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Undigital.tech Newsletter: Apple Isn't Fooling Anyone
A version of this column was published at Inc.com on Saturday, August 28, 2021.
Late Thursday, Apple announced that it had settled a class-action lawsuit with developers over App Store Guidelines. The headline was dramatic: "Apple, US developers agree to App Store updates that will support businesses and maintain a great experience for users." As I'll explain, I think that's debatable.
First, Apple has been fighting this lawsuit, known as Cameron versus Apple, Inc., since 2019. The developers--David Cameron and Pure Sweat Basketball--alleged that Apple violated antitrust law because of its monopoly control over the iOS app market. As a result, Apple has been charging unfair commissions since developers have no alternatives.
Apple and the App Store
Apple's control over iOS app distribution has come under fierce scrutiny in the last few years. The company is involved in a high-profile case against Fortnite maker, Epic Games, which is seeking to force Apple to allow both third-party payment systems within the iOS App Store, as well as allowing users to install third-party apps stores.
The company is also facing regulatory pressure, including laws in the U.S. and other countries that seek to force many of the same changes. While this lawsuit involved mostly smaller developers, the same judge that is overseeing the case with Epic will have to approve this settlement. We'll get to why that's important in a minute.
Nothing That Matters Is Changing
First, however, if you read the press release from Apple, you might think that the company is finally serious about listening to developer concerns and changing its stance on the App Store. The release touts that Apple is giving $100 million to developers, paid out based on their total earnings on the App Store. Oh, and instead of only being able to price apps at an amount ending in .99, developers will have more options to set prices.
You might even think Apple has finally made substantial changes to the App Store rules that would make it easier for developers to use third-party payment systems--arguably the reason for the lawsuit in the first place. Except, that's not really the case.
Instead, what Apple did was change the App Store guidelines to no longer prohibit developers from telling customers about third-party payment options. Well, it won't prohibit them from telling customers about it via email. It still won't allow developers to mention anything about any kind of alternative payment within their app.
According to the proposed settlement, the parties agree that "by informing customers of alternative payment options, developers can avoid paying Apple's commissions and, moreover, exert competitive pressure on Apple to discipline its pricing." That's quite a leap.
Just to be clear, this change means a developer has to acquire a customer through the App Store, collect their contact information within the app, gain consent to contact them for promotional purposes by email, only to then finally be able to let them know there are other payment options available. For the app they already presumably purchased.
Never mind that the real issue has always been Apple's prohibition against telling customers within the actual app. That's the reason that if you download the Netflix app for the first time, it has no information at all about how to actually sign up for Netflix. In order to avoid Apple's 30 percent commission, Netflix won't allow you to sign up with the app, you have to visit the company's website, but it is still prohibited from telling you that.
As a result, the user pays the price of a terrible experience. Nothing about that has changed. That's why this settlement doesn't really settle anything.
Apple Wants to Look Reasonable
Of course, I'm sure there's motivation on Apple's part to propose this settlement, considering that the same judge is expected to soon issue a decision in its case with Epic. The company has far more at stake in that case considering a decision to require third-party payment systems or third-party app stores could be devastating to Apple's services business. There are legitimate concerns that the latter could be a real security issue as well.
Here, Apple gets to look reasonable and show that it's willing to change--just not too much, and not where it really matters. The settlement goes to great length to explain the vigorous and hard-fought negotiations that went into its proposed result. While that's mostly pro forma, it does make the whole thing a bit laughable.
Sure, the named plaintiff in the case, which the filing says has made less than $150 for his app, walks away with $5,000 for his trouble. That's a great deal for him. And, of course, the lawyers think it's a good deal. They walk away with as much as $30 million for their trouble, according to the proposal. For context, that's 120,000 times the amount that the majority of developers are eligible to receive under the settlement.
Considering the vast majority of developers, according to the settlement proposal, have never made more than $1000 from the App Store, a small settlement payment might make them happy. However, it changes almost nothing about their relationship with Apple, or the control it exerts over their business. In fact, as far as I can tell, this settlement really doesn't settle anything.
Apple and Google: The Price of Your Privacy
Of course, there's another, unrelated but also very interesting piece of Apple's problem--privacy. More specifically, the price of your privacy. Here's what I mean:
One of the most interesting relationships in the tech industry is that between Apple and Google. The two companies represent the dominant mobile platforms, iOS and Android, and--as such--are fierce rivals. At least that's what you would think. Steve Jobs, after all, famously told his biographer, Walter Isaacson, that he wanted to "destroy Android because it's a stolen product."
They also have very different philosophies when it comes to user data--with Apple preaching that it believes "privacy is a fundamental human right." Google, by nature of the fact that it is the world's largest advertising platform, is also one of its largest collectors of user data.
As a result, there's always been something that didn't quite make sense. Apple makes a lot of money from Google in exchange for making the search giant the default option on the iPhone. For a couple of rivals, that's quite the partnership.
In fact, it has been estimated in the past that Google pays Apple more than $10 billion a year for the privilege. It makes sense that Google would want to fiercely protect its position on the world's most important mobile browser, Safari. The company also knows what every tech company does, that almost no one ever changes the default option for anything.
I suppose you could argue that most iPhone users are going to use Google anyway, so I guess it makes sense for Apple to get a kickback. Considering that it's literally free money for Apple--there is zero opportunity cost for making Google the default search engine--it makes sense from a business perspective.
Now, however, a research note says that payment is expected to increase to $15 billion in 2021. It also expects the amount to rise in 2022 to as much as $18 billion. While Apple doesn't break out its various sources of services revenue, most analysts believe the Google deal is the most profitable piece of the company's services pie.
In the 10 years that Tim Cook has been CEO of Apple, he has made it the most valuable, and most profitable company, ever. The company's shift to services has played an outsize role in that growth, especially over the past few years as iPhone growth had slowed. During that same time, services revenue has exploded.
In fact, the company reported an all-time high for services revenue last quarter. Having Google chip in $5 billion or so extra this year probably doesn't hurt.
Except, it does hurt. While it certainly helps the bottom line, it definitely hurts Apple's credibility. You see, in addition to making ridiculous amounts of money building products like the iPhone, the Mac, AirPods, distributing apps in the App Store, and selling subscription services, Tim Cook's Apple has repeatedly preached its undying commitment to user privacy. The fact that Apple is profiting off of Google search ads seems to be in direct contradiction with that commitment.
That's a problem for Apple, which has gone out of its way to distinguish itself from its competitors in this area. The company doesn't collect user data for the purpose of showing "personalized ads" within its products. It doesn't track what you do across third-party apps and websites.
It has even taken a public stance against efforts to weaken privacy, even when that means refusing to cooperate with the FBI over access to devices belonging to mass shooters. That has strengthened the perception that Apple stands for privacy, and its actions have mostly backed that up. As a result, the company has largely evaded the scrutiny over data protection that
It's actually the reason the company faces so much pushback over its plan to detect child sexual abuse material in iCloudPhotos using an on-device hash-matching technology. For a company that hangs up billboards that say "what happens on iPhone stays on iPhone, the idea that the company is "scanning" your photos and reporting on what it finds, defies that promise.
At least, in that case, Apple can argue that it's doing the best it can to balance privacy while trying to accomplish a noble goal--reducing the spread of truly terrible content. With the Google deal, there's no such argument. There's no noble goal. There's only the fact that Apple is funneling users directly to Google, which is then able to monetize their searches, in exchange for free money.
As a company, the things you're willing to say 'no' to, often say a lot about what you really believe. If you believe that something is bad for your users, you should say no. If something goes against your values--especially the ones you've used to build your brand--you should say no.
I think we can all agree that $15 billion is a lot of money. Apple is absolutely in the business of making money, and it's very, very good at it. I'm just not sure anyone thought the company was willing to put a price tag on privacy.