Ten years ago, Apple CEO Phil Schiller suggested lowering the commission on app purchases in the App Store. He wrote that in an internal email that came out during the process between Fortnite maker Epic Games and Apple.
Apple CEO Phil Schiller already proposed an adjustment of the controversial revenue model of the App Store in the summer of 2011 , according to the internal emails that became public on Monday during the first day of the lawsuit between Epic Games and Apple. Fortnite maker Epic accuses Apple of abuse of power because the iPhone maker charges a 30 percent commission on app purchases and requires its own payment system for in-app purchases.
Schiller suggested lower app commissions in the emails. He asked fellow CEO Eddy Cue: “Do we think our 70/30 split will last forever”. Schiller did not think the division would remain “forever unchanged.” He suggested a reduction of the commission to 25 or 20 percent.
‘Attack on Safe System’
On Monday, a process began in the US that will likely take weeks. Epic accuses Apple of abusing its position of power by demanding that apps use Apple’s payment system and hand over 30 percent of the proceeds. That 30 percent applies to app subscriptions in the first year, while Apple charges 15 percent from the second year. The process brings the earnings model of large tech companies such as Apple and Google into question.
Apple calls Epic’s lawsuit an “attack” on a secure system. Epic CEO Tim Sweeny disagrees. Sweeny argued that with iOS and the App Store, Apple owns a “vital platform” on which companies like Epic are very dependent. Epic generated sales of 5.1 billion dollars (4.2 billion euros) in 2020.
Recent documents released before the lawsuit showed that iOS is far from the main platform for Epic. In the two years that Fortnite was on the App Store, Epic made about 700 million dollars (577 million euros) on the iOS version of the game, about 7 percent of the total revenue from Fortnite. The PlayStation 4 version accounted for 46.8 percent of all Fortnite sales between March 2018 and July 2020.
The fact that Apple mainly uses its strong position to make substantial profits should not be possible, according to Sweeney. According to an expert hired by Epic, Apple has a profit margin of more than 80 percent in the App Store. According to Sensor Tower, the App Store generated $ 22 billion in revenue from commissions last year.
Epic and Apple have been in a fierce battle since last year , after Epic unilaterally decided to include its own payment system in its iPhone app. Apple prohibits that in its terms and conditions and therefore removed Epic’s apps from the App Store. As a result, a billion iPhone and iPad users cannot access Fortnite.
Epic has deliberately broken Apple’s rules, CEO Sweeney admitted to the judge. “I wanted the world to see Apple exercise total control over all iOS software. Apple uses that control to deny users access to apps,” said the Epic executive.
In 2016, Apple lowered the app subscription commission to 15 percent from the second year of the subscription. Also, late last year, Apple introduced a program to cut commissions from 30 to 15 percent for app makers who had earned $ 1 million or less in the previous year.
Epic has also filed complaints against Apple in the European Union , Great Britain and Australia. Epic also supports Spotify’s complaints, which led to an investigation by the European Commission. Last week, he ruled that Apple may be guilty of abuse of power with its App Store. The case is being further investigated.
According to some experts, Epic is looking to set a precedent for a possible positive statement. Many other digital software stores also often have a commission of 30 percent. If the court decides that Apple cannot charge such margins in the App Store, this could also have consequences for, for example, the PlayStation Store and the Xbox Store, stores in which Epic loses many times more money to operators Sony and Microsoft.