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A Judge Says Apple Isn't a Monopoly, but Is the Competition Fair?

By Jon Quast, Clay Bruning, and Sanmeet Deo – Oct 2, 2021 at 11:00AM

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One small game developer vows to continuing to fight for better terms of the revenue split on the App Store.

Last year, Apple (AAPL -1.38%) removed popular video game Fortnite from its App Store because Fortnite's developer Epic Games offered a payment system that circumnavigated Apple's -- a violation of the terms of service. Alphabet (GOOG -2.22%) (GOOGL -2.10%) also removed Fortnite. In response, Epic Games filed a lawsuit. On Sept. 10, a judge finally made a ruling. Among the court's decisions was that Apple is not a monopoly.  

Both Apple and Alphabet can charge high take rates for apps in their stores -- typically 30%. This is why Epic Games wanted to get around the in-app payment systems. In this video from Backstage Pass, recorded on Sept. 13, Motley Fool contributors Sanmeet Deo, Clay Bruning, and Jon Quast talk about some of the ramifications for video games if Apple is not considered a monopoly. 

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Sanmeet Deo: Are you guys surprised by the fact that the ruling called Apple not monopolistic?

Clay Bruning: Having never used anything but an iPhone for [laughs] downloading apps, I don't know any other world. Obviously, the U.S. isn't the entire world, and I think Android actually has a greater global market share of smartphones. If it's not a monopoly, it's a duopoly in my opinion. But again, I'm not too familiar with outside of the iPhone realm personally.

Deo: Because it's almost like, let's say we were to create our own game and we decide you want to make a mobile game, so obviously, the largest and the fastest-growing industry of the gaming segment like we saw earlier. Let's create a game. We get some developers, we create a game.

Obviously, the only places we can have this game as the App Store or the Android store, for lack of knowing what the real name [laughs] of it is. Now we're going to go ahead and put that on there. We're just a small company of three, we hire developers, a huge amount of cost to develop this game, and then we've put it up there. We have no choice but to use App Store or Google and pay whatever we have to pay to have it. Obviously, we get access to basically everybody, everybody uses Apples and iPhones and the mobile devices are going to see our game. If we had to do it without that, into advertising, get the name recognition, the brand recognition, then much harder.

But we have no other choice but to go with the Apple App Store and pay what they require us to pay and risk not having it on there at all. Besides iPhones and Android, what other mobile devices, let's just keep it with phones, are there? How much market share does it even have?

How is that not a monopoly? [laughs] They're basically forcing us as the developer to pay whatever they want. If they decided to jump into 40% take rate, 45% take rate, say what do we have? We either pay or we leave, and then if we leave, our game is basically dead on arrival [laughs].

Jon Quast: Yeah. To your points Sanmeet, there's no other option. I don't understand legal jargon all the time. I [laughs] don't understand what goes through a judge's mind, or lawyer's mind. That's not how I tick. I don't know what the whole case was.

I think they did say that it was a duopoly. I think they said Apple has 52% market share or something like that, so she said, "yeah they have very strong pull but that's not a classic definition of a monopoly."

To the same token if you're an Epic Games' is shoes, like your example, we have a game, just the three of us we're a small company. We must be on Google and Apple. There is no alternative, that is the method of distribution. To the same token we don't want to be having these companies take 30% of our revenue, but you can pass that onto [laughs] consumers and be very transparent about where this money is going, 30% is going to these companies.

I think that's another thing that they're allowed to put that right in their messaging now. "Don't forget Apple and Google are taking a big chunk of this. You want to know why this cost this? [laughs] Almost half of it is going to somebody other than us."

They can pass this on to the consumer and from a consumer's perspective it's not great but who are they going to be upset at? Not the game developer.

Deo: Yeah, no that's true. But they still may balk at paying.

Before we move on to the next area I just want to share this one tweet that I thought was really interesting from Tim Sweeney, who the founder and Epic Games CEO. This is just interesting that shared this. He said, "today's ruling isn't a win for developers or for consumers. Epic is fighting for fair competition among in-app payment methods and app stores for a billion consumers. This was Apple's response, but Fortnite will return to the iOS App store when and where Epic can offer fair competition with Apple in-app payments passing on savings to consumers."

I thought that was interesting tweet by him about really for them the fight is we want to be in fair competition with Apple and they are in-app payment. Which could mean it's not that they're paying no take rate but maybe it's a more reasonable take rate for their development.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sanmeet Deo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Apple Stock Quote
Apple
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Alphabet Stock Quote
Alphabet
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$94.94 (-2.10%) $-2.04
Alphabet Stock Quote
Alphabet
GOOG
$95.15 (-2.22%) $-2.16

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