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Apple failed in court with Epic. How serious a blow to business

The Epic Games lawsuit against Apple has been decided — and it could completely change the mobile app market landscape and destroy the AppStore business model.

On Friday, September 10, a U.S. court ruled in the lawsuit brought by computer game developer Epic Games against Apple, and neither side can be called a winner. Apple has not been found to have a monopoly on the mobile games market — but now the tech giant must allow developers to use third-party systems to pay in apps. And this is an unexpected blow to Apple's revenues — although the Cupertino-based company called the court's decision a "big victory."

Epic Games got permission to add links to pay for in-app purchases on third-party sites and services, but that's clearly not enough for the game developer. CEO Tim Sweeney said after the trial, "Today's decision is not a victory for developers or consumers. Epic is fighting for fair competition between in-app payment methods and between app stores for a billion consumers." Apparently, it's too early to draw the line at this point.

This is an important cause for the future of the industry and investors: its outcome could change the mobile app market. Let's look at what this means for game makers, the AppStore business model, the future of the market, and Apple's prospects.

How Apple and Epic Games conflict started

Epic Games is not the only, but one of the major players challenging Apple's control of the iPhone app store. The App Store now has strict rules for developers. For example, they are required to use Apple's payment system in iPhone apps, with a commission of 15% to 30% of each transaction.

The most popular Epic game — Fortnite — earns from the sale of in-game currency, which can be spent on improving the characters. In 2020, the company updated Fortnite and reduced prices by 20% for players who made purchases directly from the company rather than through Apple. In doing so, the company violated AppStore rules and the app was removed.

Epic anticipated this development and soon filed a pre-prepared lawsuit against Apple. The developer said that the company has an unfair advantage because it defines the rules for the only store from which you can install applications on the iPhone.

Epic also launched a special event on Fortnite and spoofed the iconic Mac commercial "1984," mocking the power of Apple.

Court ruling: "Success is not a crime."

iOS app developers should now be allowed to offer payment methods other than Apple. The court ruling is due to take effect in 90 days, on December 9. However, it can still be appealed.

In a separate ruling, the court concluded that Epic Games knowingly breached its contract with Apple when it implemented an alternative payment system in the Fortnite app. Because of this, Epic will have to pay Apple 30% of the revenue generated through the system since it was implemented. The total amount will be more than $3.5 million.

A separate part of the trial was devoted to assessing the level of competition in the mobile games market. The segment generates about 70% of AppStore revenue. The judge concluded that iOS and Android are almost a duopoly, but Nintendo Switch and cloud-based gaming services could become competitors in the very near future.

The court estimated that Apple's share of the mobile gaming transaction market is about 55 percent, making it "extremely profitable." However, "these factors alone are not evidence of monopolistic behavior. Success is not a crime," the judge concluded.

Thus, the court's decision leaves room for future antitrust complaints. The judge observed that "Apple is on the verge of monopoly power with its significant market share," but so far it has not reached the critical mark.

How the decision will affect the mobile app market

The company now plans to appeal. The court's decision could have long-term implications for developers, as Apple will have to adjust the rules to introduce new payment methods. For example, the company may require that other payment services be offered only as an option.

For consumers, the introduction of additional payment methods means that the app store could become more complicated. Users would be forced to leave the apps for purchases or better prices. Also, when using external payment systems, customers will lose the ability to manage all subscriptions in one place, potentially making it more difficult to cancel them.

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