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(Bloomberg) – Apple Inc.’s top executive in charge of the App Store launched the idea of ​​cutting costs ten years ago when the store hit $ 1 billion in profitability, evidence presented by Epic Games Inc. during its trial with the iPhone maker.
Phil Schiller, who runs the App Store and was previously Apple’s marketing manager, asked Eddy Cue, the service manager in 2011, if “we think our 70/30 split will last forever?†The question refers to the 30% discount Apple is taking from developers for paid app downloads, in-app purchases, and subscriptions purchased on store apps. In a July 2011 email, Schiller said he was a “strong supporter” of the fees, but didn’t think they would remain “the same forever.”
The 30% fee and in-app purchase rules are two of the central issues in Epic’s lawsuit against Apple, alleging that the iPhone maker’s actions are anti-competitive and unfairly deprive Epic of revenue. The fight erupted in August when Epic added its own payment system to the popular Fortnite game for in-app purchases, bypassing Apple’s system and, therefore, its fees. Apple then removed the gaming app, cutting off access to more than a billion iPhone and iPad customers.
Schiller, in the email, suggested that if Apple were to ever change its fee structure, it should do so from a strong position. “One thought,†he said, would be to adjust the fees once the App Store hits $ 1 billion a year in profit. He suggested a 25% or 20% fee if that would generate another $ 1 billion in annual profit.
“I know this is controversial, I’m just presenting it as another way of looking at the size of the company, what we want to achieve and how we stay competitive,” Schiller wrote in the email featured on Monday at the test.
Apple, responding to the email, said Schiller did not indicate in 2011 whether the App Store made a profit of $ 1 billion and that there is no indication that the fee structure is tied to profits. generated by the App Store.
Apple changed its App Store fees in 2016, reducing its commission from 30% to 15% for the second year of users who subscribe to a service. Late last year, Apple launched a program to cut fees by 30% to 15% for developers who made $ 1 million or less in the previous calendar year. Still, the 30% level remains in some cases, including for developers like Epic who make over $ 1 million a year.
The App Store is considered profitable at a rate well over $ 1 billion per year. An expert witness from Epic calculated that Apple’s profit margin was around 80% for the App Store. Analyst Sensor Tower estimates that the App Store generated $ 22 billion in commissions last year for Apple before its profit margin.
The case is Epic Games Inc. v. Apple Inc., 20-cv-05640, US District Court, Northern District of California (Oakland).
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