Entrepreneurs

Apple’s Epic Battle Over the App Store Comes Down to Just One Question

The battle between Apple and Epic finally goes to trial this week, nine months after the iPhone maker pulled Fortnite from the App Store. You’ll remember that move was prompted by Epic’s attempt to add its own in-app payment system for buying virtual goods within Fortnite, a violation of the App Store guidelines.

Epic was prepared for Apple’s move, quickly launching a PR campaign and a lawsuit. Since then, the companies have gone back in forth in hearings and court filings, the latest of which includes some interesting pieces of information about the legal strategies they intend to employ. 

After a day of trial that included opening statements from both sides, as well as testimony from Epic’s CEO, Tim Sweeney, one thing is clear–this fight comes down to one simple question:

What is an iPhone?

The question itself doesn’t seem all that interesting, but in terms of this fight, it makes all of the difference. That’s because depending on what you think of the iPhone, Apple is either a greedy monopolistic corporation that will do anything it can to exclude competitors or, a protector of the user experience by ensuring that malware or other privacy-invading software doesn’t end up on the most personal device most people own.

To be clear, that isn’t a question you’ll hear directly if you were to listen in to the trial. Instead, you might hear some debate over how to define a market. That’s important in a case where one side alleges that the other has monopoly control over a particular market. You have to start by defining that market.

In this case, Epic says there are two markets: app distribution and in-app payments on an iPhone. Apple, on the other hand, says the relevant market is video games. After all, Fortnite is a video game you can play on the iPhone, among a variety of other devices. If you don’t care for Apple’s rules, you can simply offer Fortnite on any of the other platforms that support it.

You can see why the difference matters. Apple definitely has complete control over app distribution on the iPhone, and it exerts near-total control over how developers collect payments for transactions within those apps. 

On the other hand, no one would argue that Apple has a monopoly position on video games. Not in a world where you can play Fortnite on your PC, a Sony Playstation, an Xbox, an iPhone, or any Android device. 

That leads us back to the question: what is an iPhone? To Apple, the iPhone is a device carried by a billion people who use it to do all sorts of things, like check their email, send messages, take photos, play games, and watch streaming video. All of those experiences are made possible by the App Store–which is an integral part of the iPhone. 

You could even argue that, to Apple, the apps on the iPhone, whether made by Apple or third-party developers, are essentially extensions of the larger experience of using the iPhone. 

The iPhone is also a cash cow. Apple’s revenue from the iPhone, just last quarter, $48 billion, is more than the total annual revenue of Delta Airlines. On its own, the iPhone generates roughly the same amount of revenue as all of Microsoft’s business.

To Epic, the iPhone is a device carried by a billion people representing an enormous opportunity to get people using its software. That’s literally why you make iOS apps. Except, Epic wants to be able to sell virtual goods within Fortnite to all of those potential users directly and wants to offer its own store that other developers can use to sell apps to users. 

It’s not hard to see why. There’s a lot of money to be made. That is, if it can get Apple out of the way. Apple insists on taking its 30 percent cut of those transactions, something Epic isn’t interested in giving up. 

Ultimately, the question is whether the iPhone is simply a computing device, like a Mac, where users should be allowed to do whatever they want with it. Or, is it a complete product, where the software is integral to the user experience, making the hardware incomplete without things like the App Store or payment processing.

For a company like Epic, which court records show did around $4 billion in revenue last year, changing the definition would go a long way towards CEO Tim Sweeney’s plan to take as much of that revenue from Apple as it possibly can.

Ironically, I’m not sure most users think of the iPhone as a computing platform in the same way they might think of their Mac. Most people just want to use their iPhones to take photos and send messages and check their email and scroll through social media. More importantly, they just want it to work. 

The reason I say it’s ironic is that it’s not clear either Apple or Epic are all that interested in what users think about their iPhone. In fact, there’s another question that no one seems to be asking: What is best for our users? Maybe they should.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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