Thanks to the Supreme Court, Apple now has a major problem with its attempt to invent itself as a service-selling company.
The court on Monday states that an antitrust case against the iPhone manufacturer that involves the commissions it takes on apps sold through the app store can continue, and rejects Apple's efforts to reject the case. The hearing increases the likelihood that Apple will lose the long-term case or eventually be forced to settle on unfavorable terms. In both cases, the Supreme Court's decision makes Apple more likely to ultimately reduce App Store fees.
Unfortunately for Apple, the App Store is an anchor of the service company that CEO Tim Cook is focusing on the company's future.
As Apple's iPhone sales have begun to decline, it has been exploiting its services as the driver of its future growth. These services include the iCloud storage service, the agreement with Google that makes technology giants search engine by default on the iPhone and Apple Music. And in March, the company presented a number of new offers, including a new streaming video service and a subscription-based game.
Court's ruling challenges Apple's App Store cash
Despite this growing directory of services, Apple's App Store remains the bulk of its service business, accounting for about one-third of corporate revenue, Wall Street analysts say. In addition, Apple's App Store alone will account for 1
But the Supreme Court's decision puts the cash cow at risk of being slaughtered.
The issue is about how consumers get apps on their iPhones and the fees Apple pays for sales through the App Store. Apple has designed the iPhone so it's basically the only way to get apps to go through the App Store. The company charges 30% commission on most app sales; For subscription applications, Apple takes 15% cuts after the first year.
The plaintiffs in the case claim that the commissions are higher than they would be in a competitive market. They say that they and other consumers have overpaid for their apps as a result, because these fees are being transferred to them in the form of inflated prices.
The case is not the only threat to Apple's App Store fees
The court's decision was narrow. The judges did not decide whether Apple had a monopoly, whether it was abusing it, or what the punishment would be to do so; Instead, they simply drove consumers had the right to sue Apple and their case could continue.
But this decision is a major setback for Apple, because it increases the likelihood that the case will actually go to trial. And it's not hard to see how it can be a big problem for Apple.
It should not be too difficult for the plaintiffs to show that Apple has a monopoly on the distribution of iPhone apps. Nor should it be too difficult for them to show that the fees Apple is paying make these apps pricier than they would otherwise be. Look no further than Spotify, which charges $ 3 to customers who have signed up for their service through Apple's app store than those who subscribed to the site. Spotify has said it did so to cover the cost of Apple's fees. And Spotify is not the only company the plaintiffs can point out that had similar pricing practices.
In other words, there is a good chance that Apple will lose the case on its benefits.
But even if it doesn't, the company's app will already incur heavy taxes. Spotify filed a complaint against Apple with the EU competition authorities, which made similar charges. Meanwhile, and a growing number of app developers have decided to exclude Apple's fees entirely by leading customers to sign up for subscriptions through their own websites.
Read this: Apple's App Store fees come under increased pressure from Spotify, Netflix and regulators. Cutting them can reduce earnings by 10% next year.
All this may mean that Apple will significantly reduce its app store fees sooner or later. Such a move would reduce revenues and profits. Worse, though, it would probably be a service story.