Epic-backed expert says Apple’s app store profit is as high as 78 percent

TV24 DESK: An expert witness for Epic Games testified that Apple’s App Store had operating margins above 70 percent in fiscal years 2018 and 2019, new court documents show. Ned Barnes testified that information from Apple’s Corporate Financial Planning and Analysis group show the App Store had a 77.8 percent operating margin in 2019, and 74.9 percent in 2018.

The figures are close to Barnes’ calculations of the App Store’s profits, he testified, and “also refute criticisms of my report proffered by certain Apple expert witnesses that it is not possible to calculate reliably or usefully the operating margins of the App Store.” Barnes also testified that Apple has been tracking its App Store profits for several years.

Apple has hotly contested that interpretation of the data. As Bloomberg notes, Apple’s chief compliance officer said at a congressional hearing last month that “we don’t have a separate profit and loss statement for the App Store,” and that Cook has made similar statements about the App Store and how it’s structured.

An Apple spokesperson said in an email to The Verge on Saturday that Barnes’ figures were incorrect: “Epic’s experts calculations of the operating margins for the App Store are simply wrong and we look forward to refuting them in court.”

The question of how much profit Apple makes from the app store is at the center of the ongoing court case between Apple and Epic Games. Epic argues that the App Store provides no real service, but simply serves as a way for Apple to extract money from developers. Epic is suing Apple for antitrust violations on those grounds, after launching an unauthorized in-app payments system for Fortnite earlier this year. But Apple insists the App Store review process is a pivotal part of the broader platform safety efforts around iOS.

Court documents show Apple’s expert witness Richard Schmalensee also disputed Barnes/Epic’s figures. “Mr. Barnes’ estimate of the App Store’s operating margin is unreliable because it looks in isolation at one segment of the iOS ecosystem in a way that artificially boosts the apparent operating margin of that segment,” Schmalensee said in his written direct testimony. “When one looks at Apple’s device and services ecosystem as a whole, the operating margin falls to an unremarkable level.”

Schmalensee further testified that “it makes no sense” to try to measure the App Store’s profitability in isolation since it’s part of the iOS platform and relies on all of Apple’s intellectual property. “As top Apple executives will testify, Apple does not calculate P&Ls by products and services because they view it as an unproductive exercise,” according to Schmalensee.

Court proceedings for the trial are due to begin on Monday.  Source: the verge


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