to contact users about alternative payment options (something some developers were already doing). Yet Apple made clear the contact info had to be obtained with explicit user consent for the purpose of that communication and not, say, for the purpose of creating a new account within the app.

  • This is critical for understanding the bounds of Apple's anti-steering restrictions. The company is not meaningfully changing those rules in any way as part of the settlement, but instead simply "clarifying," as it wrote in its press release, "that developers can use communications, such as email, to share information about payment methods outside of their iOS app."
  • The email clause is the key addition — here's the existing rule to compare — and it means developers might have an easier time contacting users if they know they won't be penalized for using email. But it's far from a momentous change or concession.
  • Developers are still banned from advertising within an app that there are cheaper alternative payment options elsewhere. Developers also can't email users directly with an email on file to advertise those cheaper options unless they ask first.

Companies like Netflix and Spotify have been doing this for years, after removing the option to sign up for their platforms from within their respective iOS apps. Both companies can point users to the web, but they are not allowed to link to or advertise cheaper prices.

  • Both companies and many others can and do so via email and only if they've acquired user permission to communicate about these offers and deals, which is in part why you might see that listed as a separate option on a list of communication preferences. Very few app makers do this because it's much harder to convert a free user into a paying customer if the user has to leave the app to make the purchase.
  • If the settlement agreement is approved, Apple says it will no longer ban developers from advertising cheaper prices outside the App Store using methods like email. Yet that rule was not seemingly enforced with any kind of regularity and certainly not against companies like Netflix or Spotify.
  • Developers must still obtain user permission to email an offer, and only after that are they allowed to email a user advertising, for instance, 20% off a monthly subscription or a purchase of in-game digital currency.

A number of reports overplayed the significance of the settlement. That was to be expected. Apple making anything even looking like a concession is certainly a newsworthy event, but the company went above and beyond to ensure the settlement terms were portrayed as a victory for developers.

  • The company held a call with reporters to communicate these "App Store updates that will support businesses and maintain a great experience for users" and its press release is rife with further wording painting this as a big win for app makers.
  • Apple, a master marketer and media manipulator, was able to get headlines such as "Apple will let developers accept payments outside the App Store, in major concession." The New York Times' Jack Nicas, who criticized the tech media's misreading of the news, wrote, "I don't see how this changes much. Some companies pretty much already do what Apple says it is suddenly allowing."
  • In reality, not much has changed. Bloomberg's Mark Gurman added a more accurate, sobering take: "Apple Settles With App Developers Without Major Concessions."

It's a thorny road ahead for Epic. Judge Yvonne Gonzalez Rogers is responsible for approving this class-action settlement. She's also responsible for issuing a verdict in the Epic v. Apple antitrust lawsuit that went to trial in May.

  • Epic is not a party in the class-action lawsuit and the settlement changes nothing about the claims Epic made in court and the changes it wants Apple forced to make around the App Store and iOS at large.
  • Epic wants Apple to allow sideloading of apps on iOS and to allow alternative app stores, like the one Epic distributes on PC. A lesser but still important victory for Epic would be a full-scale removal of Apple's anti-steering rules that prohibit advertising or linking to alternative payment options within an app itself.
  • Gonzalez Rogers identified Apple's anti-steering rules as a primary point of contention during the Fortnite trial and signaled she might rule in a way that aims to please both sides without shaking up the status quo.
  • But this class-action settlement complicates the matter, especially if Gonzalez Rogers views Apple's settlement terms and its June policy change as proper concessions, even when Epic and fellow Apple critics think the changes do very little to address the structural problems of the App Store.

This is a big win not for developers, but for Apple. The company was able to pay $100 million to squash what could have been a rather threatening class action lawsuit striking at the heart of its App Store business, which last year is estimated to have generated between $64 billion and $72 billion in revenue. On top of that, the settlement covers only U.S.-based developers, leaving intact whatever restrictions Apple imposes on international app makers.

One interesting revelation from the settlement is that Apple's Small Business Program, which cuts its 30% commission to 15% for developers making less than $1 million a year, costs Apple about $59 million per year in lost revenue. One of the commitments Apple has made as part of this settlement is that it will keep the program running for at least the next three years. In combination with the other terms, it's a pretty paltry fine for Apple to carry on as usual and protect the App Store in the process.

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