OAKLAND, Calif. (CN) --- Apple CEO Tim Cook struggled to defend the App Store business model under intense questioning on Friday by the federal judge overseeing a closely-watched antitrust lawsuit with major implications for how Apple does its business.
U.S. District Judge Yvonne Gonzalez Rogers, who will decide whether Apple’s App Store model violates antitrust law, pressed Cook on his company’s alleged “maniacal focus on the user and doing the right thing by the customer” by prohibiting third-party digital storefronts on the App Store.
“What is the problem with allowing users to have choice, especially in the gaming context to have a cheaper option for content?” the judge asked, noting that evidence shown during the three-week trial revealed that a significant portion of Apple’s App Store revenue comes from gamers who buy digital goods.
“The majority of the revenue in the App Store comes from games,” Cook admitted, but people have a choice between different models of smartphones and people are buying "certain safety and privacy principles” when they choose iPhone.
Fortnite maker Epic Games, Apple’s foe in the case, is challenging that premise, believing Apple locks customers into iPhone and iOS dependence by making it too costly to switch to something else, while charging developers a hefty 30% commission for in-app purchases.
Apple also requires developers to use its in-app payment (IAP) system for all transactions and bars developers from transacting directly with customers within the App Store— strict rules Epic tried to circumvent through a hotfix to the iOS version of Fortnite that allowed users to pay it directly for in-app purchases instead of going through Apple.
The move got Epic booted from the store last August, which is how the parties ended up in court.
Apple contends that its IAP and other requirements provide developers and users with superior privacy and malware protections. Forcing Apple to house third-party stores would create "a toxic kind of mess,” he said.
“If you look at the malware on iOS versus Android versus Windows, it’s literally an off the chart level of difference,” Cook said, pointing out that 1-2% of malware lands on iPhone compared to the 30-40% for its competitors.
Cook also parroted the testimony of other Apple executives and experts witnesses, that users can go outside the App Store to buy VBucks, Fortnite’s in-game currency, for later use in the Fortnite app.
But Gonzalez Rogers wanted to know why Apple wouldn’t at least allow developers to inform users that they can buy cheaper VBucks elsewhere.
“If you allow people to link out like that we'll give up a total return on our IP,” Cook said.
“But you can also monetize it a different way,” Gonzalez Rogers said. “The gaming industry seems to be generating a disproportionate amount of money relative to everyone else. In a sense it seems they are subsiding everybody else.”
“There are clearly other ways to monetize but we chose this one because it’s the best one,” Cook said, adding that game developers get the benefit of Apple’s developer tools and exposure to its large consumer base.
“But it's quite lucrative, and it's focused on purchases that are being made frankly on an impulse basis,” Gonzalez Rogers said. “Now that’s a totally different question — whether that's a good thing not. It’s not ripe for antitrust law. But it does appear to be disproportionate.
“I understand the notion that somehow Apple is bringing customers to the games,” she continued. “But after that first interaction, the developers are keeping the customers with the games and Apple’s just profiting off of that.”