"But Apple needs to fund the App Store. XCode, payment processing, reviewers, it all costs money". Yes, very little in comparison. Apple made $50 billion in revenue from the App Store in 2019. $50 BILLION. The data centers costs to serve up this are miniscule in comparison. Apple could build 50 datacenters PER YEAR EVERY YEAR for that revenue.
Reviewers? A staff of 10,000 fulltime reviewers paid $200k per year would cost $2 billion.
Sorry, I'm not buying this excuse. OSX/iOS is free for every piece of HW, and it surely has much much larger costs to staff.
A $1250 iPhone had a $450 cost to make, giving Apple a staggering 64% gross margin, and $800 gross profit.
The costs to run the Apple store should be included as a sunk platform cost of the phone just like OSX. The cost to run the store is marginal. The cost to serve up an additional developer app, to review an additional app, and to let someone buy one, is an insignificant fraction.
It should be free like the Web, or some extremely low cost to cover CC processing fees (~3%) and electricity to keep the lights on.
I'm shocked at the number of apologists who think this 30% cut is somehow necessary for poor little Apple, with a hole in the pocket, with living on their spare change. It's egregious and unnecessary, and exists for one reason only: rent-seeking behavior. iPhones are reaching saturation, and Apple can either find ways to raise the price of the phone even more, lower the costs more, or increase service revenues, in order to keep their stock going up.
That's why you see focus on service revenues, because they can't really lower costs much to make the devices, and they can't really increase the price much more.
Apple doesn’t make $50B a year from the App Store. That’s roughly it’s entire services revenues. It’s estimated that developers had gross sales of $50B from the AppStore last year, of which $15B is Apples share before expenses.
Apples audited financials tell us gross margins on services is 68%, and $9B of those services are from an annual payment from Google for search placement in Safari with a gross margin approaching 100%. So you can make up whatever numbers you want given your limited understanding of what services the App Store provides, but App Store gross margins are clearly likely to be in the 50-65% range, making its break even somewhere between 10-15% of developer revenues.
And lastly, gross margins aren’t net margins. Apple still has to pay for marketing, sales, admin, support, etc out of iPhone gross margins, and the App Store still needs to contribute to some if these as well.
Apple Music and anything that has content rights are where low margins are going to be. Services margin will include new areas they are investing in and losing money as well.
There's zero percent chance the App Store is running at 50% margin. It's got to be closer to 80% than 50%, or they are doing something wrong.
You are correct Apple Music has low margins (Less than 30%), but it also only has 40M subscribers, which is likely less than $5B in annualized revenues, or roughly 10% of total services revenues.
So $50B in services at 68% margins equals $16B in expenses, deduct $4B in Apple Music expense and you have $12B left. Deduct $9B from revenues for Googles search engine placement, $5B more in revenues from Apple Music, and you have $36B in revenues left. That makes gross margins for the remaining services, which the App Store is 40%, 67%.
You are correct in that 67% is closer to 80% than 50%, but still a long way from it.
I've not done the research, but following your #s, there remains 60% of the $36b unaccounted for. Where's that coming from, and what are those margins?
>but App Store gross margins are clearly likely to be in the 50-65% range, making its break even somewhere between 10-15% of developer revenues.
Apple dont booked their customer's revenue, only their receiving ( i.e ~30% ) end. So those are close to 100% Margin as well.
There are additional $10 per Mac, iPhone, iPad, Apple TV per unit to Services for their OS, Cloud, Siri and Map Usage. That is close to $3B revenue, and again Gross is close to 100% margin.
The only thing that aren't 100% Gross is Apple Music. Where it has a clear unit cost and margin are likely to be Sub 20%. ( You can take a look at Spotify for margins, and Apple also pay labels a little more than competitors because it isn't part of their profit making branches ) And Apple TV+ which is Apple giving away their Services Profits for something given out for "Free". ( Which is one reason I hate Apple TV+ )
Apple are now basically subtracting all of their Software and Cloud Services Cost from Services Segment. Apple could argue part of the reason why you get 5 years worth of iOS update are from those revenue stream.
And yes, none of these Gross Margin takes into account R&D, marketing, operation and other expenses.
Personally I have no problem with Apple charging 30% for Games like Fornite. Which is the industry Standard across all gaming platform. I just wish they lowered the Apps section in the App Store ( Gaming being already in a separate section ) to 15% rather than 30%. And 10% for Subscription.
Considering the cost of running the App Store, and Apple's promotion of App Store credit. I felt 15% is a much fairer deal.
The audited accounting is clear. Apple s gross margins on services are 68% on roughly $50B in service revenues. That’s roughly $16B in expenses.
Subtract $9B for Google safari payment, and you have $16B in expenses on $41B in remaining service revenues, or 60% gross margins.
Hosting and distribution of terabytes of data every hour costs money. Building and maintains hundreds of localized app stores costs money. Customer service costs money. App Review costs money. Developer support costs money. Maintaining Developer tools and store APIs costs money. Payment processing costs money, esp. on 99 cent purchases.
And why should Apple price these devices at a “fair price”? When you build a business from scratch that be ones far more successful than anyone thought possible, aren’t you allowed to keep the money people freely pay you?
Apple set the pricing at 30% day 1, and it hasn’t stopped a single developer from running to jump into the App Store goldmine. There has never been a more profitable software market for developers. I’d say Jobs clearly got the pricing right.
No one is saying the App Store isn’t allowed to be profitable for Apple. Just countering the misinformation from the post and the wrong assumption that the App Stores only make 60% margin.
Developers pay to advertise their apps (some of it goes to Apple) Apple pays to market Apple TV, Apple Music. Apple doesn't need to take in revenue to market other people's apps, advertising them is a money maker for them.
Also, you are talking about the margins on all Apple's services, some of which are much more expensive than others. The margins that other digital software stores can charge suggest to me that they can be very profitable without the 30% cut.
Full disclosure: I am a longtime Apple shareholder.
No one is saying the App Store isn’t very profitable for Apple. Just countering the misinformation from n the original post and the blatantly wrong assumption that the App Stores only costs are payment processing.
On the wild assumption that the plist for macOS Safari at https://discussions.apple.com/thread/2813786 is used on iOS and it's derivatives, and that the <key>Default</key><true/> pair implements this on all platforms, given the $9 billion placement payment for Google, would that code section not be a contender for the most expensive lines of code in existence, and at $360 million per letter?
Following your logic, Fortnite's add-ons should clearly be free since the cost to make and sell them is minuscule in comparison to 400M Epic made in April alone [0].
No one is saying that Epic are doing bad things in order to maintain their monopoly position.
Epic doesn't have a monopoly on any market.
People ARE saying that Apple are doing bad things to maintain their monopoly position, and others are justifying that by saying that "running a business is expensive" as if that justifies a monopoly or monopolistic actions.
> Epic has a monopoly on selling items inside Fortnite.
3rd party artists can't create anything that can be used inside Fortnite, neither inside the v-bucks store nor outside of it. There's no 3rd party "market" at all.
Apple has a market where third parties can market their apps. Apple requires a cut of all purchases made through that store, which alone is not monopolistic. Apple also requires that you sell your iOS app and any iOS in-app purchases only in their marketplace. That's the monopolistic part.
No one can create 3rd party items for Fortnite at all, so there is no monopoly on where 3rd party items for Fortnite are sold.
It's not even illegal to have a monopoly; it's illegal to use your monopoly powers to keep other parties from competing, and that's exactly what Apple has done.
So, let's say hypothetically Epic allowed the sale of third-party skins in Fortnite. Would a skinmaker would be entitled to demand the following concessions?
1. The ability to install skins outside of the V-bucks store.
2. The ability to pay for Fortnite skins using payment methods other than V-bucks.
Alternatively, should Epic not be permitted to impose the following restrictions in their Fortnite store?
1. Skins must be approved by Epic before they can be sold. No x-rated skins, etc.
2. Epic will take a 30% cut of each skin sold.
What if I'm a skinmaker that wants to compete with Epic because I think I can provide higher quality Fortnite skins than they have made. Should I be able to demand to participate in the "Fortnite skin" market which is currently 100% controlled by Epic?
Not all monopolies are created equally. Some have greater cost to society. For example, Qualcomm has an essential patent which grants them a monopoly over certain communications technologies but it has been mitigated by requiring them to license it in a fair, reasonable, and non-discriminatory (FRAND) way.
A monopoly by Standard Oil was pervasive in all of daily living because by the early twentieth century, they had control of more than 90% of the country's petroleum fuel production and logistics which they abused to keep any competition from ever gaining a foothold. By 1911, they were dissolved by the Supreme Court as per Sherman Antitrust Act.
VBucks and Fortnite are not pervasive in all of daily living, it is a tiny market and the monopoly is one which can easily be managed by society without breaking up the company.
> it has been mitigated by requiring them to license it in a fair, reasonable, and non-discriminatory (FRAND) way.
Writing it in passive voice makes it look like there is some governmental force at play that made them license on FRAND terms. They voluntarily agreed to that in negotiations with a standards body/industry consortium which otherwise would not have agreed to utilize their technology in a communication standard. The trade-off is they benefit automatically by getting distribution and licensing the technology to a lot of people that need to implement that standard.
> A monopoly by Standard Oil was pervasive in all of daily living because by the early twentieth century, they had control of more than 90% of the country's petroleum fuel production and logistics which they abused to keep any competition from ever gaining a foothold.
The key point here is that 90% market share constituted monopoly power, whereas Apple's 46% share of the smartphone market likely does not.
I'm not sure why you think this? Sure, certain Sherman Act violations (e.g. price fixing) do not require monopoly power to be considered illegal, but the specific claims in Epic's lawsuit (unlawful monopoly maintenance) definitely require proof of monopoly power.
“Conspiracy in restraint of trade” would fit perfectly what Apple/Google are doing.
The average American spends some what, 4-5 hours a day on their phone? Is there any even remotely comparable precedent for a company to control all trade through everything? The best I can think of is cable, imagine if there were only two cable companies and they not only had unilateral ability to control which channels appear, but also charged 30% to every channels profit.
Further, how many different commercial activities do people do every single day on their devices? This is a far, far bigger thing than any platform before it. And it’s dominated by only two companies with a history of collusion. These platforms are nothing at all like “a market” and trying to argue from narrow historical frames is poor form.
They are far bigger things. It’s more akin to a world, people use them for literally every part of their lives. I don’t think narrow precedent should ever rule our thinking and especially when it’s clear there is no historical precedent here. We need to be “courageous” enough to use moral and logical thinking and not legalistic weaseling, we need to legislate them as new types of markets far bigger and more important to every persons life than any that’s ever existed.
> “Conspiracy in restraint of trade” would fit perfectly what Apple/Google are doing.
Proving a conspiracy claim requires two parties to knowingly participate in the conspiracy. While you may believe Apple and Google are conspiring together there is a reason Epic's lawsuit does not make any conspiracy claims - their lawyers know they'd never be able to win such a claim.
At any rate that is irrelevant to my point: Epic made several claims in their lawsuit that will require proof of monopoly power.
You shifted from arguing from a purely theoretical view (if Epic had a market should they be regulated) to now arguing a very narrow view local to this case. I’m arguing the big picture, so feel free to engage there or not.
Sure, Epics specific case may be the only strategy they can take - they won’t find any documented collusion when there’s only two players, that’s obvious. They already colluded to suppress wages. We can all see what’s happening. You’re arguing semantics on one side then arguing generalities on the other. But let’s call a spade a spade: theres no smoking gun, but they are colluding, it’s just a silent “don’t lower yours and I won’t lower mine” nod.
Edit: further, with the amount of lock in they each have, there’s not much pressure anyway. It’s just not comparable to anything really that has existed beyond Windows/Mac which were/are entirely open. And it goes even further. Mobile phones are on people at all times. They do way way more. You have accounts with hundreds of apps, services. It’s just not a comparable thing, it’s a world with big lock-in.
I mean, you changed the topic to whether antitrust cases require monopoly power, which I acknowledged wasn't required for certain types of violations such as price fixing, but is required for the original topic being discussed in this thread, which is Epic and their lawsuit against Apple.
How are they colluding? Both google and apple seem to be trying to commoditize each other's (very different) cash cows and both are mostly failing at that. At least, google is failing miserably to make a dent in smartphone hardware, apple seems to struggle with software services, but maybe not as badly as google is at hardware.
Apple has a 100% monopoly on the market for iOS app distribution, which can be argued is bad for the customer because the 30% revenue share they take is inflating app prices.
People keep saying this but in an antitrust case you cannot simply declare the narrowest market that fits your argument and expect the court to accept it. The court will examine the market reality and examine how consumers actually behave to determine what the actual relevant market is, and it's unlikely that a court would find "iOS app distribution" to be a separate and relevant market for antitrust purposes. I've explained why in detail elsewhere [1], but in short, the US legal system generally does not consider an aftermarket consisting of a single brand's product to be a relevant product market unless specific rules are met:
> Because it would be inappropriate to punish a firm for its natural monopoly in its own products, courts embraced a sweeping prohibition against analyzing alleged anticompetitive activity by focusing on single-brand relevant markets: "[A]bsent exceptional market conditions, one brand in a market of competing brands cannot constitute a relevant product market." [2]
For a much more thorough explanation see my linked comment below.
Not being a pure monopoly doesn't prove that Apple doesn't have market power. Moreover I don't think people are saying that Apple has a monopoly of smartphones.
The argument is that Apple is using their market power to set prices that seems well above the marginal cost. And they also have created policies that prevent competition in their store. Imagine Windows not allowing any apps unless they give them a 30% cut.
I think it's a very American perspective to see this as black or white. You should be able to tell something is wrong by looking at what Apple is doing. Looking at how Fortnite operates does not give me the same feeling. Obviously Fortnite as a platform is not the same as iOS as a platform, and holding monopoly positions for each yield completely different outcomes. They are not equivalent.
Regulation is a blunt tool - it not enough to just feel they are not equivalent. Any law that may apply to Apple will apply to everyone else as well. The American perspective is that the government should not pick and choose winners
Isn't Fortnite a free online game? How is that comparable to a general-purpose computer that the consumer bought and owns?
If skins are what I imagine they are, Epic needs oversight over which ones players are allowed to use because they affect the experience of other players. And Epic provides Fortnite gratis specifically so that they can sell premium features like skins, so it seems completely reasonable that they would take a large cut out of third-party sales of those features.
To be analagous to IOS devices, Fortnite would have to be a single-player game that players bought a copy of. In that case, I think people would be right to be upset if Epic prevented them from getting skins through some other channel.
Once you decide to shop at wall-mart you can easily switch to other markets or buy items from other stores. not comparable at all.
If there were basically only Wall-Mart and Target to buy stuff from, and you had to commit to one for 2-5 years every time, you bet they should be under heavy scrutiny.
Sony and Microsoft are a better comparison, but different because 1) their consoles are huge loss leaders, phones are not and 2) they are way less essential and used by an order of magnitude less people than phones.
But the irony is that loss leaders are a sign of market abuse / market power. That's the normal anti-trust claim - predatory pricing. If anything, Apple is charging a premium price for their experience.
Apple has become essential and trusted in part perhaps because it has exercised near iron control over almost all aspects of their platform.
Dude, you don't need to buy an iphone, you don't need to by an xbox, you don't need to buy a playstation - if you do though you will be using their stores / they will be getting a cut.
If I buy Apple phone I can't sideload app. At all.
How ia this not a monopoly.
Also why you bring xbox into picture. It's a gaming console not a general purpose device ppl use 4+hrs in a day.
They can have their cut buthe issue that you're ignoring is that they don't allow side loading and that they can randomly kill any app they want. Like they have done in the past and small developers don't have the money Epic does
Depends on what you define as their game store. I can purchase a game that is playable on the xbox from anywhere that sells a copy. One of these places is the digital store that comes with the xbox. But I can also go to cd-keys, or amazon and buy a copy there that will still work on an xbox.
That's a licensing fee and separate to the discussion about market control. As it stands (although this is starting to change) a developer can sell the game through a variety of different avenues (online, brick and mortar, the xbox store), these avenues may have different prices associated and drive where the consumer makes their purchase.
That is the relevant comparison here, if Epic want to provide Fortnite on iOS they HAVE to use the app store and associated requirements. If they want to provide it on XBox, they pay a licensing cost for the proprietary tech they leverage from Microsoft. But they can choose to sell the game on Amazon if they want.
Even if they sell the game on Amazon, they still pay Microsoft a royalty for each game sold. Whether you want to call it a "licensing fee" or a "Microsoft tax" seems like a matter of semantics. Also keep in mind that their publisher agreement with Microsoft gives Microsoft approval rights over the game itself, marketing materials, and even packaging. And if they sell virtual goods in the Xbox version of the game they have to go through the Xbox store and pay Microsoft 30% of that.
The amount of control console manufacturers exert over the games allowed on their platform is not dissimilar to the Apple and its App Store.
I don't think you realize the permissions game makers need to even sell a CD that works on xbox. If that CD is not signed off on by microsoft - total control -> it's not going to work in your console - period. And the irony - EVEN IF microsoft does not market / distribute or accept payment for the game (Apple does all of this) I can guarantee you Microsoft (and sony) get a cut.
Look at the PS5: the ability to put a disk in is a legacy that's clearly going away by Sony making it an option you'll have to pay extra for. The entry level model is digital only, for better or worse.
That's definitely true, and as they move away from physical media more scrutiny of what they are doing is required. But as it stands this isn't yet an issue for game consoles
XCode, the iOS software libraries and tools are all Apple products and are used to develop software for iOS. By requiring that Apple allow developers to distribute software outside the App Store with no revenue for Apple, you are requiring Apple to give away their products for free. On what basis do you or anyone else have that right?
Apple has a monopoly on how those products are sold and licensed because they are Apple products, in exactly the same way that Fortnite and it's marketplace are Epic products. There's no requirement for Epic to open that up, and if they do it will be on their terms. Their house, their rules.
How would you feel if your ISPs started wanting a cut of all money you made via the internet?
After all, it's their house so their rules...
Apple have carved out a significant market share of mobile users. They've locked down the OS so you can't install your own apps on it and they've crippled the browser so you can't build nice web apps. For businesses like Netflix, Spotify and Epic who's userbases arguably transcend the App Store, why should they pay the Apple Tax?
Apple doesn't "own" these users. But if you want to extend your services to them you have to pony up.
I don't expect to use my ISP's infrastructure for free. However most of that infrastructure was built using tax payer's money, on tax payer's land with special privileges granted by the government, and special tax incentives for improvements. In return we, the people, demand certain concessions and rules to compensate us. I'm actually in the UK, but the situation on this here and in the US are different in many details but in broad strokes are equivalent.
The iOS operating system, developer tools, platform libraries and the App Store and distribution system are all Apple products built by them on their own dime and at their own commercial risk. On what basis do you get to dictate to them what features they must or must not develop, what services they must be coerced to provide and what contractual relationships they are required to enter into? There's just no basis for that.
Fair enough but Apple and Google have essentially built out the entire mobile digital ecosystem. While I can empathise with the mindset that they should reap the benefits of investing and nurturing the platforms, they are also for all intents and purposes a duopoly so I am in favour of that control being wrested back into the hands of consumers and the relationship being renegotiated - the distribution platform of mobile software feels more like a public good than a private ecosystem given the way we depend on it
Ive explained why Apple's system is their product and therefore their property, and Ive explained why ISPs are a different case. I'm not seeing any attempt at all to seriously, coherently provide a credible counter argument that makes any actual sense.
The core point your parent was trying to make is that Fortnite is not an open market. No one but Epic provides goods to the Epic store. Apple allowing third party developers is the distinction being made.
Apple's platforms aren't an open market either. They allow third party developers to develop for their platforms, subject to you agreeing to their terms.
Agreeing to a TOS is a standard for open markets. Splitting hairs over a TOS existing is ignoring the fact that Epic doesn't allow third parties to sell in their market (with or without a TOS).
When you accept Apple's developer agreement, you're agreeing to a contract. It absolutely isn't an "open market" for any definition of what that means. Apple has exclusive control of their IP and they are offering a way for you to license it on their terms.
Regardless of what term you use it's a fact of reality that right now no one else but Epic can put content on the Epic Store which is not true of Apple and the App Store.
Which would be irrelevant since the original comment was that Epic had no monopoly on any market, and didn't specify the terms and conditions for a market to fit the argument.
It would be amusing if the outcome of this is that Epic has to allow outside sources of content in their games instead of having it in a vBuck walled garden. I'm sure many developers would be happy get a part of a billion dollar a year market without paying Epic a cut. Imagine the irony of everyone running around Fortnite in Apple store branded loot.
Epic is not putting up some legal crusade for the “little guy” competitors. Epic is putting up a fight for Epic.
It all comes down to money.
If Epic was running their own platform, and 3rd parties didn’t want to abide by their rules, then Epic would give those 3rd parties the finger and tell them to F-off the same as Apple.
Each is trying to grab as much profit as they can while running into the issue of other hands grabbing from the same basket.
The classic case of one’s greed versus another’s desire to be greedy.
I said the same thing in another thread. It's all about money.
But even though is all about money, a legislation change is still necessary. As long as the result of this benefits the society, who's pushing it shouldn't matter that much.
At the end of the day, antitrust process are frequently started by people with a lot of money and power to catch people with more money and power. That's the game.
> If Epic was running their own platform, and 3rd parties didn’t want to abide by their rules, then Epic would give those 3rd parties the finger and tell them to F-off the same as Apple.
What exactly is your point here? If <entity> was in Apple's position, they would protect their interests exactly as Apple is. Thats why we need to regulate companies who are in Apple's position! The fact that its greed vs. greed is immaterial.
You're right, but you're not. Yes, Epic is trying to make money. But if Epic is allowed to open their own store it would be very good for small developers. Those things aren't mutually exclusive.
If they manage to land their store on iOS, expect them to do the same anti-competitive things they did in the PC market... paying studios to exclusively put their games on the Epic Store only. Even games fund raised by communities, and games already announced to be launching on other platforms.
Because making content exclusive to a single platform is not adding value - it is removing value from other platforms, and as such is a net negative move.
It's not though. There is nothing inherently negative having to use EGS compared to any other game hub. There is absolutely nothing negative about giving developers more money to make more and/or better games. It's a net negative to take 30% from developers doing the actual work.
How is any of that anti-competitive? It's a fair competition between multiple app stores.
And Epic is also competing with Steam by having lower cut (5 % versus 30 % IIRC) leaving more money for the developers. It's good for the developers and consumers both.
It's a "gigantic win" for everyone in the same manner that Uber paying drivers and customers (via bonuses / free rides) to use their service was one for everyone involved . Sooner or later, Epic will have to stop doing this once they get their market share and there is no guarantee that this will be the financial model they follow (free games frequently, paying devs to be exclusive etc).
It works in a different context ( platform exclusives ) because the lock in / costs to developing for a different platform are far different from that for different stores on a single platform.
Somehow Facebook running a market on iOS marketplace where they funnel every click to their preferred apps with their own in-app payments and frameworks mandated doesn't sound like a developer win to me. It may not much of a user win if Epic installs DRM into your phone with cool features like an always on audio chat.
Small developers don't care about minuscule savings on their low sales numbers. They primarily care about getting as many sales as possible. The only ones who benefit are those who are selling lots of copies.
Epic is absolutely putting up a legal crusade for the little guy, whether or not it's motivated by their own personal gain. The lawsuit explicitly precludes special treatment for Epic.
Who cares what their motivations are if they've mandated that the benefits should be distributed?
They do run their own platform, the Epic Games Store, which is PC only but trying to compete with steam. Want to know how much cut they take in the Epic Games Store? For things worth £50+ rather than £0.99 in-app purchases?
It's 12%. They also allow selling games made with their competitor technologies (e.g. Unity), and the cut is still the same.
No! This is explained right at the beginning of the article:
> the question as to what is anticompetitive and what is simply good business changes as a business scales. A small business can generally be as anticompetitive as it wants to be, while a much larger business is much more constrained in how anticompetitively it can act
The word “monopolize” is used in a specialised way in antitrust; it doesn’t encompass every exclusive right of sale, because that would disrupt many small businesses and law is intended to prevent huge businesses from dominating the economy.
No. My point is not that they are a small business, it’s that they are smaller than Apple and selling into a different market. Thus it does not “follow,” from the proposition that Apple is a monopolist, that Epic is also a monopolist.
I think you've missed the point here. Neither Apple nor Epic have enough market share in their primary market (smartphones/games) to be considered monopolists.
So instead, people move the goalposts to an aftermarket of the product (iOS apps) and claim that Apple has a monopoly over that market instead. But every company has a natural monopoly over their own products, and by the very same logic you could claim Epic has a monopoly over the aftermarket of their product (Fortnite skins).
Selling virtual items is not especially common due to the exposure it creates to fraud and abuse. Fortnite doesn't allow selling or trading - games that do like Team Fortress 2 and Counter-strike Go are home to lots of scammers who try to trick teens and other uninformed players into giving away their valuable loot :(
Who are you going to buy from without giving Epic a cut? They're the only ones offering Fortnite items.
Apple doesn't just require you use their payment processor - which might in theory be acceptable - they also demand 30 cents on every dollar. Payment providers everywhere have shown that fraud and abuse can be mitigated to an acceptable level with transaction fees as low as half a cent on the dollar. So Apple forces you into an agreement to use a payment processor that is 30-60x more expensive than the competition simply because they can.
Correct for credit card transactions but not for gift card credit which A LOT of people use. Far more than you’d assume. Apple doesn’t get all $50 when you buy an Apple gift card. I’d be surprised if they even got net $40 per $50 card.
The physical cards cost money to produce and the retail stores will insist upon a decent cut. And then the cards are often discounted by 10, 15 or even 20%.
The difference is that if Fortnite abuses its power, it is relatively easy to build another MMORPG competitor. If Apple abuses its power, it's practically impossible to build another mobile platform to compete today. Even Microsoft failed with that.
The bottom line is that Fortnight can have practical competition (that for example offer 3rd party plugins or lower prices), while the iPhone only has Android as competition, which is taking the exact same 30% cut.
> it is relatively easy to build another MMORPG competitor.
Oh no it isn't. There are very few successful (and even fewer wildly successful) MMORPGs and countless failed attempts.
Games are not really fungible. It's not like I'm going to go out of Fortnite to buy items in WoW instead and treat them as the same. They are two completely different markets.
> The bottom line is that Fortnight can have practical competition (that for example offer 3rd party plugins or lower prices)
No, unless things change, you need to use the Epic store.
Sure, but if the community got sick of Epic's walled fortnite garden, they can play other games. Could be WoW, could be Call of Duty, could be Pubg, could be the latest Mario. It doesn't really matter. Fortnite competes for your time with all other games, and the main thing keeping people there, besides basic enjoyment of the game, is that a lot of people play with their friends. And not many people will say that certain in app purchases are essential item (unlike, say, having an email app on your phone).
iOS on the other hand has a single serious competitor, Android, and if you have an iPhone you can't install Android on it when you get mad at Apple - you need a whole new phone. From a developer's perspective, you would miss out on all the iPhone users if you ship and Android app and not an iOS one. In that sense, Apple has significant monopoly-like power over the app market; solidified by the fact that you can't just install Google play store and start downloading Android apps on your iPhone if you get fed up with Apple' App store. The switching costs are too high for most users to consider it, except when buying a new phone.
A lot of this comes down to what a meaningful market is. E.g. Border's and Barnes and Noble learned the hard way that they were in the same market as online book selling - you couldn't usefully look at their book store models and ignore Amazon in the last ~decade.
Regardless of the context, this is so good and hilarious on so many levels. Meme worthy! I’m going to have to try to work this quote into a conversation.
Fortnite is free. They release patches to the game weekly, with major patches every month or so, which are also free. The _only_ revenue stream in fortnite is cosmetic skins, which as a player you could ignore entirely and still play 100% of the game.
In fact, you can earn small handfuls of the premium currency every season, which actually allowed people to purchase premium skins or the "battle pass" with currency obtained for free.
There is no comparison to be made with Apple, who won't let you do a thing on the app store without giving them money.
Games have a limited shelf life. I don’t really care about Epic. Fortnite won’t be around much longer when the next big game du jour comes out.
Whether or not Epic charges for their store is immaterial to whether one of the largest and most important general purpose computing platforms in the world is performing highway robbery.
Not really sure why people are voting this down. It's self evident that Fortnite's "platform" is far more ephemeral than iOS. Team Fortress 2 is probably an example of a skins market that has been around the longest (since 2007), but very few games last this long and run a market that is still selling a lot.
This line of thinking is very reminiscent of “Facebook won’t be around much longer, it will be gone like MySpace”, many people still believe that as FB is now one of the most valuable companies in the world.
There is no reason to believe this will be true. Grand Theft Auto V is now 7 years old at this point and has seen 2 almost 3 console generations as generates an incredible amount of money for TakeTwo. The longevity of these platforms have clearly changed
Facebook is indeed not around much anymore, users have moved to Instagram. In fact I can't remember the last time I've seen someone under 30 using Facebook.
Give it 10 years and there will be again another large social network. Teenagers won't be on the same network as their parents.
I hear this argument often, but there are counterexamples like Minecraft, CSGO, World of Warcraft (one of the few MMOs that still have a subscription).
So it's entirely possible that Fortnite will stay.
Minecraft has arguably evolved into its own "platform" with people building and sharing their own worlds (some on Minecraft's own managed Realms, many not) and tons of third-party games built on top of Minecraft accessible to the public. Fortnite may evolve in this direction some day, but it hasn't yet.
It's all about updates. If there is new stuff to do, people will come back eventually. Maybe not every year but there are some games I've come back to every 2 years.
I don't follow. The game is free, "V-bucks" you buy, I think you just get character/weapon skins that aren't required. I don't love the setup, but since kids are hanging out on fortnite having it free lets everyone who wants into that world.
I think they're referring to swapping in funny money to obfuscate customer ability to estimate the costs.
It's similar to how slot machines require tokens, but I don't think that's quite gambling. The gambling part comes in with loot boxes, where you're essentially paying to roll the dice to get something of value.
Token slot machines used to be common prior to the early 2000s, but they were phased out mostly for cost reasons (minting tokens, refilling tokens, handling tokens, theft, etc). Cash ticket/cards quickly replaced them.
Some casinos still have an aisle or two of coin machines for nostalgia though. People collect these tokens, but I'm sure that hobby is on the way out since new mint is pretty rare.
It takes work to implement an ingame premium currency. The only reason to perform that work is because some business person thinks they have discovered a new way to claim that what they are doing "isn't gambling."
I don't understand these arguments either. It's not illegal to have high product margins, right? Why can't they charge whatever they want? It comes across as pure moral "I don't like it" objection, which is fine, but don't use it as a legal argument.
Google has basically the same profit margins with their Pixel phones compared to Apple and Android has 85% market share. Yeah you can sideload any app you want on your Android, but I've heard of no even half serious 3rd party competitors to the Play store. Not sure what the point is here.
It's about balancing the market. That's why anti-trust exists. Would you want an insulin monopoly to be able to have 95% margin? Probably not. That's why it's illegal.
Too many usinesses can't live without access to iPhone users.
iOS is the minority smartphone OS in the US and in the world. In the world their share is under 20%. In the US it’s under 50%. In both cases, shrinking.
If Apple/iOS is a minority that means someone else must be a majority. Who, exactly, do you think should be the target of that balancing, and why?
It's the fact when you get large enough and force things that are considered unrealistic or anti competitive platform it becomes an issue. This isn't new to American business. It evolves. It use to be oil, steel, ATT, Microsoft.. Now it's Apple. Tech is long over due for a overhaul only a matter of time until some politician uses it to add a feather to their cap. 30% cut of a sale of a mature economy is just crazy.
>30% cut of a sale of a mature economy is just crazy.
That is why it isn't 30% after the first year. It is 15% for subscription based software starting year 2. As I pointed out earlier, Apple also eats credit card transaction costs (~2.5%) and the costs of collecting and paying sales tax in 50 states and 155 countries, app store personnel, servers, etc...
Where do you even get numbers like this? Are you looking at the bill of materials cost and assuming that to be the cost of the device, ignoring the R&D, testing, iterations of development and tweaking, and many other factors (including marketing) that go into the price of a product (apart from profit margin)? If yes, that’s too naive an assumption and bordering on hyperbole.
This is like arguing that the ingredients for <your favorite dish> cost some low value whereas restaurants are selling it at several tens of times that cost. M
I agree. I very much like the metaphor you're drawing here. Expecting a phone to cost as much as its materials is like expecting to go to a restaurant and being outraged when a steak and fries costs $25 when you can buy potatoes and a steak from your local supermarket for $8.
It's absolutely ignoring the overhead, R&D, etc; but I often also find iOS itself ignored in the built-in costs. I often find comparisons to costs of materials vs. MRSP bizarre at best, in any case.
This is a great picking apart of Apples justification but I think the issue that most irks everyone who’s not apologizing for Apple is where did this magic number 30% come from? Which market forces created it?
Here on HN most of us probably feel that product manager at Apple licked their finger, felt the wind and said “Yeah 30% seems about the most we can get away with”
And what irks even more is once Apple set the precedent, as their we’re no outcries Google was like “Let’s copy that!”. Let’s hope there was no collusion ...
It is interesting that few people are recognizing that the 30% buys you distribution on a billion devices.
Yes, I know, the web is free...and the App Store search is broken so discovery isn’t what it was... but still. Market access is VERY significant and worth something and the incremental cost to Apple has no bearing on what it is worth.
As discussed, prior mobile cuts were far more one sided. We payed the carrier 50% and then Qualcomm 20% of what was left. Bottom line, we walked away with 40% and we were happy.
> the App Store search is broken so discovery isn’t what it was.
More often than not, I can't find a named, non-popular app, even when searching for its exact name. The only way I can find it, is if they have a web-page and an direct link to their appstore entry on that web-page.
So ironically I have to search Google/DDG on the open web to find the apps I'm looking to install on my iPhone.
"Broken" doesn't fully convey just how mismanaged the AppStore is.
> It's interesting that few people don't understand the difference between permission to distribute versus actual distribution.
Not sure what distinction you're trying to draw here but in order for Apple to take their 30% cut, someone has to download the app, at which point Apple have de facto distributed it to someone.
> If Apple was doing any distribution for you at all, you wouldn't need to pay Facebook and Google for distribution.
This makes very little sense to me. Are you saying that if I pay Apple to distribute my app on the App Store then they should also distribute it on every app store? And that if they aren't then they're somehow failing me?
> Note how this was different in the early days, where simply being on the app store would get downloads. That has not been true for 7-8 years now.
The App Store is a shit-show in terms of discoverability, this is true. I'm not even sure what they can do to improve things at this stage.
Actually, there was precedent. Previously, if you wanted to reach a lot of people you had to package your product in physical boxes and get it into brick and mortar stores. The cut that distributors took for that was around 50-60%, and you only had access to them if you were already huge.
Having worked with low-end shareware payment processors at the time, they charged between 15 and 30% and most of them are now out of business.
I remember people complaining about the 15% cut, too. No matter how fair you make it, people will scream that it's too much. Even when it's free. Just look at how people complain about open source software that they don't pay for and don't contribute to. Nothing is ever fair for some people.
The App Store wasn't the first online store on mobile phones, there were stores for downloading ringtones and wallpapers on some devices and some primitive app stores particularly in Japan. The typical markup on these was 50% at the time, while typical retail markup is 40% for many types of goods. Consensus among pundits was that Apple would charge 50% and 30% was widely reported at the time as being surprisingly low.
Not to forget the 50% that telecom providers would demand for premium SMS / MMS (with one "chat" message costing 5€, half of it would get to the network provider). Which also explains why they had little incentive to prevent predatory services like SMS spam telling people to call / message high priced service numbers with subscription keywords.
There is precedent; the rate was actually much higher in previous mobile app stores (e.g. Symbian and ring tone stores).
Additionally, there is related precedent in areas like publishing (ebook stores usually charge 30% or more commission).
I don't think 30% is outlandish, though I do think it would be nice if Apple reduced that cut, especially if they wanted to consider some form of graduated rate.
The article tells you where the 30% came from. In the days of iTunes, a song was $0.99. Credit card transaction fees were around 2% + $0.25 per transaction.
The minimum price for an app was $0.99 as was the minimum in app purchase.
I am not saying it should scale as price scales to remain 30%.
This seems almost certainly correct. The 30% cut for the App Store had a precedent of a 30% cut for media in the iTunes Store. In the past I've jokes that the fees in the App Store were chosen so they could just use the existing infrastructure with as little change as possible -- and while it's a joke, it's not entirely a joke. It's pretty easy to see the execs at Apple looking at that and saying, "Hey, 30% is way cheaper than what physical software stores charge for shelf space, and it's in line with other digital media stores that handle not just payment processing but hosting, downloading, review aggregation, and marketing, so it's a great deal, right?"
And, IIRC at the time it was seen as a great deal. It may not be such a good deal now, though, and in-app purchases are really a whole other kettle of fish.
It doesn't cost $450 to make an iPhone. That's insane. It may cost that in parts, but there are many, many highly paid engineers, designers, product managers, etc. who worked on those products. Those people's salaries must be accounted for somehow.
This is something that a commenter on Hacker News should understand!
All of those dumb cost breakdowns for what it "costs" to make iPhones or whatever always miss the fact that you actually have to design and build the software, hardware, and services that makes it all work. Not to mention shipping and other retail costs.
GP claimed iOS was "free". Can't be both free, and the phone only costs its parts.
GP also said to cover cost of app store in the phone, despite only costing its parts.
I consider iOS to be one of the iPhone's parts. I don't understand why machinery engineered from metal is so different from that engineered from bits, that I must consider them two products instead of one. Metal, glass, silicon, bits: one PDA appliance.
This is economics. The price of a product in a competitive market tends to its marginal cost -- the cost to produce one additional unit. The marginal cost of an iPhone is $450 in parts and labor. The R&D costs are fixed costs, not marginal costs, they don't vary whether you sell 1 million iPhones or 10 million iPhones.
Most of iOS's costs are fixed. Even if you amortize the cost of it across the number of phones sold each cycle, it will be insignificant.
Apple employs ~12,000 engineers. If all 12k cost $1million per year, it would cost Apple $12 billion a year. Apple revenue in 2019 was $260 billion, or 4.6% of revenues. Apple gross profit was $104 billion. So if Apple had to somehow cut some rent-seeking streams and eat $12 billion, their profits would only be reduced 12%
Now we know these figures are way overboard. Employee costs aren't $1 million per year for every engineer. All 12k engineers are not working on iOS or the App Store, etc.
> The price of a product in a competitive market tends to its marginal cost
Long run marginal cost. Which will be higher than the cost per unit. You can’t sustain a market when you can’t cover fixed costs. Just look at what happened to Detroit.
I already showed they cover fixed costs with a mere 5% of revenue and 12% of gross profit (note their reported gross profits actually already removed the fixed costs)
This obviously comes from a misunderstanding of economics. The price of a good is what people are willing to pay for it. Why are people willing to pay more for Nike’s than Converse? There are literally hundreds of Android phones, yet people are willing to pay more for iPhones.
People have been paying a premium for Apple’s goods for forty years. Instead of complaining about the evilness of Apple, maybe the problem is the incompetence of the rest of the market to make something compelling.
This is incredibly simplistic, and to say "this obviously comes from a misunderstaning of economics" seems ironic, to say the least.
You're completely ignoring price signalling for a start, which provide information to consumers about price elasticity. You're ignoring asymmetries between producers and consumers, which hide information from consumers about price elasticity (and thus affect what people are "willing to pay"). You're ignoring things like decoy effects, in which manufacturers deliberately offer extra items at different price points because of the known impact on consumer psychology. Basically, you write as if consumers are driven by a rational and fully informed decision making process, when we know with absolute certainty that this is not the case, and that manufacturers/sellers have considerable ability to shift "what people are willing to pay for it".
Also, vastly more people buy those Android phones than iPhones, which makes it less clear if the market has failed to "make something compelling" to compete with iOS, or if there is a subset of the population willing to pay a premium for specific perceived benefits, real or otherwise, in the case of iOS devices.
If only Android was owned by a company with a popular website where they could inform consumers about the benefits of alternatives and if it has capital to produce a premium phone.
Do you really think consumers don’t know they are paying Apple a premium?
"There are literally hundreds of Android phones, yet people are willing to pay more for iPhones."
Because there are hundreds of manufacturers of Android ones, and only one for Apple. Microeconomics states that in a competitive market, price will tend to the marginal cost, and this is exactly what happened in Android. It is not "what people are willing to pay", it's that Android phones have competitive pressures that are downward on price. At the high end, people pay as much for Huawei Mate P30s as they do for iPhones, because there are few phones at that tier.
Your rebuttal actually proves my point exactly. If Apple licensed iOS, and let clone makers sell iPhone clones, the price would plummet, even if all of the features were the same -- same OS, same HW performance, etc.
Apple's creation of their own little walled garden, complete with path dependency, and slick marketing, has created a premium that would not exist if independent manufacturers could sell clones.
This is why PCs were cheaper than Macs, when clearly PCs had WAY WAY better HW than Macs, way better CPUs, GPUs, et al, for much lower price points, yet people paid more for Macs. Even back in the pre-OSX days, the PowerPC days, the Motorola days, people paid more for less, again, because of the way Apple locks in a chuck of their market with incompatible path-dependency.
I mean, I had an Amiga in the 80s, it had 4-channel stereo sound, 4096 colors, multitasking, awesome games, on a great C= monitor, and the comparable machine at the time was this tiny 128k 9" B&W display machine, which was hideously slow because it didn't even have enough RAM, and cost well over 200% more. Amiga had vertically integrated all-custom chips like Apple brags about today. It was the premium machine, so ask yourself why some people paid 200% more. It could do substantially less, graphically, and in terms of software available for it. And before you say "desktop publishing", in college I used TeX to do all of my work, and the output quality was superior with less effort. For the home PC user, it was way way overpriced for underpowered hardware and a paultry software selection. This is what Apple was competing against in the 80s: https://www.youtube.com/watch?v=q7rKj0DU8Xs
I'm an iPhone user, I've owned every iPhone since standing in line in 2007 to get one of the first. I use a Macbook as my primary laptop. So I'm not anti-Apple, but frankly all of the things I use iPhone or Macbooks for have NOTHING to do with their locked down App Store, refusal to allow me to install third party browser engines, or specify default apps, or side-load apps.
I want Apple to stop locking down freedom and when they sell me a computer or phone, let me OWN IT an do what I want with it. If Apple's ARM OSX Macs turn into a locked down system like their ARM iPad/iPhone, then this Macbook Pro and Mac Pro I own will be the last Apple devices I own, and it's hello Hackintosh or Linux desktop.
Ok, you don't like the single App store model for your phone. That's fine. However, I think there is plenty of evidence to suggest that your desire is that of a tiny minority.
Due to Apple's extraordinary success and complete dominance of smartphone profits, I think it is safe to assume the vast majority of users love the App store model. They don't read Hacker News, they don't understand how computers work, and they don't care. What they know is find an app, hit a button, boom. No worries about payment security, malware, etc. (Ok, no malware is a slight overstatement, but not by much.) Software updates are handled automatically.
It is undeniable that people are willing to pay for the current experience. None of this other stuff is really relevant. If you want sideload capability, don't buy an iPhone. There is no deceptive marketing here. Everyone knows the deal with respect to software. The vast majority of users have no thought towards side loading or even what that means. I think any representative survey would find that the single app store model is a feature for the vast majority of their customers, not a detriment.
Windows used to completely dominate the world. Americans, when polled, often say they like their own health insurance.
None of this means it is a consumer desire, and none of this says consumers want only one way to pay for something and don't want side loading. For almost every case of something Apple doesn't have, you can make the same argument. So consumers don't want big screens right? Consumers don't want small tablets right?
This is the always the excuse with Apple. Anything they don't have, it's obviously because consumers don't want it -- right up until Apple introduces it, and then all of a sudden, it's what they wanted all along.
Steve Jobs said consumers shouldn't be trusted to know what they want.
Also, all of this is a complete SMOKESCREEN for the fact that Apple could easily introduce something like WebPayments, a driver model for payment providers, and reuse the same UI for Apple Pay to delegate to partners who are vetted.
Likewise, they already allow 'side loading' in the enterprise, so the question is, why can't they allow THOSE WHO WANT IT to flip a switch, own their smart phone fully, and side load, even if it invalidates the warranty. Let people jailbreak the devices they paid >$1000 for without relying on exploits.
And when it comes to PC operating systems, it still does even though according to you Apple has this magical ability to keep the masses ignorant and uninformed about alternatives.
Also, all of this is a complete SMOKESCREEN for the fact that Apple could easily introduce something like WebPayments, a driver model for payment providers, and reuse the same UI for Apple Pay to delegate to partners who are vetted.
Does any retailer have a method that allows consumers to avoid payments? Can I buy imaginary money from Epic from another payment provider and use within Fortnite?
Likewise, they already allow 'side loading' in the enterprise, so the question is, why can't they allow THOSE WHO WANT IT to flip a switch
You are perfectly allowed to buy an Android phone like 85% of the rest of the world.
Every single one of Apple’s competitors in the PC market were better capitalized in the 80s through 2005. Especially when Apple was almost bankrupt. The other companies were incompetent. They could have done the same thing.
There was no lock in with Macs - the same Software was available for Windows and more. Have you ever thought that it wasn’t just about the hardware?
Did Apple have a lock in on marketing that kept Microsoft and Google incapable of marketing their own devices?
Did Apple stop Commodore and Atari from executing?
Nope, the MS-DOS and Windows market was too big by then to introduce a new incompatible system. Ask OS/2 how it worked out.
> There was no lock in with Macs
Sure there was. Firstly, many schools across the country had been convinced to by Macs through the educational discounts Apple gave, and school bureaucracies like all government bureaucracies move very slowly, so aren't going to switch, but simply maintain and grow the bureaucracy. Secondly, if you had actually invested in a bunch of Mac software and a LaserWriter, the sunk cost fallacy would lead many people to stay in.
And then there's Cognitive Dissonance.
> Have you ever thought that it wasn’t just about the hardware?
Mac software and hardware was inferior until the Intel switch-over. Sure, MacOS was more consistent, but the software available for the platform was worse. And in some categories, practically non-existent compared to Windows.
Almost every single response I see from you in threads is like a paleo-libertarian response that "things are the way they are because they are what the market intended" without almost no insight into how consumers can be manipulated by corporations.
So please tell us one law that the government passed in the last 30 years related to technology that was actually good for consumers.
After everything you have seen the US government do with regards to technology, you still want more government power? I haven’t seen anyone on HN that supports the DMCA, laws trying to make encryption illegal, etc.
My fight against government control is because I don’t trust the government. I can more easily leave a company than I can a government.
Why was Apple able to survive the consolidation behind MS DOS and Atari, Commodore, etc. weren’t? They all started around the same place.
Given the ongoing security updates and years of upgrades provided to older phones, I would argue that the marginal cost of iOS is NOT zero nor anywhere close to it. Relatively low, sure, but one would need to figure the amortized cost of ~5–6 years of OS updates across the devices who are receiving the latest iOS this fall.
>This is something that a commenter on Hacker News should understand!
It pains me to see Computing, Tech, or Software Engineers that are the top paying job today and especially in Silicon Valley, are complaining about the cost of Hardware all while completely ignoring the Software Cost and Design Cost.
This left, free-ish mentality wasn't a thing 10 - 20 years ago. But has steadily getting mainstream. I have no idea why.
Apple has more products than an iPhone. In business you do not include the costs in that manner. Even without an iPhone, those costs exist and would be paid.
People used to pay money for Trumpet Winsock, then a TCP/IP stack became critical infrastructure, and you no longer paid for it. Web Browsers used to have a commercial model (Netscape), then the Web become so critical, it became commodity infrastructure. Disk compression and encryption? Table stakes. Video decompression/compression? I could go on and on, but ALOT of functionality that used to be commercial add-ons has become commodity, and required OS infra. It's just paid for, and no on charges.
Otherwise, hey, let's unbundle Mobile Safari, and Mail, and Maps, and when you buy an iPhone, the first thing you have to do is buy all the builtin default apps.
> They are already rich so they don't need a 30% cut of app purchases
Yes, I don't get why they don't just hand out phones and everything for free, duh. I mean surely they could do that for a while with all that revenue instead of theoretically buying 50 new data centers per year every year? Why I am not getting free stuff from rich people? What economic wizardry am I missing?
If you don't like it why don't you make your own phone platform and make its app store free.
It is easy to demand free shit from already established platforms since they don't strictly need it now, but it required a lot of capital and work to get to the point it is now and now you are expecting to get a free ride on top of that.
Then again this incident has nothing to do with Apple or Epic. This is essentially China vs USA case. Just another form of cyber warfare and comments like yours show that China is succeeding.
So now we are telling companies what they should make?
We know that margins aren’t 64% - it’s right in their financial statements.
The costs to run the Apple store should be included as a sunk platform cost of the phone just like OSX. The cost to run the store is marginal. The cost to serve up an additional developer app, to review an additional app, and to let someone buy one, is an insignificant fraction.
Would Apple be in their right to charge $25K fee to use their SDK? We would they be within their right to charge a bandwidth fee like Amazon does with the Kindle?
Should all software companies only charge nominal fees because the cost of an additional customer is low?
The cost of credit card transaction is around 3% + $0.25/transaction. While of course that’s much less than 30% for anything over $1.00, most of the revenue from the App Store comes from crap like Candy Crush with in app purchases of gems. Especially since the major players like Netflix and Spotify don’t allow in app purchases.
Let’s not pretend that the money is coming from indy developers selling useful products - most of it is coming from the tokens and loot boxes bought by whales.
> most of it is coming from the tokens and loot boxes bought by whales.
Apple's money is coming from where exactly ? At $1000+ price, in gaming terminology that is either "whales" or users who cannot afford it but are exploited/addicted to the "product". There are perfectly equivalent android phones for less than half that price. Ultimately apple and epic are lifestyle companies, you don't "need" either of them sure, that doesn't mean they are not providing value to the economy.
> Would Apple be in their right to charge $25K fee
I am sure Epic will gladly pay 25k or $250k fee which is exactly the point. $99 is great for indie developer not for large businesses. You may not want large businesses in the store, Many do, I want my apps not to stop working because the developer lost interest, I want the companies behind the apps not to go bankrupt .
> We would they be within their right to charge a bandwidth fee like Amazon does with the Kindle
Sure, the can charge reasonable or even cloud rates, or even better they don't need to provide the bandwidth at all or make it optional. Many developers I am sure are happy to host files with a CDN of their choosing, a provider they can negotiate their rate at scale .I am sure apple will object on user experience grounds. Google allows you to run your own store you can use your own CDN. Sure without playservices they make it hard, both Amazon and Samsung do deliver through it though.
> The cost of credit card transaction is around 3% + $0.25/transaction
That is the retail rate for a high end service provider like stripe. Apple (or any company doing $1M+/month) is not paying anywhere remotely close to that.
In any other industry price scales with usage. Enterprise/ high volume customers do not pay retail, retail rates have a big per unit CAC associated with it b2b sales have CAC but it is not any linearly correlated to units. Customers normally at decent volumes can negotiate, Apple will not give any volume discounts. They can get away with it because of their control over the market.
Epic does not care you and I are paying 30%. They care that they are paying the same 30%.
Apple also does not care small developers are paying 30% or not, they want 30% from epic size customers.
Apple's money is coming from where exactly ? At $1000+ price, in gaming terminology that is either "whales" or users who cannot afford it but are exploited/addicted to the "product".
So people are addicted to iPhones? Apple sells a $399 phone that is faster than any Android phone at any price.
Apple will not give any volume discounts. They can get away with it because of their control over the market.
Rumors are that they did in fact negotiate with Amazon, Netflix, and Hulu. They actually offered something of value.
Of course they are addicted to apple brand. People accessor-ize apple products. A lot of people buy apple because it is aspirational, same reason people buy skins in games and many times neither can really afford to spend that kind of money.
> Apple sells a $399 phone that is faster than any Android phone at any price.
Google Pixel 3A is similarly priced product , it has higher resolution(2220x1080 / 1337x750) better camera (12.2+8 / 12+7), lighter(147g / 148g), larger(5.6inch/4.7inch), larger battery, better processor, a headphone jack (like the jack or not, not having it means you need airpods headset easily another $150 compared to $20-30 I can spend on a wired headset.
And this is 2020 SE which Apple will typically for sell for next three years . Other competitors would have two more upgrades stretching the gap a lot more by 2022 when Apple will sell 2020 SE at the same price.
You can perhaps argue that form factor, processor or battery is actually better in Apple, but any objective reasonable metric Apple SE is not significantly better than similar android phones.
Apple is forced to deal with streaming companies, because they are not a large enough player, with big enough catalogue to dictate terms. Apple needs to license content from the same studios for themselves too, they screw over hulu, Apple TV is going to be screwed right back.
The app store should be free as a complement to hardware sales.
"A complement is a product that you usually buy together with another product. Gas and cars are complements. Computer hardware is a classic complement of computer operating systems. And babysitters are a complement of dinner at fine restaurants. In a small town, when the local five star restaurant has a two-for-one Valentine’s day special, the local babysitters double their rates. (Actually, the nine-year-olds get roped into early service.)
All else being equal, demand for a product increases when the prices of its complements decrease."
But by selling apps, and driving the prices of these apps low or zero, the sales of iphones goes up.
price of jelly goes to zero, sales of peanut butter go up.
prices of software goes to zero, sales of hardware goes up.
when microsoft created the PC market it took the opposite approach -- commoditize pc hardware, drive the price as low as possible -- and OS sales will go up. It worked too.;
Per page 19 of Apple's FY 2019 annual report [0], the net sales for the 'Services' category (consisting of the following) was $46.291 billion.
> Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare, licensing and other services. Services net sales also include amortization of the deferred value of Maps, Siri and free iCloud services, which are bundled in the sales price of certain products.
Undoubtedly, the App Store makes up a large chunk of that $46.291 billion, but not all of it. We don't know how much money Apple actually makes off of the App Store. For all we know, Apple attributes 50% of the iPhone's profit margin to "Maps, Siri, and free iCloud services" which would dramatically skew the numbers. Services also includes digital media, AppleCare, and licensing which are all non-trivial sources of revenue.
I don't really think it's about the number. I try not to think about these kinds of things in terms of what different companies "deserve." Apple can get away with demanding a 30% cut on their platform and they do so without much arm twisting. Nobody has to support macOS or iOS, and both developers and customers can completely ignore their existence. They'll be missing out on a lucrative customer base but that's true of realestate in high-traffic areas as well.
Apple being able to pull off such huge margins in markets where they have competition on every front I think paints a picture of just how ahead they are. The fact that the gap is so big and nobody has been able to step up and close it is mind-boggling to me. You can only blame so much on slick marketing because for 64% gross margins I think other companies would be happy to put up the marketing cash.
Is Nike so far ahead of every other shoe manufacturer? What's the margin on a pair of Nikes? How many young kids waste family money on a brand who makes the shoes for a fraction in Southeast Asia. How about Christian Louboutain?
There's also the sunk cost for many people. If you've bought tons of content in the App Store, you'd have to rebuy everything if you switched to another ecosystem. For the same reason, if you own proprietary camera lens for Camera Body A, you are not likely to dump all your photo equipment even if a Camera Body B comes out that is cheaper and better.
Path dependency. We learned this lesson once with the Wintel duopoly. Then with the Web, from about 1994 to 2007, we had broke the shackles. And now, people are happy to enslave themselves again, and vigorously defend their servitude.
Apple makes great hardware and software. They don't need this.
>> Is Nike so far ahead of every other shoe manufacturer?
From personal experience, yes. Easily. It's like comparing a Wal-Mart 'First Act' electric guitar to a Fender Stratocaster, or one of those awful Crosley turntables to a pair of Technics SL-1200s.
I have particularly sensitive feet, and ride a push scooter everywhere so cheap soles will wear quickly. I'll go through 4 pairs of $30 knockoff shoes a year instead of buying a pair of Nikes for $100 and enjoying them for three or more years. I live in Toronto and make my pilgramage to the actual Nike retail outlet in the Eaton's centre once a year to see what's new, try things on, and buy just one pair of shoes between $100-200. As a result, my closet is full of stylish, comfortable shoes that have lasted years and years. :)
YMMV, but honestly the same goes for Apple for me. I'm still using a G5 tower from 2005 with 16GB RAM and 2x1TB SSD's on the daily. I paid a couple grand for that back in the day (with about 4GB RAM originally and a 120GB HDD, I believe)...I don't have a single PC tower or laptop left except a hackintoshed Lenovo that's only a couple years old, despite buying a bunch.
Nike is not 'so far ahead' of every other shoe manufacturer, but, similar to Apple, they are only comparable in any way to similarly-priced manufacturers of their tier - Adidas, Reebok, or Microsoft Surface, Alienware.
The Surface is probably the only portable I've had the pleasure to use that is comparable to the build quality and feel of Apple's manufacturing.
Gucci, for example; is a company that represents true excess for the sake of excess. (What's that Lil' Pump line? 'Spent 10k on my Gucci bed sheets'?)
As an iOS dev for a living, I think the 30% is bullshit. But from what I've read/heard, it's based off something similar to retail margins.
Retailers have physical real estate that is a limited resource. They have to have logistics and shelf stocking. The marginal cost is that is non-trivial compared to maintaining a large database of apps which is almost but not quite zero.
The retail analogy is bogus. Software isn't a physical product these days.
A purse is a purse, do you think some purses are so ahead of the curve that people pay thousands of dollars for one, or do you think they are buying a brand name despite the cost?
Like I get what you’re saying but there’s also lots of luxury designer brands. The competition in that space isn’t about the margin on individual items. Like the market thousand high-end bags, shoes, or even art is a whole other world. Like do you think a Rembrandt is overpriced because paint is only a few cents?
But that’s so different from the smartphone space. Like iPhones were really a status symbol like a decade ago but you can get one now at like every price point and flagship androids aren’t much cheaper. You have threads full of people on HN arguing that Apple is actually the budget pick if you can afford to frontload the cost. I’m typing this on a used iPhone X that cost less than $400.
Like have we all forgotten when Apple released FaceID and then Samsung responded with the lamest front camera picture match thing?
Like yes lock-in is a thing, lifestyle marketing is a thing, brand loyalty is a thing, and momentum is a thing, but that doesn’t explain how Apple is seemingly able to do it so much better than everyone else. Because we could name companies that have all of those but still aren’t Apple.
I agree with the sunk cost - besides, who is the customer and who is the product here?
The customer is supposed to be the one who bought the phone and is using the OS in their best interest. Right?
This whole thing feels all wrong. Both Apple for "gatekeeping OUR customers" and Epic for "Apple's stealing OUR money" (or "Apple is making us pay 30% so we're going to charge you 30% more")
Besides, it's not as if the Apple App Store is full of quality apps. It's full of a lot of garbage. It's so full of garbage that I have a hard time finding anything worth buying - because almost all of it is ad-laden junk that tries to nickle and dime you with in-app purchases. lol.
>Apple is making us pay 30% so we're going to charge you 30% more
You would have to charge $142.86 for something you otherwise could sell for $100 if it wasn't for Apple taking a 30 % cut. So ~43 % more, not 30 % more. Apple sure is milking iOS users for alot of money, without users knowing.
I think that's transparent to a lot of people, because IIRC, charging price $x on your website, and then charging price $x+30% on apple's store is a breach of the app store contract and will get your app removed. Am I wrong though? If I am, sorry. xD
> You just can't mention that fact in your iOS app.
And you don't think that is anti-competitive? Apple is free to promote their own services on their platform that compete with others, require them to pay a 30% tax that their own competing service does, and the only escape hatch they give you is "you can use the web, but you can't tell your users"
Am I taking crazy pills, or do other people think this is absurd.
The first rule of alternative signup models on the App Store is, you don't talk about alternative signup models.
Of course it is absurd. But a lot of people have no idea what this is even all about.
A large part of the internet is screaming "The evil Epic brought this upon themselves, if they don't want to pay 30 %, then don't use iOS!"
Apple increases costs for users, just because they bought an iOS device. Thats definetly not good for consumers.
But what are developers going to do about it? For some developers, over 2/3 of their customers are on a iOS device, so just not using the App Store is not a realistic option. Apple has also made sure that the App Store is the only possible way.
So, it's way to big to ignore, and there is definetly no competition. Clearly something has to happen. I would also love to be able to use a decent browser like Firefox or Chrome on iOS(not the current webkit crap apple forces mozilla and Google to use).
No, they are not. Epic and a lot of others would just go without Apple App Store if they could. They don't need discovery. They are adding value, but that value is for themselves, in form of a 30 % cut. That's not good for consumers or developers.
It’s great for consumers and developers, the security and ease of use of the walked garden is primary reason customers spend 50% more on iOS than than Android, despite Androids six times larger market size.
I don't think the number is around $50B but more likely $15B but you're still right; this is far more than enough to run the App Store. YT makes similar revenue to the App Store but likely spends considerably more OpEx given the nature of the service. But no one really expect YT to be net-loss for Google.
This is especially true as Apple consistently claims that the App Store is an integral, inseparable part from iPhone; so even if Apple loses a significant amount of money from the App Store it should be fine as long as iPhone can make ~$100B profit each year.
Of course, they could invalidate this logic by introducing some form of competing app stores, which would be just nominal in practice, but they didn't choose to do that. I don't know why; no one really can compete with Apple in the iOS ecosystem and this would significantly mitigate their legal risk.
Apple's gross revenue was about $14 billion, not $50 billion. Total app store revenue in 2019 was $61 Billion. Apple received between 15% and 30% of that, depending upon the first year/later years subscription numbers. If we use 22.5%, Apple made $13.7 billion.
Since the 15% subscription model was relatively newer in 2018, let's put the 2018 developer number at 75% of the total, so Apple made about $11.3 billion in 2018.
Also, we should not forget the huge overall R&D spend Apple is making to keep growing the iPhone/iPad market. Apple makes money off sales of course, but it is still a huge investment in the platform and that creates market for developers.
They have also just announced a new platform for Macs that will allow iPhone and iPad apps to run unaltered on the new Macs. Again, big R&D expense from Apple with upside for developers. In general, there have been big R&D expenditures in software SDKs in recent years for developers to get to a write once model so programs can run on all the platforms.
Apple also eats the 2.5% (typical number) credit card transaction costs. In addition, they deal with collecting and paying local sales taxes in every state and in 155 countries.
For the user, they provide a trusted payment processor and software source so they don't have to worry if the software will have embedded malware or if their credit card data will be handled appropriately.
They provide cloud servers for notifications, file storage, all of the software update processing, payment processing, and many other services.
The app store team performs about 100,000 reviews every week. Somewhat automated, but a lot of humans involved too.
After the first year, Apple's cut is 15%, so after all the other expenses of the app store I'd be surprised if they are clearing 10% after that. Whatever the exact number, it is far less than 30%.
The 2019 net prior to R&D and other expenses is probably around $12 to $13 billion best case. Developers made about $47 billion. At any rate, Apple is making money, but we should keep the right numbers in mind when we have these discussions.
Honestly, i've been hearing the criticism "What you put a lot of work into accomplishing should be free" my whole life. There is a full sub-reddit for these things (/r/choosingbeggars).
Ok let’s punish them for making money, how come no one complained when they first came out with this payment scheme? Yes, they covered their fixed costs and then some, are they supposed to lower the price so they barely make a profit? Capitalism doesn’t work like that.
Who are you to tell Apple how to set their prices? Apple is an American company and we have free markets here. Price controls on luxury goods are completely against free market capitalism. If you don't like it, don't buy an iPhone. Good luck finding a better smart phone experience.
Well, I'm a customer and I can bitch and moan about their behavior all I want. How else will they improve if their customers don't have any complaints?
But again, we see the "love it or leave it" attitude. As in, you have no right to criticize the cherished totem that I have invested a huge portion of my self into.
You work for Google and have the nerve to call a diatribe about Apple's profit margins a legitimate complaint? Cool. Well Google should charge less for advertising because they make too much money off ad clicks!
Reviewers? A staff of 10,000 fulltime reviewers paid $200k per year would cost $2 billion.
Sorry, I'm not buying this excuse. OSX/iOS is free for every piece of HW, and it surely has much much larger costs to staff.
A $1250 iPhone had a $450 cost to make, giving Apple a staggering 64% gross margin, and $800 gross profit.
The costs to run the Apple store should be included as a sunk platform cost of the phone just like OSX. The cost to run the store is marginal. The cost to serve up an additional developer app, to review an additional app, and to let someone buy one, is an insignificant fraction.
It should be free like the Web, or some extremely low cost to cover CC processing fees (~3%) and electricity to keep the lights on.
I'm shocked at the number of apologists who think this 30% cut is somehow necessary for poor little Apple, with a hole in the pocket, with living on their spare change. It's egregious and unnecessary, and exists for one reason only: rent-seeking behavior. iPhones are reaching saturation, and Apple can either find ways to raise the price of the phone even more, lower the costs more, or increase service revenues, in order to keep their stock going up.
That's why you see focus on service revenues, because they can't really lower costs much to make the devices, and they can't really increase the price much more.