Editor’s note: The Skinny is written by WRAL TechWire co-founder and editor Rick Smith.
RESEARCH TRIANGLE PARK – As an investor and as an attorney that has worked with startups for years, David Gardner (Cofounders Capital) and Walter Daniels (Daniels & Daniels law firm) advocate in favor of free enterprise and competition albeit from different perspectives. But they share opinions about the stakes involved in the Epic Games vs. Apple and Google battles over antitrust concerns.
They believe in the markets, competition, and survival of the fittest – not just the companies with the largest financial arsenals.
“With the smartphone market dominated now by just two platforms and having observed corporate nature over many years once it achieves platform dominance, it does feel to me that some government monopoly control might benefit the industry,” says Gardner.
Rick Smith is editor and cofounder of WRAL TechWire
Adds Daniels: “If the courts don’t resolve this problem, Congress should.”
On Monday, the federal judge in Epic’s suit against Apple suggested a public trial to settle the mess over Apple’s ban of Epic from its app store for Epic’s attempt to evade paying Apple’s 30% fee for sales.
Interestingly, Google chose Monday as well to declare it will enforce a 30% fee as well.
Gardner and Daniels joined several other Triangle thought leaders in discussing their concerns about Apple vs. Epic.
“I have mixed feelings about this Rick,” Gardner tells The Skinny. “I’ve used an iPhone since the first month of the release of the iPhone I and I really like the quality control standards that Apple enforces on any app it lets in its app store.
Epic Games vs. Apple: Why this big lawsuit is important to all emerging companies – and us
“On the other hand, I’ve seen firsthand how difficult Apple’s exuberant fees of up to 30% of a company’s gross revenue can cause, especially on early stage and small companies.
“Apple argues that it deserves a third of a developer’s app revenue because it maintains the platform and network the app developers are utilizing and benefiting from. However, Apple does not seem to appreciate the fact that the thousands of apps that developers have developed to run on Apple’s iOS platform have become part of the appeal and value of owning an iOS device.
“Should the chicken charge the egg or the egg charge the chicken?”
Epic Games vs Apple Inc.: Why Apple may win this legal skirmish but lose the war
The bully factor
“It has become a symbiotic relationship but, with the exception of a few companies like Epic, the app developers tend to be small and Apple a mega corporation so it can bully the developers. Apple would be responding very differently if all of the app developers suddenly decided to withdraw their apps from the Apple store.”
Gardner sees strength in numbers for Epic’s case.
David Gardner
“Several app developers have joined with Epic, Spotify and others to form a non-profit whose purpose seems to be to remind Apple of its codependence on the app provider community.”
Gardner points out the Apple case is in may ways like Microsoft’s powerplays. And he says this time the feds need to act. The Justice Department has its eyes on Google. If Google is sued might Apple be next? And what about other so-called “Big Tech” firms?
“This is so reminiscent of the browsers wars a few decades ago when Apple and Netscape were complaining that Microsoft was abusing its dominance of the PC desktop,” Gardner explains.
“Like most companies once they become the dominant 800 pound gorilla, Apple is waxing less philosophical now and even taking pages from the old Microsoft playbook. …
Epic-Apple lawsuit shows it’s time to re-evaluate antitrust laws, says RIoT exec director
“With the smartphone market dominated now by just two platforms and having observed corporate nature over many years once it achieves platform dominance, it does feel to me that some government monopoly control might benefit the industry.”
The legal view
Daniels, who has spent the last three decades working with startups on intellectual property, financing and other issues, sees another questionable linkage in Apple’s and Google’s required fees.
“I do think the two stores’ policies are at best a half a step removed from old fashioned ‘tying arrangements’ that are or should be prohibited by antitrust laws, such as when IBM used to say that if you bought an IBM 360 computer you also had to buy IBM punch cards to use on those computers,” he says.
“Here they are not saying you have to buy their brand of punch cards but they are saying that because of their overwhelmingly dominant market power you really as a practical matter have to sell your brand of punch cards through their store and they are (like a troll under the bridge) going to extract a hefty fee (30% in the case of Apple) that is arguably far in excess of the cost of testing the product and providing the download service with a reasonable profit.”
Walter Daniels
What’s reasonable? Is 30%? Daniels sees the rate as “hefty.”
“Extracting such a hefty fee arguably is harmful to early stage companies in several ways.
“First, because the developers have less cash flow they may need to have more investment capital.
“Second, to the extent that in ordinate cash flow of these companies is stripped out, the value of these companies is reduced because the developers are valued based on their discounted cash flow which is now less.
“Third, capital formation is more either difficult or painful for these companies, or both, because investors have to ask for more of the pie — ownership of the developer- for the investor to gets its expected return.”
Epic-Apple fallout: Sue or partner? Here’s entrepreneur Scot Wingo’s advice for emerging companies
For the defense, he acknowledges: “In contrast Apple and Google might argue that because of the services provided by them, the start-up are afforded early and easy market entry and therefore the startups need less capital.
“So the resolution is a matter of degree of harm and perhaps the determining question is whether there is an unjustified extraction of money from software developers because of exercise of market power in this relevant market.”
Yet limits on choice remain.
“The ultimate problem is that presently there are no practical alternatives for software developers. There is no real opportunity for choice of how to download your apps. The two companies dominate the cell phone industry. Stated differently, they have dominant market power and they are arguably abusing it.
“This is why we have antitrust laws.”
“I am sure counsel for Apple and Google will artfully and capably argue otherwise and will paint their own impression, but the big picture remains the same.”
Possible workarounds
Compromises could be reached, he points out.
“I do have some thoughts about a solution that might be better for the industry.That idea is for each of Google and Apple to identify the standards that all apps on their stores must AND DO meet (to avoid introduction of false anticompetitive hurdles) and then cooperate to set up a well-respected industry standards body to which software development companies can go, pay a fee to be analyzed for compliance, pay a small download fee sufficient to support the standards body, and allow their certified apps to be downloaded outside of either Apple or Google by the standards body if the developers wish.
“Initially this doesn’t give a developer the benefit of the marketing power of the two stores but given how the internet works and the agility of users (certainly of gamers), I think knowledge about the industry standard site would be viral.
“Specifically, the app for the Industry Standard site should be downloadable from the two stores. People using apps downloaded from the industry standard site would have more confidence about app security than by using apps downloaded not from the two stores that are not so certified.
“The independent standards body and the two giants should also be required to have a collaboration re security matters, hate speech and the like. Nothing would prevent the developers from also using either the Google or Apple stores. There could be many workable variations of this theme.”
One other option remains.
“If the courts don’t resolve this problem,” he says, “Congress should.”
Epic-Apple lawsuit shows it’s time to re-evaluate antitrust laws, says RIoT exec director
