Adam Selipsky (CEO - AWS); Satya Nadella (CEO - Microsoft) and Thomas Kurian (CEO - Google Cloud)
In September, a court in California ruled that Apple could not prevent app developers from using third-party payment options in the tech giant’s App Store marketplace.
The ruling represented the culmination of legal action taken against Apple by Epic Games, maker of the popular Fortnite game, which Apple kicked off its app marketplace after Epic offered its own payment method in the app.
As previously reported, thousands of apps were already allowed to include their own payment processing under Apple's rules, namely any app that sells only physical goods or services.
However, the court ruling effectively opens the door for legions of developers that had, until now, been subject to Apple’s cut for in-app purchases – which could be up to 30 per cent of a transaction – to offer their own payment options and largely avoid Apple’s fee structure.
While Apple lost that particular point of contention with Epic in the case, Epic reportedly lost on all other points of contention and has since launched an appeal against the decision.
The big takeaway from the case, of course, is that it represents a victory of sorts for the developer and others that feel Apple's App Store economy has been too tightly restricted for too long.
But there is another aspect to the case that could spill over into marketplaces operated by the world’s largest enterprise cloud services providers, such as Amazon Web Services (AWS), Microsoft Azure and Google Cloud.
This is according to Andrew White, distinguished VP analyst at industry analyst firm Gartner, who points out that much of the Apple-Epic case centred on how the judge defined the ‘market’.
“The case potentially has wide implications as the Apple Store, its iOS and iPhone are part of a vertically aligned stack of software and hardware infrastructure that is not unique to Apple,” White said in a blog post. “The ruling was mixed. Epic had not demonstrated that the Apple Store is a monopoly.
“But Apple did unfairly restrict actions of vendors who should be able to charge for their own value-add services outside the Apple Store software.
“From where I sit, this looks like a loss for Apple! Apple is a gatekeeper to the Apple Store but its ability now to generate free money has been clipped,” he added.
From White’s perspective, the findings focused on a rather important point: what is a market? This is because defining a market leads to the identification of the gatekeeper of the said market and how a monopoly might be defined.
“The judge said the market that mattered, in this case, was the set of ‘digital mobile gaming transactions,’” White said. “In this market, Apple competes with Android (another operating system), and though Apple controls more than half of this market, the judge said it is not a monopoly but a measure of success.
“But the ruling will, if sustained, reduce the size of the pie that Apple takes going forward,” he added.
Okay, so how does this impact the cloud vendor giants?
Well, White noted that the iPhone is a hardware device that leverages the internet, and so it operates a bit like a platform on which various software services can be operated.
“As such, the iPhone equates to (cloud) infrastructure (think IaaS [infrastructure-as-a-service]) that is being fought over mostly by Amazon, Google, Microsoft and others,” he said.
Drawing parallels between Apple’s iOS operating system (OS), as an intrinsic element in Apple’s hardware kit, and other operating systems from the likes of Google and Microsoft, White pointed out that the respective marketplaces associated with other OS vendors are closely controlled by those respective vendors, and it was here that Epic focused its case.
“Microsoft Windows OS has a marketplace too,” White said. “There is an ecosystem of vendors on each marketplace; sometimes the same third-party vendor licenses very similar offerings on all three marketplaces.
“The point is the marketplaces are not totally open; the owning vendor acts as a gatekeeper to limit who can sell on it, and there is a fee the owner charges for the pleasure.
“All this can be applied to business software,” he added.
White also pointed out that large IaaS vendors like AWS, Microsoft Azure and Google Cloud were all building up their platforms.
“On these cloud infrastructure platforms these large vendors offer software platforms whereby you can build your own applications (PaaS),” he said. “These compete with other application development platforms from vendors who don’t own infrastructure.
“Alternatively, you might subscribe to packaged business applications or SaaS. These are offered mostly from vendors who do not sell infrastructure IaaS or PaaS but increasingly the big cloud infrastructure vendors offer various SaaS offerings too. Examples here include SAP, Oracle, Salesforce and many others,” he added.
Meanwhile, Amazon charges third-party vendors to offer their software services on AWS, much like Apple charged Epic to license their software on its Apple Store, White pointed out.
As such, the large infrastructure vendors will increasingly operate as gatekeepers, dictating how the business will be transacted on their platforms.
“You won’t be able to play on those cloud platforms [without] the cloud platform owner’s consent,” White claimed. "We all thought the cloud was going to bring openness, right? Nope. It’s all going back to where we started where a few critical gatekeepers will vertically integrate virtually the whole stack.”
The crux of the matter, of course, is that if the legal precedent established in the Apple-Epic case makes use of a particular definition of ‘market’ that can be applied to the marketplaces operated by the likes of AWS, Microsoft, Google and many others, can similar arguments be made by developers against such cloud services providers?
If they can, then it could affect cloud services operators and independent software vendors (ISVs) that sell their products on their marketplaces in equal measure.
“The twist is that the judge also said Apple had the right to exclude Epic from their platform,” White said. “This was due to Epic being in violation of their contract. What does Epic do now? What should an independent D&A [data and analytics] cloud service provider do if the large cloud infrastructure provider does not allow them to sell through their own platforms?
“Will open, composable standards emerge to compete with the hegemony of a few? Didn’t we have this conversation already?
“There is more to come, clearly. And what constitutes a platform or ecosystem and what matters more, remains fluid,” he added.
That said, White conceded that even now it was still being discussed and defined precisely what a platform is and being worked out exactly what kind of platform really matters.
“Is there a data ecosystem? Or a software or business capability ecosystem? Which matters? Perhaps If you can answer the second question about the economic beneficiaries, you can answer the first.
“With the Epic v. Apple ruling, perhaps the winners of the cloud infrastructure will win the battle but lose the war?” he said.
