Apple (NASDAQ: AAPL) this week kicked off its annual Worldwide Developer Conference (WWDC), which featured a slew of announcements about the direction of its software platforms, as well as the unveiling of a new professional desktop. To celebrate the developer bonanza, two developers have filed suit against the Cupertino tech giant, alleging anticompetitive behavior over its App Store practices, which have come under increased scrutiny in recent months.
The Mac maker's antitrust problems aren't going away anytime soon.
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The App Store is allegedly a monopoly
In the complaint, which is seeking class action status, the developers allege that Apple's App Store represents a monopoly, since it is the only way to distribute apps to consumers (excluding enterprise certificates that permit apps to be sideloaded under certain conditions, bypassing the standard App Store approval process). The news comes just weeks after the U.S. Supreme Court ruled that a similar but separate case filed by consumers can move forward.
At issue is Apple's long-standing 30% cut, known as the "Apple tax" even though many digital platforms take a comparable commission on digital sales. That results in artificially high prices, as developers often end up passing along the costs to consumers, according to the suit. The developers allege that Apple simply created a monopoly by controlling all distribution, and there is no other competing alternative for iOS app distribution:
The suit argues that Apple should allow alternative app stores on its platform, which would promote competition that could yield lower fees and consumer prices.
This problem is unique to iOS
While many platforms take 30% commissions, iOS is unique in that Apple's App Store is the only way to download and install content for an average consumer. Most other platforms, including Apple's macOS, allow users to purchase, download, and install apps from many sources. Rival mobile platform Android has numerous alternative app stores beyond the official Google Play store, and sideloading Android apps is fairly easy.
The developers point to Epic Games, which developed the global hit Fortnite and recently launched the Epic Games Store that competes with dominant PC game distribution platform Steam. Epic will take just 12% of sales, undercutting Steam's 30%. Game developers hope that competition will result in lower fees for the industry.
"That a newcomer like Epic can run a store profitably with a 12% fee demonstrates how supra-competitive Apple's 30% developer fee truly is," the plaintiffs write. Furthermore, the tech titan could likely still earn a "healthy profit" by taking less than 12%, given the sheer size of its platform and App Store, according to the suit.
App competition exists, but app distribution competition does not
The suit underscores why Apple's recent defense of the App Store was misplaced. Apple last week pointed to ongoing rivalry with third-party developers across numerous app categories as evidence that competition is alive and well. But the existence of competition was never in question.
One of the developers that filed the suit offers an app for baby naming, while the other makes an app for basketball workouts. Apple offers no such competing apps. It's the App Store model of being the exclusive distribution channel that is attracting criticism. There may be competition within app categories, but there is no competition for iOS app distribution, and we may all be paying for it.
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Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.