An Epic Games expert said the Apple App Store achieved operating margins of over 70% in fiscal years 2018 and 2019, according to new court documents, Ned Barnes testified that information from Apple’s corporate financial planning and analysis group shows that the App Store was at an operating margin. 77.8 percent in 2019, and 74.9 percent in 2018, according to the verege.
He testified that the numbers are close to Barnes’ accounts of App Store earnings, and “also refutes criticism of my report by some Apple expert witnesses that the app store operating margins cannot be reliably or meaningfully calculated.” Barnes also testified that Apple has been tracking App Store earnings for several years.
Apple strongly opposed this interpretation of the data. As Bloomberg noted, Apple’s chief compliance officer said at a congressional hearing last month, “We do not have a separate profit and loss statement for the App Store,” and that Tim Cook made similar statements about the App Store and how it is regulated.
“The verege quoted an Apple spokesperson as saying that Barnes ‘numbers were incorrect:” Epic experts’ calculations of the App Store’s operating margins are simply wrong and we look forward to challenging them in court. ”
The question of how much profit Apple makes from the App Store is at the heart of the ongoing court case between Apple and Epic Games. Epic argues that the App Store does not provide a real service, but simply acts as Apple’s way of extracting money from developers.
Epic is suing Apple for antitrust violations on these grounds, after launching an unauthorized in-app payments system for Fortnite earlier this year. But Apple insists that the App Store review process is a pivotal part of the broader platform safety efforts around iOS.
Court documents show that Apple’s expert witness, Richard Schmalensee, also disagreed with the Barnes / EPIC numbers. “Barnes’ estimate of the operating margin for the App Store is unreliable because it appears to be isolated in one part of the iOS ecosystem in a way that artificially enhances the apparent operating margin of that segment,” Schmalensey said in his first-hand written testimony. “When one looks at the ecosystem of Apple devices and services as a whole, the operating margin drops to an almost imperceptible level.”
Schmalensee also testified that it “does not make sense” to try to measure the profitability of the App Store in isolation since it is part of the iOS platform and relies on all intellectual property rights of Apple. According to Northernnessy, “As Apple’s senior executives will testify, Apple does not compute profits and losses by products and services because they view it as an unproductive practice.”