On Friday, May 22, Apple CEO Tim Cook testified for the first time in the Epic Games v. Apple monopoly trial. Cook was sharply questioned by the trial judge during the trial, but he avoided many key issues.
Questioned by Apple lawyers on the day of the trial, Cook said Apple’s mission is “to make the best products in the world that truly enrich people’s lives” and noted that Apple invests tens of billions of dollars in research, privacy and security. He added, “We care deeply about our users.”
Presiding Judge Yvonne Gonzalez Rogers asked Cook about the app store’s business model and Apple’s relationship with developers, many of which were quite pointed.
But Cook deliberately avoided many of the key questions and did not give clear answers to the judge’s questions. Friday was the first time Cook testified in the Epic Games v. Apple monopoly trial. The three-week trial is set to end next Monday, but Judge Rogers warned that it could take her weeks or months to reach a decision. After that, she added, the dispute could be appealed.
Taking 30 percent commission for granted?
Judge Rogers asked Cook, “You say you want to give users control, so what’s wrong with giving them a cheaper choice of content (especially when it comes to games)?” Cook countered that users can choose between an iPhone or countless Android devices.
Rogers then asked if there was a problem with app developers bypassing the 30 percent commission Apple charges to provide information to users through a web browser to get the same in-app purchases. She proposed a compromise that would allow companies like Epic Games to link apps to the web browser for transactions, rather than forcing users to use Apple’s in-app purchase mechanism.
Cook said Apple needs to get a return on its investment in intellectual property, which is why Apple charges a 30 percent commission on apps and in-app purchases. If we allow developers to bypass the rules, that means we’re abandoning our monetization efforts,” he explained. We need to get a return on our investment in intellectual property. We have 150,000 APIs to create and maintain, and countless developer tools to provide.”
Judge Rogers didn’t seem satisfied with that answer. She said Apple could get a return in other ways, noting that the gaming industry seems to be “subsidizing” other apps on the app store. She said, “The game industry seems to be generating a disproportionate amount of revenue relative to the intellectual property you provide. In fact, it’s almost as if they’re subsidizing everyone else.”
Cook responded by saying that games are traded on the platform, so game developers should pay Apple a commission. When Rogers responded that “people do a lot of things on the Apple platform,” Cook said, “there are obviously other ways to make money, but we’ve chosen this way because we think it’s the better way.” Rogers countered, “It’s also quite profitable.”
Rogers said she had seen a survey showing that 39 percent of Apple developers were dissatisfied with the app store. He said, “It doesn’t seem to me that you feel any pressure or competition to really change the way you move to address developers’ concerns.” Cook disagreed, saying that Apple had “disrupted the environment that developers were in. But he noted that there is friction because Apple refuses to accept 40 percent of apps.
Rogers asked Cook if he agreed with the statement that “competition is good. Cook responded that Apple faces fierce competition for developers and users. But Rogers argued, “You have no competition in those in-app purchases.” Cook disagreed with that statement, saying Apple’s competitors are game consoles like Xbox or Switch.
Rogers said this would only happen if consumers were aware of these platforms, while Cook countered that it depends on communication between developers. He said, “I see it differently than you do. We create all the commerce on the app store, we do that by focusing on attracting the largest audience there, and we do that with a lot of free apps, so those apps bring a lot of benefits.”
Rogers also questioned Apple’s Small Business Program, which cuts app store commissions for small developers in half, which Apple says stems from concerns about the impact of the epidemic on small businesses. But Rogers said, “This appears to be the result of pressure from investigations and litigation.”
Smartphone business faces stiff competition
Before Cook was questioned by Judge Rogers, he testified on Friday that Apple also faces stiff competition in the smartphone segment. In the United States, the iPhone has a market share of only 30 percent. Internationally, the iPhone’s market share is about 15 percent. The figures Cook cited were a rare example of Apple discussing the market share of its most important product, the iPhone, in an attempt to show that Apple does not dominate the smartphone market. He said, “There’s a whole bunch of different phone competitors and the competition is fierce.”
However, the Apple phone market share figures given by Cook are clearly lower than many outside estimates. A recent report by Counterpoint Research, for example, put the share between 40 and 65 percent, based on quarters since 2019.
Apple contends that its control over the App Store is critical to the security and privacy the company promises users and key to its ability to gain a foothold from the highly competitive smartphone market. The App Store is the only way for consumers to install software on their iPhones.
Cook testified that if Epic Games prevails, “we will no longer be able to make the privacy and security promises at stake.” Cook also said that without Apple’s rules and policies, the app store would be a “toxic mess. But Epic Games argued that security is just an excuse for Apple to charge high fees and control the behavior of software makers, and that Apple can safely open its platform to rival app stores.
Cook mentioned Samsung, Vivo, OPPO, Huawei and Google as its mobile rivals, all of which use some version of Google’s Android system. Apple also faces competition from other app stores, he said, including Google Play and gaming consoles such as the Microsoft Xbox and Sony PlayStation.
When questioned by Epic Games lawyers, Cook declined to answer questions about whether Apple’s iPhone competes with Google’s Android in the operating system market. “Customers don’t buy operating systems, they only buy devices,” he said. Cook said Apple uses surveys to track whether iPhone users switch to Android devices. “Working to get Android users to switch to iPhone is a very important task for us,” he said.
Cook said Friday that Epic Games’ move last year to bypass the 30 percent commission Apple charged for in-app purchases on its popular video game “Fortnite” was “malicious. Apple subsequently took the app down from the app store.
Dodging app store profits and Google licensing issues
Much of Cook’s testimony Friday centered on an internal Apple document that was not made public. The document described profitability trends for various Apple divisions, including the app store, which Epic Games’ lawyers said showed the Apple app store was very profitable, trying to support its argument that Apple was using its control to boost its own profits.
Cook said the document did not include all the money Apple spends on the app store and that it was a “benchmark” test. An accountant previously hired by Epic Games testified that Apple’s operating margin for 2019 was 77.8 percent.
Cook refuted that the figure was wrong. He said the app store did turn a profit, but Apple did not attempt to determine the level of profitability, in part because it needed to incorporate Apple’s cost structure, which is difficult to do.Epic Games lawyers disputed the claim and showed Cook internal Apple documents that showed the company could calculate the profitability of the app store. Cook countered that the data shown in those documents was incomplete.
Epic Games’ lawyers also asked Cook about Apple’s agreement with Google, which will become the default search engine for Apple’s browser. A Wall Street study estimated that the deal would generate $10 billion in annual revenue. Cook said he did not remember how much Google paid.
Asked by Epic Games lawyers if Apple received more than $100 million in commissions from “Fortnite” sales, Cook said Apple is focused on doing what’s best for its users, not getting any financial benefit. He said, “Users are stuck between two companies, but it’s not about the money.”
Cook was also questioned by Apple lawyers about iMessage, the messaging program built into Apple’s iPhone that is unique to Apple products. Cook said he doesn’t think the lack of iMessage on Android will stop iPhone users from switching to competitors. Cook was unconcerned about concerns that people might miss text messages if they switch from an iPhone to an Android device, saying, “You can easily turn off your iMessage.”
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