Phil Schiller recounts concerns over App Store fees for external purchases in hearing

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in General Discussion edited February 24

On Monday, while testifying in a court hearing related to the ongoing Apple vs Epic legal battle, Apple executive Phil Schiller recounted his concerns regarding the fees Apple imposes on purchases made outside the App Store.

Man in blue shirt speaking with hands slightly raised, standing in a modern, well-lit building with large windows and a blurred outdoor background.
Phil Schiller revealed that he had concerns over Apple's fees on purchases made through external websites.



During internal meetings at Apple, which dealt with the company's response to an anti-steering injunction, App Store head Phil Schiller said that he was against implementing a fee for purchases made via external websites. Schiller's concerns were only made public on Monday when the Apple executive testified in court.

Schiller explained that he had cautioned against implementing fees for external purchases, saying that they might lead to an antagonistic relationship between Apple and app developers. The testimony was first reported by The Washington Post.

Apple's commission system for in-app purchases has been the subject of multiple antitrust investigations and lawsuits over the years. Most notably, the iPhone maker is part of a high-profile lawsuit with Epic Games, as the latter attempted to implement a feature that allowed consumers to pay for in-game items without using Apple's in-app purchase system.

Epic Games initially claimed that Apple's 30% fees on in-app purchases were exorbitant, and it was alleged in a lawsuit that Apple's exclusive in-app purchase system was a monopoly. Throughout the long legal battle, Epic Games lost at nearly every step, but Apple didn't always win. U.S. District Judge Yvonne Gonzalez Rogers issued a court order that would allow developers to link to outside payment platforms.

After that, Epic Games asked that Apple be held in contempt of court for failing to adhere to the court order. Apple responded by requesting that the anti-steering order be set aside, citing new legal precedents.

Judge Gonzalez Rogers has yet to decide whether Apple will be held in contempt of court for violating the anti-steering order. In his testimony on Monday, Apple executive Phil Schiller recounted that he had "great concerns about the collections of funds from developers," also saying that collecting fees from external purchases would turn Apple into "some kind of a collection agency."

Schiller said that Apple would need "rules around how we handle nonpayment and whether ultimately it means we're going to have to do audits of developers."

"What happens if a developer doesn't pay and what is the process for that?" The Apple executive believed that collecting fees from alternative payment options would have a "detrimental" effect on the relationship between Apple and app developers.

Despite Schiller's apparent concerns, Apple set up a commission system for external purchases in January 2024, where purchases made through alternative means were charged a 27% fee. The decision was made through a pricing committee that included Apple CEO Tim Cook, former CFO Luca Maestri, and Phil Schiller.

According to TechCrunch, Apple considered multiple ways of discouraging external purchases, through link placement restrictions and warnings that would inform users of the potential security risks.

Epic Games founder and CEO Tim Sweeney commented on Schiller's testimony in an X post on Monday. Sweeney seemingly still sees Apple's fee collection system as "an absolute textbook case of malicious compliance," adding that Schiller's concerns were likely overruled by Cook and Maestri.

Apple App Store head Phil Schiller is publicly testifying in the Epic v Apple Contempt of Court hearing, and it's super spicy. An absolute textbook case of malicious compliance, supported by a lengthy paper trail.

And it wasn't explicitly said, but the testimony had the vibe that https://t.co/EWGetceYxP

-- Tim Sweeney (@TimSweeneyEpic)



The case is set to continue with additional hearings on Tuesday and Wednesday. Carson Oliver, an Apple employee who worked under Phil Schiller, is among those scheduled to testify. It remains to be seen whether Judge Gonzalez Rogers will ultimately find Apple in contempt of court for violating the existing anti-steering injunction.



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Comments

  • Reply 1 of 8
    DAalsethdaalseth Posts: 3,294member
    When I first heard about Apple getting a cut from sales outside of the AppStore I thought it was wrong and would come back to bite Apple in the ***. 30% to offset the cost of running the store was fine. But once someone loads the app I never agreed with Apple claiming a cut of sales from other people’s stores. That always struck me as abusive.
    gatorguymdwmuthuk_vanalingamdewmexyzzy01grandact73
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  • Reply 2 of 8
    mattinozmattinoz Posts: 2,640member
    DAalseth said:
    When I first heard about Apple getting a cut from sales outside of the AppStore I thought it was wrong and would come back to bite Apple in the ***. 30% to offset the cost of running the store was fine. But once someone loads the app I never agreed with Apple claiming a cut of sales from other people’s stores. That always struck me as abusive.
    30% was never to run the store it was a platform access fee that included hosting so they had control of a kill switch for badly behaved apps. 

    Game engines do the some thing. It is hardly new to charge for distribution of a company’s IP by third parties 
    ForumPostwatto_cobra
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  • Reply 3 of 8
    davidwdavidw Posts: 2,163member
    DAalseth said:
    When I first heard about Apple getting a cut from sales outside of the AppStore I thought it was wrong and would come back to bite Apple in the ***. 30% to offset the cost of running the store was fine. But once someone loads the app I never agreed with Apple claiming a cut of sales from other people’s stores. That always struck me as abusive.

    The commission (30%) for purchases made outside the Apple App Store, by way of  an app that was free from the Apple App Store, only applies to digital goods purchases that ends up being downloaded into the Apple devices using iOS, iPadOS, tvOS , MacOS or WatchOS. Why should developers get a free ride to profit from Apple IP? The commission do not apply to purchases made through any app where the goods are delivered by other means. If one purchased a physical CD using the Amazon app, no commission. If one purchased the digital downloaded version using the  Amazon app, then Apple charged a commission. Which is why Amazon do not allow the purchase of digital downloaded goods (music, movies, books, software, etc.) using the Amazon App.

    The commission is not just for using the Apple App Store to sell your apps and/or for payment processing. The commission also includes the charge for using Apple IP to profit from. This includes using Apple IP to develop the apps that runs on Apple devices. An Apple Developer account only cost $99 / year (for individual). But Xcode and Swift are free.

    If developers like Sweeney don't want to pay Apple a commission, then he shouldn't be charging Epic game players for the virtual bucks used to buy virtual items that have over a 90% profit margin, when playing games by Epic Games using a free app from the Apple App Store. Problem solve.

    Or Sweeney can email the purchasers of VBucks a code where the purchasers can enter the code in their account to get their VBucks. But Sweeney would rather have the VBucks credited to their purchaser account immediately, using an app on the Apple device the player is using to play the game and that requires using Apple IP.

    Or Sweeney can only sell VBucks (for iOS) on their own website. Which means the game player would need to log on to the internet using a browser to make the purchase. But this reduces impulse and unintentional in-game buying by the game player. And Epic Games have been known to prey on their users (specially kids) with these type of in-game purchases.


     

    edited February 25
    thtdewmeForumPostwatto_cobra
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  • Reply 4 of 8
    DAalsethdaalseth Posts: 3,294member
    davidw said:
    DAalseth said:
    When I first heard about Apple getting a cut from sales outside of the AppStore I thought it was wrong and would come back to bite Apple in the ***. 30% to offset the cost of running the store was fine. But once someone loads the app I never agreed with Apple claiming a cut of sales from other people’s stores. That always struck me as abusive.

    If one purchased the digital downloaded version using the  Amazon app, then Apple charged a commission.

     

    And I always thought that was a very bad idea. If I buy a grocery bag from Target, Target doesn’t get a cut if I use it at Fred Meyers. 
    gatorguy
     1Like 0Dislikes 0Informatives
  • Reply 5 of 8
    blastdoorblastdoor Posts: 3,786member
    Steve Jobs had claimed that Apple would run the App Store at break-even. I don't know if he would have maintained that position over time, given the amount of money that would have left on the table. 

    Another Steve Jobs position was that Apple would not do a dividend or share buy backs. He liked maintaining a cash cushion for security and investing in the business. 

    Maybe both positions were unsustainable, but it would have been interesting to see how SJ would have handled these things, had he lived. 
    ForumPostwatto_cobra
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  • Reply 6 of 8
    davidwdavidw Posts: 2,163member
    DAalseth said:
    davidw said:
    DAalseth said:
    When I first heard about Apple getting a cut from sales outside of the AppStore I thought it was wrong and would come back to bite Apple in the ***. 30% to offset the cost of running the store was fine. But once someone loads the app I never agreed with Apple claiming a cut of sales from other people’s stores. That always struck me as abusive.

    If one purchased the digital downloaded version using the  Amazon app, then Apple charged a commission.

     

    And I always thought that was a very bad idea. If I buy a grocery bag from Target, Target doesn’t get a cut if I use it at Fred Meyers. 

    If you buy a grocery bag from anywhere, you own the bag out right. The seller has no say on where or how you can use it. But IP is different. You never own the IP. You are licensed to use it based on the terms of the license. Target don't own any rights to the grocery bag, after you paid for it.

    When you buy a CD, you can not use the CD or any of the songs on it, like you could with the purchase of a grocery bag.The artists of the songs (or copyright owner) deserves to get paid, if you were to make money using their songs. Commercial use of someone else's IP is not covered under "fair use". But you are allowed to sell that original physical CD, even at a profit, under the First Sale Doctrine in Copyright Laws. But you can never use the IP on it to make a profit, without the permission of its owner.

    If Apple (along with Google, Microsoft, Sony and Nintendo) did not charge a commission for the purchase of Fortnight Bucks (IAP), when playing Fortnight, using a free app on their devices, then how is Apple suppose to recover the cost of hosting Fortnight on their devices?  Fortnight was one of the most downloaded apps from the Apple App Store and Epic made hundreds of millions of dollars selling Fortnight bucks through that free app. The very bad idea was that of Sweeney, when he violated Apple App Store policies and bypassed Apple commission. Policies he had to agreed to before Fortnight was allowed to be a free app in the Apple App Store. This cost him hundreds of millions of dollars (if not over a billion) by now, by getting kicked out of the Apple App Store. (Not to mention the loss from getting kicked out of the Google Play Store, on Android.)



    muthuk_vanalingamForumPostwatto_cobra
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  • Reply 7 of 8
    ihatescreennamesihatescreennames Posts: 2,008member
    Scarletioshub said:
    In a recent court hearing, Apple executive Phil Schiller testified that he initially opposed the company's decision to impose a 27% commission on in-app purchases made through external payment systems. Schiller expressed concerns that such fees might violate a court order aimed at promoting competition and could strain relationships with developers. Despite his reservations, the commission was implemented in January 2024 with the support of CEO Tim Cook and CFO Luca Maestri. This development is part of the ongoing legal dispute between Apple and Epic Games over App Store policies. 
    Is that an AI generated summary of this article? Why bother?
    watto_cobra
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