Friday, May 21, 2021

Epic v. Apple, Day 15

Nick Statt (tweet):

Apple CEO Tim Cook took the stand on Friday for the final day of testimony in the Epic v. Apple antitrust trial.


“When they buy an iPhone today, they buy something that just works. I think they buy into a total ecosystem when they buy an iPhone,” Cook said. Bornstein presented Cook with the notion that Apple has no idea if it’s more dangerous to open up the iOS ecosystem because it has not once allowed it in the iPhone’s nearly 15 years of existence. “It’s an experiment I wouldn’t want to run,” Cook replied. Cook said his assertion that a more open IOS would be “terrible for the user” to be based on his “business judgment.”

Juli Clover:

Cook was asked if third-party companies could implement app review as effectively as Apple, and Cook said no.

They’re not as motivated as Apple is. For us, the customer is everything. We’re trying to give the customer an integrated solution of hardware, software, and services. We deliver a brand of privacy, security, and safety. I just don’t think you can replicate that in a third-party.


Judge Rogers engaged Cook in a long debate about in-app purchases and how they’re driven by games. Rogers is curious what’s wrong with Apple providing users with choice within in-app purchases. If people want to buy v-bucks separately, what’s the issue with Apple giving them that option? Or telling them they can make the choice?

Cook said that if people were allowed to link out, Apple would “in essence give up [its] total return on [its] IP. The judge then pointed out that games make up most of the in-app purchases. “It’s almost as if they’re subsidizing everybody else,” she said.

“We need a return on our IP,” said Cook. “We have 150,000 APIs to create and maintain, numerous developer tools, and processing fees.”


Do all developers like things the way they are? asked the lawyer. “Some developers don’t like it,” said Cook, referencing Epic Games . He said there are a “few others” who aren’t satisfied with the App Store policies[…]

Adi Robertson:

Judge asks to clarify what the data says. “There’s about 1-2% of the malware is on the iPhone vs. around 30-40% on Android and another 30-40% on Windows. It’s quite a difference,” says Cook.


The [small business] program was in the works for years but only happened in 2020. Why? “I was very worried about COVID and the effects of COVID on small businesses in particular,” Cook says.


How have prices consumers paid for software changed?

“They’ve definitely gone down significantly,” says Cook, from the days of buying a “shrink-wrapped package from the local retailer.”


What about references to locking customers into devices?

“It means making all the product work so well together people don’t want to leave,” Cook says.

Is there anything Apple could do to lock people into iOS?

“Not that I’m aware of.”


Cook looks over an email calling iMessage the toughest thing to leave behind, and he characterizes it as somebody having configured iMessage wrong and having issues getting their messages on a new phone.


Epic’s lawyer says Apple has 1.8 million apps, so it couldn’t possibly be “curated,” a term Apple has linked with the store.


Lawyer says, “if people really value Apple’s curation and Apple’s App Store, even if there are multiple stores, people could still go shop at Apple,” right?

“It seems like a decision that they shouldn’t have to make,” Cook says.


Epic now going to Cook’s congressional testimony saying Apple’s never increased the commission rate in the store. But Apple has “expanded the scope of transactions” to which the commission applies, right?

Cook says yes if that means they’ve added new product features.


Judge Rogers: “You don’t charge Wells Fargo or Bank of America, right? But you’re charging gamers to subsidize Wells Fargo.”

“In the gamers example, they’re transacting on our platform,” Cook says.

“People are doing lots of things on your platform,” judge says.

“I understand this notion that somehow Apple’s bringing the customer to the gamers, to users. But after that first time, after that first interaction … the developers of the games are keeping their customers. Apple’s just profiting off that, it seems to me.”

“I view it differently than you do. We’re creating the entire amount of commerce on the store, and we’re doing that by focusing on getting the largest audience there, we do that with a lot of free apps so those bring a lot to the table,” says Cook.

Leah Nylen:

“We could no longer make the promise” of safety, security and privacy, Cook says. The promise depends on the app review. I know they want that because they tell us that.

What would be the consequence of not having to use IAP? Moye asks. Customers would then have to post their credit cards in all these different apps. It would be a huge inconvenience and the fraud risk would go up, Cook says.

Apple would also have to come up with a new way to collect its commission. IAP is the most “efficient” way to do it, Cook says.

Apple Pay already prevents customers from having to enter their credit cards, and it gives Apple a commission, but Apple forbids its use in cases where it requires IAP.

Khaos Tian:

lol Apple think even if they allow other payment methods, they are still entitled to get a cut for transactions happened within an app 😛

Leah Nylen:

You maintain Apple did not retaliate by threatening to shut down the Unreal Engine, Bornstein says. Cook confirms.


Update (2021-05-25): Adi Robertson:

Rogers noted that most of Apple’s App Store revenue comes from games, and she asked Cook why developers can’t use other payment methods to sell in-app purchases, or at least tell users they can make those transactions elsewhere. “If they wanted to go and get a cheaper Battle Pass or V-Bucks, and they don’t know they’ve got that option, what is the problem with Apple giving them that option?” she asked.

Adi Robertson (Hacker News):

Cook used more privacy and safety claims to defend that system, saying it would be both insecure and inconvenient to let apps process payments separately. He was also, however, a little blunter about Apple’s own interests. “IAP helps Apple efficiently collect a commission” — for payment processing, but also customer service and the use of Apple’s intellectual property. Without in-app purchases, “we would have to come up with another system to invoice developers, which I think would be a mess.” If Apple let developers tell users about other payment methods, Cook said later, “we would in essence give up our total return on our IP.”

Juli Clover:

She spent several minutes grilling Cook on Apple’s App Store policies and some of the statements that he made. “You said you want to give users control, so what’s the problem with allowing users to have a cheaper option for content?”

Cook clarified that by control, he meant control over data, and he told the judge that customers can choose between Android phones and the iPhone.

Nick Statt (tweet, Hacker News):

The end result was the best hint yet how Gonzalez Rogers is thinking about the Fortnite dispute, which one of Epic’s many complaints she finds credible and how she may decide to rule when the trial ends. In particular, the judge seems concerned about the rigidness of the 30% cut and Apple’s rules against allowing developers to communicate ways to purchase digital goods off-platform.


The general takeaway is that Gonzalez Rogers expressed deep skepticism of Apple’s claims that it operates the App Store the way it does out of the goodness of its heart. Apple executives have reiterated throughout the trial that they built iOS and the App Store this way out of concern for user security and privacy and for an end-to-end experience. But Gonzalez Rogers says there were also clear financial incentives to do so and that it appears Apple is incapable of responding to any concerns that may threaten the benefits it receives.

Florian Mueller:

Getting back to the first trial week, its second half actually went better for Epic than some observers realized. Not only did Judge Gonzalez Rogers identify some inconsistencies and a certain degree of arbitrariness in Apple’s app review decisions but she also made a remark on how competition spurs innovation, which in turn improves security.


As a complainant whose problem with Apple relates to its inherently-subjective Objectionable Content guideline, I don’t see how the problem could be solved without third-party app stores like the Epic Games Store. The 30% could be undercut and undermined in other ways. But for developers to regain some essential freedoms we had in the past, when the primary platform was Windows followed by the Mac and Linux, it takes more than an “anti-anti-steering” order, though it was another key moment when Judge YGR indicated she wasn’t going to buy Apple’s American Express analogy (that case was about an anti-steering provision).

Kosta Eleftheriou:

Users don’t know the input to the app review process, so they can’t really know if it’s better for them overall.

When my app wasn’t allowed on the App Store, users didn’t know that.

Steve Troughton-Smith:

‘But Epic just want their own App Store’

One of the major contributing factors to the success of iPhone & the technological revolution it sparked is how Apple wrested control away from the carriers — ‘orifices’ as Steve Jobs called them.

Apple has become the orifice.

It’s OK for Epic to want its own App Store, or Steam, or Xbox Cloud Gaming, or the ‘unspeakable’, and there’s a generation of innovation outside the App Store just waiting to happen along vectors that Apple just defines out of existence today on a whim

Marco Arment:

Is all online commerce thanks to Netscape and Internet Explorer?

Should every website be forced to pay them 30%?

Once the scale gets large enough to encompass an entire generation of broad-ranging commerce, arguments like Apple’s here are completely childish and ridiculous.

Francisco Tolmasky:

I constantly feel that the customer perspective is the best reason to want multiple AppStores[…]

Kosta Eleftheriou:

If I search the App Store for an app by its exact name, e.g. “Netflix”, who brought the customer?

Kosta Eleftheriou:

If I listen to a developer’s ad on the radio and then go and download their app from the App Store, who brought the customer?

Benjamin Mayo:

I can’t believe that Apple keeps testifying that it doesn’t know how much profit it makes from the App Store. It’s just an insane declaration. On financial statements, Apple publicly reports Services business with ~63% margins. App Store is most of that. Done.

Stephen Nellis:

Cook on the stand answering questions about App Store curation and approvals: “We’re not making a moral judgement on them, if that’s what you’re asking”

Here are the App Store review guidelines, where the first rule is about “objectionable content”

John Gruber:

99 percent of Snap’s revenue is from advertising, not a nickel of which Apple gets a commission from. I’m not faulting Snap in the least for building an ad-based business — Daring Fireball gets at least 95 percent of its revenue from advertising. But the CEO of a company whose business doesn’t rely on in-app purchases or subscriptions doesn’t really seem like a good person to ask about Apple’s commission structure.

Find me the CEOs of companies that generate a significant percentage of their revenue through App Store transactions who espouse the same sentiment as Spiegel.

Update (2021-06-07): Tanay Jaipuria:

Google pays Apple $10-12B/yr to be the default search engine on iOS.

But apparently Tim Cook doesn’t remember the amount or why Google is paying it


8 Comments RSS · Twitter

Old Unix Geek

This testimony beggars belief.

Tim Cook doesn't know how much Google pays? or why it pays?
Tim Cook doesn't know how much the App Store makes or costs?
Tim Cook thinks Apple is entitled to a cut of everything, even if it provides no App Store because of all the APIs it provides?
Tim Cook says Apple deserves money because its App Store contains tons of "free apps" that attract users, which Apple didn't make?
Tim Cook says no iMessage for Android is a misconfiguration?
Tim Cook can't think of ways to lock developers into iOS? Metal vs Vulkan? Java or C++ versus Swift?
Tim Cook can't think of ways to lock customers into iOS? iMessage? all your previous purchases?
Tim Cook doesn't know that language was added to the dev agreement to terminate developers?
Tim Cook doesn't think he was retaliating by trying to shut down Unreal Engine? Nor is terminating developers just so?
Tim Cook doesn't have a clue how users' data affects the App Store search?

There's more. I give up.

It’s amazing how, even though it seems like it was insinuated (I didn’t read all of the testimony), Apple’s position is that it deserves a cut because of all the work it does to maintain APIs, run the store, etc…. Yet they ask nothing of free apps beyond the $99/year dev fee. If that’s enough, why are they siphoning millions from the most popular paid apps? Why a percentage? whatever the actual number is, the costs are FIXED (other than a fraction of a fraction of a cent for bandwidth every time someone downloads an app).

Since 2018, Apple has changed the way they account for their OS development and shifted those to Services Revenue. While this has been known in accounting, it was never explicitly stated. So this is the first time, a very clear statement, direct from Apple. The App Store model is essentially subsidising the OS development.

This is fine in a sense. And it is also great the judge do realise Gaming is the vast majority of the revenue.

It still doesn't ask the most important question as to why Apple gets to dictate Apps, especially those with political speeches on their App Store.

"Cook was asked if third-party companies could implement app review as effectively as Apple, and Cook said no."

Epic's app review is already more effective than Apple's given that Epic hasn't allowed any scam apps into their store yet.

"I understand this notion that somehow Apple’s bringing the customer to the gamers, to users"

That hasn't really happened since the early days of the App Store. People aren't downloading Fortnite because the App Store recommended it to them.

Tony Collins

Old Unix Geek: as always, I'd value your opinion - did you feel that this was Cook acting like a politician and spinning his own answers as he said them, or do you think he just chose to lie?

I mean, there's a chance he really was being honest - and he would've surely had a LOT of coaching. Maybe he's become really distant as a CEO, but it's not really likely is it.

I guess a judge might not take account of whether a CEO seems to be deliberately obfuscating the information, cos that doesn't affect matters of law. But if the judge does, then Cook's awful testimony could really damage the case.

I'm a huge fan of Apple products but their behaviour as a corporation is pretty appalling.

Old Unix Geek

Hi Tony,

Thanks for the question!

I think Mr Cook cannot have gotten to the top of Apple without being an extremely intelligent man.

He worked in operations, which means he has to think in terms of complete systems: how money, parts, IP flow through the big machine that is called Apple. My experience of systems thought is once you start doing it you find it everywhere. Donella Meadows who wrote "Thinking in Systems" says the same.

I don't believe Tim is a driven creative the way Steve Jobs was. People come to him with proposals, and ideas. So he doesn't spend his time doing that.

Instead I would expect him to have a very good understanding of how every part of Apple works. And a vital part of that is how the App Store works, and how Apple interacts with developers. If you remember, when Steve Jobs came back, there was so little software available for the Mac that he begged Microsoft to support the Mac again. I very much doubt anyone in senior management has forgotten that lesson not to repeat.

So on the one hand, it's nice to skim 30% off developers. On the other, it's a symbiosis, and if the developers stop supporting the Mac, Apple will be in trouble. That's an external risk a operations person surely must be aware of.

This trial seems to me to be a rerun of the anti-competition trial against Microsoft for bundling web-browsers. They lost it, and it hurt. Therefore I expect Tim Cook has been preparing assiduously for this trial.

Thus, I would be very surprised if he knew as little as he said he knows. The BBC joked that if they had stock in Apple they'd be worried about how it is run. But it's run very well, and that's Tim Cook's doing.

Rather, I think he probably knows what he is doing is monopolistic, but saying so would sink the ship, annoying stock holders, customers, developers alike. Instead feigning ignorance is his safest move. I would say he laid it on rather too thickly. I'd be curious to know what the judge thought.

I do expect this to be a long saga. Appeals all the way up to the Supreme Court. However I think it is a vital question, in that it will determine the future of technology... including technologies that will be even more invasive than phones, such as neural implants (think Elon Musk's Neuralink). As such, I really hope Apple loses. We live in a world where even smartphones are a sine-qua-non of modern life. Imagine a world in which your mental abilities (software in your implant) depend on a single corporation not revoking your account or the software you depend upon. Allowing a single corporation to control and tax everything on "its platform" is not a good precedent to set.

^ I think that analysis is pretty good

Tony Collins

Thanks as always, OUG. It's always hard to add to your analyses so I just wanted to say thanks.

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