Apple Shares Crash, Billions Wiped, After Epic Court Ruling
Shares in Apple are tumbling, with the big iPhone maker who has been hitting app developers for billions of dollars for years, via their app store, now facing the stark reality that they could lose a big share of the $8.57 billion they generate from the store as developers steer customers away from the Apple cash flow machine.
Overnight Apple got the decision they were dreading when a US federal judge ordered Apple to dismantle part of the competitive barricade that has forced developers and Companies using the app store to pay up to 30% of the revenue they generate back to Apple.
There is also concerns now around the operations of Alphabet’s Google owned Play Store.
The ruling came after Epic Games, best known as the maker of Fortnite, the popular video game played by about 400 million people worldwide took Apple to court.
The decision comes days out from the launch of a new iPhone 13.
Gaming apps account for about 70% of all App Store revenue, and that comes from less than 10% of the platform’s users, according to the ruling.
Those big spenders help offset the more than 80% of App Store accounts that generate virtually no revenue. Apple made about US$3.8 billion in U.S. revenue from games in 2020, most of which came from in-app purchases, according to estimates from Sensor Tower.
Such a change could potentially also save app developers billions of dollars while slashing prices for Apple consumers.
As soon as the announcement was made more than $13 billion was wiped off the value of Apple as shares in the Company who also has a history of stealing patents fell over 3%.
U.S. District Judge Yvonne Gonzalez Rogers rejected efforts by Epic Games to force Apple to let programs be downloaded onto the iPhone outside of the confines of the App Store.
Instead, she gave the “Fortnite” videogame maker a partial victory in ruling that Apple can’t block developers from sending users outside the App Store to make payments related to apps.
Apple had already begun in recent days to loosen restrictions to those rules due to a separate class-action lawsuit and an antitrust investigation in Japan.
“The Court does not find that Apple is an antitrust monopolist in the submarket for mobile gaming transactions,” the judge wrote. “However, it does find that Apple’s conduct in enforcing anti-steering restrictions is anticompetitive.”
Loup Venture’s Gene Munster, a long time Apple watcher, claims that Apple could lose up to $5.4 Billion depending on how many developers take advantage of the new policy.
Apple who are also struggling to get traction with their Apple TV business are not too worried about the financial impact despite content providers such as Spotify, Disney+ Netflix and thousands of others now able to create a link to an external payment system.
“The court has affirmed what we’ve known all along: The App Store is not in violation of antitrust law” and “success is not illegal,” Apple said in a statement. Kate Adams, the iPhone maker’s general counsel, called the ruling a “resounding victory” that “underscores the merit” of its business.
In fiscal 2021 alone, the company is estimated to bring in more than US$360 billion, meaning the change won’t make or break its overall financial performance.
Some observers claim that developers may choose to stick to Apple’s payment system, so they don’t have to build their own web payment platform.
The ruling states that Apple must let developers communicate with customers “through points of contact obtained voluntarily from customers through registration within the app.” Last month, as part of minor concessions designed to settle a class-action lawsuit with app makers in the U.S., Apple had already agreed to allow those direct communications between developers and end users.
The ruling in the Epic trial only applies to the U.S., while Apple’s previous App Store changes — relating to communications and reader apps — were designed to be global.
The judge’s decision could ultimately mean Epic’s Fortnite comes back to the App Store.
The popular game was originally removed last year for using its own payment method, bypassing Apple’s fees. Now that an injunction is in place for Apple to allow that approach in some form, Fortnite could be poised to return.