Keep an Eye on the Apple v Epic Battle

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Make no mistake about it, the current case being prosecuted in the US courts may well define a big chunk of the digital economy. At the center of the battle are questions (and judgements) that define digital markets, multi-sided platforms, and who has the power. The results from this case could well define our collective strategies. See WSJ: Expert Witnesses Testify in Apple-Epic Trial The case started two weeks ago, and we all knew it was coming. The trigger was a software gaming publisher tried to bypass the licensing fee Apple charges through its Apple Store. Apple charges vendors a fee for them to sell their wares through the Apple Store. This is not new: many vendors comply. But Epic decided to try to bypass the “gate-keeper” fee with their own software changes. That action triggered Apple to kick Epic’s game from the Apple Store. The arguments have piled up: Is the Apple Store a monopoly or does it operate as if a monopoly? Is it really open enough? Is the iPhone a monopoly? Is the fact the Apple Store only operates on the iPhone make the hardware/software a vertically integrated monopoly? Are either or all three exhibiting monopoly like behavior? How free are consumers to chose among cell phone platforms, operating systems or hardware-specific software stores (multi-sided platforms) to access the products and services they seek? What is a platform? What is a market in the digital era? Why this is a delectable argument is because Epic can still reach its customers via other channels and platforms: The PC has several software stores; I happen to use Steam and it offers access to the Epic game in question.  Steam also charges developers for selling their games through Steam.  The point is that the relationship between consumer and developers who trade on these platforms is not totally wide open but actually managed, channeled and charged for through several different kinds of platform. A personal computer is not quite the same platform as the iPhone; The Apple Store is not quite the same as Steam. But the control such intermediates maintain may not benefit buyer and seller equally, or in the same way. Hence the fascinating impacts that may come from this case. The ramifications from this case could extend into many other multi-sided and platform relationships and ecosystems. This might impact Facebook, Amazon, SalesForce AppExchange, and more. In fact, the results might change how innovation progresses if rules limit how buyers and sellers may relate to each other across one or more platforms. In this weekends Economist there is even a more interesting and probably more likely path. See Epic Games v Apple: Battle Royal. The paper argues that antitrust rules will likely favor Apple and wise sages believe Apple will win the case. In other words, the gate-keeper has the right to charge for access and Epic has choices over which gate to work through. But is that really fair? While this might sound logical, winning the immediate battle in court here for Apple might lead to losing the longer-term war. The more Apple defends its platform and gatekeeper status, the larger it becomes. You and I have fewer and fewer options. You cannot choose the apps you want on your iPhone via any other store unless it is from Apple; that is unless you jail-brake the iPhone and invalidate your warranty and even then I am not sure there is a way to buy from a non-Apple-based store platform. Vertical integration and lock-in along value the chain has been broken up before. So, a short-term win might be on the cards for Apple. But the long-term effect might be that we move ever closer to a real case that does disrupt the current dominant market players or regulatory controls ramp up. The other big data spat reporters in the papers this weekend concerned the EU privacy laws possible trapping Facebook. See WSJ Facebook Set Back in Ruling over Data Flows. In my view this is small beer compared to the Apple-Epic epic. But the small beer in this is still huge. Very large companies, and small innovators, all seek the ability to process data where it is most efficient. EU privacy laws are going to limit how firms can move and process data; political goals will again distort efficient market dynamics. The EU is bound to limit such data flows out of its region. This will help it demonstrate why its own EU Data Strategy is a good idea. After all, if EU data has to stay in the EU, any data processors will need large data centers or cloud infrastructure services in the EU. This is what the EU Data Strategy seeks; it is not a model of freedom, market dynamics or open competition. It really does not matter what Facebook claims. I can’t see this ending any other way.

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Make no mistake about it, the current case being prosecuted in the US courts may well define a big chunk of the digital economy. At the center of the battle are questions (and judgements) that define digital markets, multi-sided platforms, and who has the power. The results from this case could well define our collective strategies.

See WSJ: Expert Witnesses Testify in Apple-Epic Trial

The case started two weeks ago, and we all knew it was coming. The trigger was a software gaming publisher tried to bypass the licensing fee Apple charges through its Apple Store. Apple charges vendors a fee for them to sell their wares through the Apple Store. This is not new: many vendors comply. But Epic decided to try to bypass the “gate-keeper” fee with their own software changes. That action triggered Apple to kick Epic’s game from the Apple Store.

The arguments have piled up:

Is the Apple Store a monopoly or does it operate as if a monopoly? Is it really open enough?
Is the iPhone a monopoly?
Is the fact the Apple Store only operates on the iPhone make the hardware/software a vertically integrated monopoly?
Are either or all three exhibiting monopoly like behavior?
How free are consumers to chose among cell phone platforms, operating systems or hardware-specific software stores (multi-sided platforms) to access the products and services they seek?
What is a platform? What is a market in the digital era?

Why this is a delectable argument is because Epic can still reach its customers via other channels and platforms: The PC has several software stores; I happen to use Steam and it offers access to the Epic game in question.  Steam also charges developers for selling their games through Steam.  The point is that the relationship between consumer and developers who trade on these platforms is not totally wide open but actually managed, channeled and charged for through several different kinds of platform. A personal computer is not quite the same platform as the iPhone; The Apple Store is not quite the same as Steam. But the control such intermediates maintain may not benefit buyer and seller equally, or in the same way. Hence the fascinating impacts that may come from this case.

The ramifications from this case could extend into many other multi-sided and platform relationships and ecosystems. This might impact Facebook, Amazon, SalesForce AppExchange, and more. In fact, the results might change how innovation progresses if rules limit how buyers and sellers may relate to each other across one or more platforms.

In this weekends Economist there is even a more interesting and probably more likely path. See Epic Games v Apple: Battle Royal. The paper argues that antitrust rules will likely favor Apple and wise sages believe Apple will win the case. In other words, the gate-keeper has the right to charge for access and Epic has choices over which gate to work through. But is that really fair?

While this might sound logical, winning the immediate battle in court here for Apple might lead to losing the longer-term war. The more Apple defends its platform and gatekeeper status, the larger it becomes. You and I have fewer and fewer options. You cannot choose the apps you want on your iPhone via any other store unless it is from Apple; that is unless you jail-brake the iPhone and invalidate your warranty and even then I am not sure there is a way to buy from a non-Apple-based store platform.

Vertical integration and lock-in along value the chain has been broken up before. So, a short-term win might be on the cards for Apple. But the long-term effect might be that we move ever closer to a real case that does disrupt the current dominant market players or regulatory controls ramp up.

The other big data spat reporters in the papers this weekend concerned the EU privacy laws possible trapping Facebook. See WSJ Facebook Set Back in Ruling over Data Flows. In my view this is small beer compared to the Apple-Epic epic. But the small beer in this is still huge. Very large companies, and small innovators, all seek the ability to process data where it is most efficient. EU privacy laws are going to limit how firms can move and process data; political goals will again distort efficient market dynamics.

The EU is bound to limit such data flows out of its region. This will help it demonstrate why its own EU Data Strategy is a good idea. After all, if EU data has to stay in the EU, any data processors will need large data centers or cloud infrastructure services in the EU. This is what the EU Data Strategy seeks; it is not a model of freedom, market dynamics or open competition. It really does not matter what Facebook claims. I can’t see this ending any other way.

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