Define the market and follow the money.
That was at the heart of Epic Games Inc.’s legal battle on Monday, and most likely most of the week, as it is in an antitrust proceeding against Apple Inc.
in federal court in Oakland, California.
The start of the second week of the closely watched study, which has been the most significant in Silicon Valley for more than a decade, focused on the financial strength of Apple’s App Store. Epic argues that the 30% commission the store charges developers, as well as a strategy that makes it difficult for cloud gaming services to compete on the platform, is anti-competitive behavior.
Epic’s key economist, David Evans, chairman of the Global Economics Group, outlined Apple’s monopoly on smartphone operating systems as the relevant market. Smartphones and consoles are different types of markets, he added. IOS and Android examples of a “general purpose operating system” used for multiple apps, while game consoles are a specific operating system for games.
According to Evans’ statement Monday, most of the top 50 games on iOS are not available on game consoles based on downloads and revenue. Game consoles are not a “replacement” for smartphones – and vice versa. In addition, switching costs for consumers between the two computing platforms is expensive.
“Apple has significant market power” in smartphone operating systems, said Evans. It and Android, he concluded, are a duopoly that has controlled 100% of the smartphone operating system since 2013/14. Worldwide, excluding China, the split is 60% -40% Android; In the US it’s even about that, he said.
“Developers need to be where customers are,” said Evans. “You have to create iOS apps to reach iOS users and an Android app to reach Android users.
Evans’ long planned testimony is to be followed by Susan Athey of Stanford University, Microsoft Corp.
former top economist. (Apple will initially counter with Richard Schmalensee from MIT, who has a different definition of the market in question. He will testify that Apple has a small stake in the “transaction market for digital games.” Ironically, Schmalensee and Evans are joint authors of “Matchmakers” a book on “two-sided markets” in which a company connects two types of customers.
Evans leads a group of Epic economists whose job it is to demonstrate the dominance of the App Store – they claim it is an antitrust monopoly – that catapulted Apple to a staggering $ 2.2 trillion market value , the largest of all US companies. (Privately owned Epic is valued at $ 29 billion.)
Ultimately, the case depends on what federal judge Yvonne Gonzalez Rogers thinks is the relevant market in this case.
Epic’s economic analysis and market definition for the app store and its impact on the larger app economy are central to his legal reasoning. Epic has devoted more hours to Evans than any other witness, and Apple has quoted him many times in its legal documents and comments. Another epic witness, Ned Barnes of Berkeley Research Group, is expected to offer an analysis of the App Store’s earnings, which Apple has strongly objected to.
The Epic Games Store, a digital video game storefront for Microsoft Windows and macOS as an alternative to the App Store, charges a commission of only 12%. Epic predicts the business will generate profits between $ 15 million and $ 36 million by 2024, although it will generate total losses of between $ 654 million and $ 854 million, according to Epic’s internal projections presented in the study , to get there.
The App Store, which opened in 2008 – a year after the iPhone launched – quickly became profitable after receiving $ 2.1 billion in bills in 2010, according to an Apple presentation last week.
However, the study did not reveal the exact profitability of the app store. Apple does not release the business’s financial results, but it is an integral part of the company’s services division, which had sales of $ 57 billion last year.
Apple claims Epic tried for years to circumvent Apple and Google’s in-app payment processing systems under the guise of an internal business plan called Project Liberty
Each of them collects a commission of 30%. According to Apple’s lawyers, Epic has violated its contract with Apple. “Epic wanted to enrich itself only to the exclusion of other developers,” said a legal strategist from Apple to MarketWatch.
Apple could start its case as early as Friday.