Tim Cook faces harsh questions about the App Store from judge in Fortnite trial


Apple called CEO Tim Cook to conclude three weeks of testimony in Epic v. Apple and with the end of the trial approaching, Judge Yvonne Gonzalez Rogers engaged Cook in a surprisingly tense exchange over Apples business model.

Rogers noted that most of Apples App Store revenue comes from games, and she asked Cook why developers cant use other payment methods to sell in-app purchases, or at least tell users they can make those transactions elsewhere. If they wanted to go and get a cheaper Battle Pass or V-Bucks, and they dont know theyve got that option, what is the problem with Apple giving them that option? she asked.

If we allowed people to link out like that, we would in essence give up our total return on our [intellectual property], Cook said bluntly. Apple has talked repeatedly about the work it puts into maintaining the App Store and the iOS platform, and its accused companies like Epic of wanting a free ride.

Rogers made the opposite case. The gaming industry seems to be generating a disproportionate amount of money relative to the IP that you are giving them and everybody else. In a sense, its almost as if theyre subsidizing everybody else, she said.

Cook countered that Apples many free apps attracted a larger audience than developers could get on their own. We need a return on our IP. We have 150,000 APIs that we create and maintain, and numerous developer tools, and the customer service piece of dealing with all these transactions, he said.

But Rogers didnt sound convinced. She asked why Apple wouldnt take a cut of something like a banking app transaction: You dont charge Wells Fargo, right? Or Bank of America? But youre charging the gamers to subsidize Wells Fargo. When Cook said it was because Apple specifically charged for digital goods sales, Rogers noted that Apple itself had defined that rule saying it was a deliberate choice of business model.

I understand this notion that somehow Apples bringing the customers to the users. But after that first time, after that first interaction, the [developers] are keeping the customer with the games. Apples just profiting off that, it seems to me, Rogers said.

She also said it didnt sound like Apples recent App Store price drops were motivated by competition just fear of regulation and lawsuits. The issue with the $1 million Small Business Program, at least from what Ive seen thus far: that really wasnt the result of competition. That seemed to be a result of the pressure that youre feeling from investigations, from lawsuits, not competition, said Rogers.

Cook replied that after Apple had lowered some commissions to 15 percent, Google did the same, indicating that there was competition, but the judge was dismissive of this argument. I understand perhaps that [was the issue] when Google changed its price, but your action wasnt the result of competition, she said.

The heart of the issue, for Rogers, seems to be a survey that indicates 39 percent of developers were somewhat or very dissatisfied with Apples distribution services. How is that acceptable, and how is it assuming those numbers are true how is it that youre feeling any motivation and incentive to address their needs? she asked Cook.

Cook said that sometimes, developers and users needs conflict and Cook emphasized in his earlier testimony that Apple puts users first. But he acknowledged that he didnt regularly get surveys on developer satisfaction.

We wont know the verdict of Epic v. Apple for weeks or months, and theres one day of arguments left in court. The exchange with Cook doesnt necessarily tell us how Rogers will eventually rule, and it certainly doesnt mean Epic will get some of its bigger demands met. It does suggest, however, that Rogers is seriously considering Epics argument that Apple has too much control over one specific part of iOS.

You can find the full exchange between Rogers and Cook below.

Judge Yvonne Gonzalez Rogers: At the beginning of your testimony, you indicated that you wanted to focus on users. Ive seen evidence that a significant portion of revenue from in-app purchases comes from gamers. Have you seen evidence to that effect?

Apple CEO Tim Cook: I have, your honor.

Rogers: And its incredibly significant compared to all other users, revenue is coming from gamers more than anyone else, am I right in my current understanding?

Cook: The majority of the revenue on the App Store comes from games.

Rogers: And in-app purchases in particular, right?

Cook: Correct.

Rogers: The other thing you said is that you want to give users control.

Cook: Right. For their data.

Rogers: So what is the problem with allowing users to have choice, especially in a gaming context, to have a cheaper option for content?

Cook: I think they have a choice today. They have a choice between many different Android models of smartphone or an iPhone, and that iPhone has a certain set of principles behind it, from safety and security to privacy.

Rogers: But if they wanted to go and get a cheaper Battle Pass or V-Bucks, and they dont know theyve got that option, what is the problem with Apple giving them that option? Or at least the information that they can go and have a different option for making purchases?

Cook: If we allowed people to link out like that, we would in essence give up our total return on our IP.

Rogers: But you could also monetize it a different way, couldnt you? I mean, that is, the gaming industry seems to be generating a disproportionate amount of money relative to the IP that you are giving them and everybody else. In a sense, its almost as if theyre subsidizing everybody else.

Cook: The bulk of the apps on the App Store are free, so youre right that there is some sort of subsidy there. However, the way I look at that, Your Honor, is that by having such a large number of apps that are free on the store, it increases the traffic to the store dramatically, so the benefit somebody gets is a much higher audience to sell to than they would otherwise if there werent free apps there.

Rogers: So your logic then is that its more of a customer base, not an IP, then?

Cook: Its both, because we need a return on our IP. We have 150,000 APIs that we create and maintain, and numerous developer tools, and the customer service piece of dealing with all these transactions.

Rogers: But let me ask you, so banking apps. I have multiple banking apps, I havent paid for them, but I suspect other than the $99, you dont charge Wells Fargo, right? Or Bank of America? But youre charging the gamers to subsidize Wells Fargo.

Cook: In the gamers example, theyre transacting on our platform.

Rogers: People are doing lots of things on your platform.

Cook: But this is a digital transaction with an observable change in currency.

Rogers: Its just a choice of a model.

Cook: Weve made a choice. There are clearly other ways to monetize, but we chose this one, because we think this one overall is the best way.

Rogers: Well, its quite lucrative. But it seems to be lucrative and focused on purchases that are being made frankly on an impulse basis thats a totally different question, about whether thats a good thing or not, its not really right for antitrust law but it does appear to be disproportionate. I understand this notion that somehow Apples bringing the customers to the users. But after that first time, after that first interaction, the [developers] are keeping the customer with the games. Apples just profiting off that, it seems to me.

Cook: I view it differently than you do, Your Honor. I view that we are creating the entire amount of commerce on the store, and were doing that by focusing on getting the largest audience there. We do that with a lot of free apps, so [even if] we dont collect a commission from them they bring a lot to the table. And then we have the majority of other people that pay 15 percent, and only the people that are really profiting in a major way are paying 30 percent.

Rogers: Yeah, but the 15 percent, right… you would agree with the basic proposition that competition is good?

Cook: I think competition is great. We have fierce competition.

Rogers: You dont have competition in those in-app purchases, though.

Cook: Sure, I mean somebody could go if theyre a gamer they could go buy it on the Sony PlayStation or the Microsoft Xbox or the Nintendo Switch.

Rogers: Only if they know, right?

Cook: Yeah, but thats up to the developer to communicate.

Rogers: And only if they decide to switch in terms of how they do things, right?

Cook: Usually people have both.

Rogers: The issue with the $1 million Small Business Program, at least from what Ive seen thus far: that really wasnt the result of competition. That seemed to be a result of the pressure that youre feeling from investigations, from lawsuits, not competition.

Cook: It was the result of feeling like we should do something from a COVID point of view, and then electing to instead of doing something very temporary, to do something permanent. And of course we had the lawsuits and all the rest of the stuff in the back of our head, but the thing that triggered it was, we were very worried about small business.

Rogers: Okay, but it wasnt competition.

Cook: It was competition after we did our 15, it was competition that made Google drop theirs to 15 percent.

Rogers: I understand perhaps that when Google changed its price, but your action wasnt the result of competition.

Cook: It was the result of feeling like we should do something for small business.

Rogers: So when other stores reduced their price, Steam reduced their price, you felt no pressure to reduce your price.

Cook: Im not familiar with Steam and their financial model. One of the things thats missed here is that theres a huge competition for developers. Its not just competition on the user side, its also with the developer side, in addition to the users. You can imagine that if we had an above-market kind of commission, people just wouldnt develop for us.

Rogers: Lets talk about developers. Im seeing evidence in the record that theres a survey of developers Im going to share the results of this bar graph that was presented to me. I dont know how accurate it is, because I looked for the source document and couldnt find it. But this survey indicated that 39 percent of developers were either very dissatisfied or somewhat dissatisfied with Apples distribution services. 36 percent were somewhat satisfied or very satisfied, and 19 percent didnt go either way, theyre in the middle. So with 39 percent of all your developers dissatisfied, how is that acceptable and how is it assuming those numbers are true how is it that youre feeling any motivation and incentive to address their needs?

Cook: Im not familiar with the document youre referencing, and so its hard to comment on certain specifics. But keep in mind that on a weekly basis, were rejecting 40 percent [of apps sent for review], so theres definitely some friction in the system. But this friction is what produces a curated experience for users, that they love and they can go somewhere and be assured that its safe and trusted. So sometimes the developer and the user, their interests dont intersect.

Rogers: But it doesnt seem to me that you feel under pressure or competition to actually change the manner in which you act to address the concerns of the developers again, if these numbers are right.

Cook: I would look at it in a different way. We turn the place upside down for developers. Look at a complaint that I might get, and look at the amount of time for a change to be made in the company. Its amazing, actually.

Rogers: Weve seen a number of profit and loss statements, and again you see the 100 binders behind me I dont recall seeing any other surveys or any other business records showing that you routinely conduct surveys regarding developer satisfaction and that you in fact move or make changes. I take with a grain of salt each sides anecdotal evidence. What Im looking for are aggregates. Do you do that?

Cook: I dont know if we do that. That would be something that Phil [Schiller] would know.

Rogers: You certainly as the CEO then dont receive regular reports on that.

Cook: Thats correct.



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