AAPL - Apple Inc.

[Liberty]

Serious game of chicken between Apple and Epic Games right now..

 

Epic bypassed Apple's payment processing on Fortnite, then Apple took off Fortnite from the app store.

 

Guerilla warfare has started...

 

https://www.theverge.com/2020/8/13/21366438/apple-fortnite-ios-app-store-violations-epic-payments

 

Epic lawsuit here:

 

https://cdn2.unrealengine.com/apple-complaint-734589783.pdf

[johnny]

The vast majority of iPhone buyers have an app (or set of apps) they care about more than iOS and would choose over it, if forced. I think a lot of Apple bulls have convinced themselves that this just isn't true.

 

What is true is that "that app" is not the same for every group. There is sufficient fragmentation there that it's never really in one apps interest to force users into the position.

 

If Facebook, Tinder, Epic, and one other firm jointly announced they would be leaving iOS in two years, what would happen to iPhone sales?

 

I'm not saying this will happen (or that such a move would even work from a regulatory perspective. But it's a thought experiment to test just how durable the iOS franchise actually is, and to tease out just how much wiggle room Apple has to try and squeeze developers (and users) via the App Store.

[coc]

The vast majority of iPhone buyers have an app (or set of apps) they care about more than iOS and would choose over it, if forced. I think a lot of Apple bulls have convinced themselves that this just isn't true.

 

What is true is that "that app" is not the same for every group. There is sufficient fragmentation there that it's never really in one apps interest to force users into the position.

 

If Facebook, Tinder, Epic, and one other firm jointly announced they would be leaving iOS in two years, what would happen to iPhone sales?

I'm not saying this will happen (or that such a move would even work from a regulatory perspective. But it's a thought experiment to test just how durable the iOS franchise actually is, and to tease out just how much wiggle room Apple has to try and squeeze developers (and users) via the App Store.

 

I just find the thought of that absurd. These things would hurt Apple for sure but Tinder and Facebook would destroy their own businesses. Surely the question "If a company's main partners committed seppeku, would that hurt the company?" Is not altogether a great test.

[fareastwarriors]

It is crazy to me that the cut is still 30% after all these years.

[villainx]

Any suggestions for good takes on the Apple App Store issue?  Good/bad, fair/foul, etc.

 

I can't tell from my guts because if an app isn't in app store, I wouldn't use it. 

[Jurgis]

#FreeFortnite

 

[johnny]

The vast majority of iPhone buyers have an app (or set of apps) they care about more than iOS and would choose over it, if forced. I think a lot of Apple bulls have convinced themselves that this just isn't true.

 

What is true is that "that app" is not the same for every group. There is sufficient fragmentation there that it's never really in one apps interest to force users into the position.

 

If Facebook, Tinder, Epic, and one other firm jointly announced they would be leaving iOS in two years, what would happen to iPhone sales?

I'm not saying this will happen (or that such a move would even work from a regulatory perspective. But it's a thought experiment to test just how durable the iOS franchise actually is, and to tease out just how much wiggle room Apple has to try and squeeze developers (and users) via the App Store.

I just find the thought of that absurd. These things would hurt Apple for sure but Tinder and Facebook would destroy their own businesses. Surely the question "If a company's main partners committed seppeku, would that hurt the company?" Is not altogether a great test.

 

 

A thought experiment is not a prediction about the future: it's a hypothetical scenario meant to assist you in understanding the present. So the "absurdity" is irrelevant. It's equally absurd to imagine that some random company might dedicate $10 billion to some quixotic effort to build a new competing brand to Coca Cola. And yet, imagining what would happen there is crucial in understanding what Coca-Cola's present business strength actually is.

 

Would you equate what Epic just did to committing seppuku? Is it absurd, or not? They're off the App Store right now. If things are calculated on the result of day-to-day downloads/revenues, obviously they've lost their minds. I'd invite you to take a wider view here.

 

1. Announcing a deprecation plan for iOS would result in no meaningful immediate business impact to any of the above-mentioned companies. Is a Facebook using iPhone owner going to uninstall the application tomorrow because they say they won't support it in 2022? Of course not. The only effect such an announcement would have is to encourage Facebook users to seriously reconsider what phone they will be buying next. And like I mentioned before, if you do a serious study of Facebook/iPhone cross users, the results are not even remotely ambiguous. The platform that loses this fight is Apple, by a wide margin.

 

2. Inevitably following up on the promise, of course, would result in some lost users. For a network business such a decision might strike you as totally unimaginable. But the question is what the alternate is. Right now, App Store policies severely constrain not just "user monetized" apps that have to give up the 30% vig to Apple, but "free" apps like Facebook, whose monetization models and service offerings are severely constrained by Apple's policies. Consider this survey that suggests 95% of iPhone buyers in China would abandon the product if forced to choose between it and WeChat: https://9to5mac.com/2020/08/13/chinese-iphone-owners/.

 

I don't know that the number is quite-so-high for Americans and Facebook, but I do know this: to whatever extent Facebook is "less sticky" to Americans than WeChat is to Chinese, it is largely a consequence of Facebook's app being constrained. Mark is a follower of WeChat, and some of the most successful WeChat application features are simply not possible on the iPhone in America.

 

Anyway, the point is that, contrary to your position, my scenario wouldn't result in app developers committing suicide and Apple being "hurt". It would result in the app developers being hurt (perhaps significantly) and Apple being completely destroyed. Which leads to my third point that:

 

3. The actual "abandoning the platform" thing wouldn't happen. The moment the gesture was signaled, credibly, and by more than one serious app vendor, it would force Apple to make major concessions that would ultimately reduce not only their control of the platform (and so the lock-in associated), but also the revenues they generate from it. If I point a gun at your head and tell you to dig a grave, you don't say "lol, the sound of that gun going off will probably permanently damage your hearing, you retard". You get digging.

 

I'll be less didactic and more direct: Apple's lock-in is not what it once was, and its App Store advantage is shrinking. This was a major major advantage for Apple in 2013, and a huge reason I went long back then (I will continue innocently making this observation in every bearish post on this thread, sorry in advance). The development advantage is much smaller now: iOS development is simply more complex than 8 years ago, and cross-platform dev tools are orders of magnitude more sophisticated/usable. Almost zero "top" apps on the App Store represent philosophically pure "native development". They're all built on cross-platform tools, and the vast majority of them ignore all the UX guidance Apple wishes developers would use. The monetization advantage is lower (it was once true that iOS' was the only App Store you could really monetize on, since Apple buyers were the rich ones who would pay $9.99 for an app license. That too is no longer true: the perpetual license app purchase model is pretty much dead, in no small part because Apple pursued certain App Stores strategies that killed it. I could go on, but the point is the lock in is simply not nearly as strong as everybody has now decided at $460/share it must be.

 

Software developers, even "Mac" community types, are now fully aware of the reality that they were able to sort of ignore years ago: Apple is not a beneficent partner in their company. Apple is a two trillion dollar corporate behemoth, whose executives' future yacht purchases are completely dependent on perpetuating a Wall Street Narrative about "growing service revenues". Everybody now understands this, and they understand that, in their world "growing service revenues" means Apple squeezing out as close to 100% of the economics of third-party software as possible. This is an inescapable reality that influences what today's software entrepreneur is doing (as if they matter any more).

 

 

 

[Spekulatius]

Well, the android App Store cut is 30% too, so there is your problem to going elsewhere. I would guess they over time, a 30% “tax” is high and won’t stay that way. I think it’s likely we see a digression with higher revenue.

[Jurgis]

Well, the android App Store cut is 30% too, so there is your problem to going elsewhere. I would guess they over time, a 30% “tax” is high and won’t stay that way. I think it’s likely we see a digression with higher revenue.

 

Fortnite is not removed from Android store yet: https://www.androidauthority.com/epic-fortnite-direct-payment-1147740/#:~:text=The%20developer%20has%20introduced%20an%20Epic%20direct%20payment,to%20%248%20if%20you%20use%20Epic%E2%80%99s%20payment%20method.

 

We'll see what Google does.

 

#FreeFortnite

[racemize]

Well, the android App Store cut is 30% too, so there is your problem to going elsewhere. I would guess they over time, a 30% “tax” is high and won’t stay that way. I think it’s likely we see a digression with higher revenue.

 

Fortnite is not removed from Android store yet: https://www.androidauthority.com/epic-fortnite-direct-payment-1147740/#:~:text=The%20developer%20has%20introduced%20an%20Epic%20direct%20payment,to%20%248%20if%20you%20use%20Epic%E2%80%99s%20payment%20method.

 

We'll see what Google does.

 

#FreeFortnite

 

Twitter saying it just got pulled.

[Jurgis]

Well, the android App Store cut is 30% too, so there is your problem to going elsewhere. I would guess they over time, a 30% “tax” is high and won’t stay that way. I think it’s likely we see a digression with higher revenue.

 

Fortnite is not removed from Android store yet: https://www.androidauthority.com/epic-fortnite-direct-payment-1147740/#:~:text=The%20developer%20has%20introduced%20an%20Epic%20direct%20payment,to%20%248%20if%20you%20use%20Epic%E2%80%99s%20payment%20method.

 

We'll see what Google does.

 

#FreeFortnite

 

Twitter saying it just got pulled.

 

Yep, seems to be gone.

 

#FreeFortnite

[rb]

I think that Johnny makes some really good points. Think about the Microsoft platform and how it works/worked. You paid for the hardware and then you paid some for software (and it wasn't that much) and you developed and distributed on the platform for free. That was very profitable for Microsoft.

 

Platforms are hugely dependent on the app ecosystem around them. So they should be pretty careful about the developers. I don't think a platform goes down because developers abandon it, it's because developers leaves. It's usually because a new one comes along that offers a better deal and it's more of a slow and steady bleed. There is sure a valid argument to say that Apple and Google are strong platforms on mobile. But back in 1998 Microsoft was an indomitable power platform. Yet just 10 years later the story was a lot different.

 

At this point there I bet there are a lot of players that would love to feast at the platform trough. The higher the margins, the easier it is to do it. Microsoft is still out there - maybe we get some Empire Strikes Back type situation. But there also is a serious risk from the Chinese techs to create a serious challenger.

[Liberty]

https://stratechery.com/2020/apple-epic-and-the-app-store/

[johnny]

Here's the picture I'd be opening up my short case with:

[Liberty]

Here's the picture I'd be opening up my short case with:

 

Because that has worked so well for the people who shorted Amazon when Bezos started going out to glamorous events?

[johnny]

Amazon actually had real service revenue, and quite importantly the service business it got into (AWS) had positive economics and no "glamour". That Jeff went on a HGH-fueled pussy binge off work-hours is to me perfectly fine, so long as he was bringing home the bacon in the areas he promised to.

 

By contrast, Apple seems maximally interested in "services" that elevate Tim and Co to cultural tastemakers--services with pretty suspicious economics that the company is totally unwilling to disclose, as if Apple's competitive position in online streaming would somehow be compromised if they confessed to burning a hundred million dollars on shit productions that will never see the light of day.

 

To be clear, I'm not shorting Apple. But as I said before, it should be taken as a very bad sign that the people in the company that have the most freedom to pursue what they want to pursue are spending their time 1) leaving Apple or 2) using Apple's cash to buy their way into Oscar parties (and importantly, not getting anywhere close to actually buying an Oscar). They're not focusing their energies on experiencing the carnal pleasures of the nearly-perfect virtual reality technology they've invented in the basement of the circle building, I notice.

 

There's a reason the press is generally so positive on Apple right now, and a lot of it has to do with the indiscriminate billions Apple has been sprinkling throughout the entire media world. Maybe there's some strategic value in this otherwise pathetically loss-making exercise. After all, Apple's donation of Macs to film and TV productions in the 90s/00s turns out to have been a pretty clever tradeoff. But again, I'm suspicious. Steve Jobs hung out with artistic types, but even when he was THE CEO OF THE MOST SUCCESSFUL FILM STUDIO ON EARTH AT THE TIME, he wasn't spending too much of his time on the red carpet. And when he was on a red carpet, the carpet was being paid for by Disney, or the AMPAS, or somebody other than Apple shareholders. Ultimately, I am simply too suspicious that the motives here are not pure. What a blessed coincidence the smartest strategic focus for the company (and highest-value use of capital) also is the thing that, totally by accident and of business necessity, maximizes Tim's time with Oprah and maximizes Eddie's time with Jessica Alba (and not the other way around).

 

There's too much glamor and glitz, absolutely no evidence of economic seriousness (announcing that you're renewing your -ENTIRE- production slate for a second season is not a sign of strength, it's a sign of a total lack of cost discipline and complete managerial delusion). They have no traction with viewers, and to the extent their efforts are getting a lot of positive "industry buzz" it is for the exact same reasons articulated above: everybody in the industry knows that Apple will write you a 9-figure-check if you can somehow make Tim feel or look good, in the short term. So when you sign first-look deals with DiCaprio, Scorsese, Idris Elba, et al, you're not convincing me you have artistic vision and a value-add. You're demonstrating to me that you're the highest-bidder in the totally commodified part of the entertainment industry stack (production capital). And at best, the strategic value of all of this is that you're throwing enough cash around that the consolidated artist-management layer of the industry (WME) will make sure all of the talent knows never to insult you publicly or ridiculous your pathetic efforts to purchase your way into cultural relevance.

[Spekulatius]

^ Wasn’t the whole Apple thesis that their high margin and growing recurring service revenues justifies the current high valuation?

 

If this mutiny from application vendors gets some traction and this gets scrutiny from the government, then what bull thesis is left?

 

I think regulation for big tech is a vastly under appreciated risk right now. Some regulation could help them but others could really hurt.

[johnny]

Exactly. They're squeezing all of the economic viability out of their developer community in order to generate service segment cash that they can turn around and burn on promising young upstarts like Oprah, Leo DiCaprio, Ridley Scott, and Marty Scorsese. Then they lump the entire project together and brag about how "service revenues" grew by 17% YoY. Wow, very nice.

 

It's a complete joke, and I cannot believe that the same market that valued the massively growing and then-unstoppable iPhone franchise at like 6x earnings back in 2013 and 9x in 2019 is now putting 30x on this shitshow.

[Liberty]

Amazon actually had real service revenue, and quite importantly the service business it got into (AWS) had positive economics and no "glamour". That Jeff went on a HGH-fueled pussy binge off work-hours is to me perfectly fine, so long as he was bringing home the bacon in the areas he promised to.

 

By contrast, Apple seems maximally interested in "services" that elevate Tim and Co to cultural tastemakers--services with pretty suspicious economics that the company is totally unwilling to disclose, as if Apple's competitive position in online streaming would somehow be compromised if they confessed to burning a hundred million dollars on shit productions that will never see the light of day.

 

To be clear, I'm not shorting Apple. But as I said before, it should be taken as a very bad sign that the people in the company that have the most freedom to pursue what they want to pursue are spending their time 1) leaving Apple or 2) using Apple's cash to buy their way into Oscar parties (and importantly, not getting anywhere close to actually buying an Oscar). They're not focusing their energies on experiencing the carnal pleasures of the nearly-perfect virtual reality technology they've invented in the basement of the circle building, I notice.

 

There's a reason the press is generally so positive on Apple right now, and a lot of it has to do with the indiscriminate billions Apple has been sprinkling throughout the entire media world. Maybe there's some strategic value in this otherwise pathetically loss-making exercise. After all, Apple's donation of Macs to film and TV productions in the 90s/00s turns out to have been a pretty clever tradeoff. But again, I'm suspicious. Steve Jobs hung out with artistic types, but even when he was THE CEO OF THE MOST SUCCESSFUL FILM STUDIO ON EARTH AT THE TIME, he wasn't spending too much of his time on the red carpet. And when he was on a red carpet, the carpet was being paid for by Disney, or the AMPAS, or somebody other than Apple shareholders. Ultimately, I am simply too suspicious that the motives here are not pure. What a blessed coincidence the smartest strategic focus for the company (and highest-value use of capital) also is the thing that, totally by accident and of business necessity, maximizes Tim's time with Oprah and maximizes Eddie's time with Jessica Alba (and not the other way around).

 

There's too much glamor and glitz, absolutely no evidence of economic seriousness (announcing that you're renewing your -ENTIRE- production slate for a second season is not a sign of strength, it's a sign of a total lack of cost discipline and complete managerial delusion). They have no traction with viewers, and to the extent their efforts are getting a lot of positive "industry buzz" it is for the exact same reasons articulated above: everybody in the industry knows that Apple will write you a 9-figure-check if you can somehow make Tim feel or look good, in the short term. So when you sign first-look deals with DiCaprio, Scorsese, Idris Elba, et al, you're not convincing me you have artistic vision and a value-add. You're demonstrating to me that you're the highest-bidder in the totally commodified part of the entertainment industry stack (production capital). And at best, the strategic value of all of this is that you're throwing enough cash around that the consolidated artist-management layer of the industry (WME) will make sure all of the talent knows never to insult you publicly or ridiculous your pathetic efforts to purchase your way into cultural relevance.

 

you took the joke seriously?

 

Anyway, Jeff went Hollywood mostly because of Amazon Prime Video's ambitious in the past couple years, spending a ton of money and trying to woo big producers and get big IP off the ground (biggest was their LotR series under devlopment).

[Liberty]

Exactly. They're squeezing all of the economic viability out of their developer community in order to generate service segment cash that they can turn around and burn on promising young upstarts like Oprah, Leo DiCaprio, Ridley Scott, and Marty Scorsese. Then they lump the entire project together and brag about how "service revenues" grew by 17% YoY. Wow, very nice.

 

It's a complete joke, and I cannot believe that the same market that valued the massively growing and then-unstoppable iPhone franchise at like 6x earnings back in 2013 and 9x in 2019 is now putting 30x on this shitshow.

 

Lol, Apple would have 650 billion in cash if they didn't have the capital return program. You think whatever they're spending on hollywood makes a difference?

[CorpRaider]

Announced a bundle with Apple TV and CBS + SHO $15 per month.  I swear I think all the dollars are just going to to Apple and Goog. 

[johnny]

Lol, Apple would have 650 billion in cash if they didn't have the capital return program. You think whatever they're spending on hollywood makes a difference?

 

As I said above, it’s not merely that they’re burning billions in order to create Tim Studios, it is that they have put themselves into a position where they have to increasingly squeeze (and damage) the actual, critical parts of their profitable businesses in order to put the shine on the whole operation every quarter. I can’t stress this enough: Apple developers do not like Apple anymore. These were once a fairly fanatical bunch—they would sit around defending Steve Jobs over all sorts of totally non-sequitur bullshit where they had nothing to gain (options backdating, etc.). This is over, and it’s meaningful.

 

Beyond that, this sort of cultural shift at the top will change the entire firm. The teams that are responsible for value creation are already aware what they do is increasingly unappreciated and uncelebrated by the company. There are tons of people who have been with the company ten years, putting in incredibly important work on hard, tangible problems for the product that is generating all of the money for those buybacks and first-look deals you love.

 

They will notice as the keynotes shift increasingly from celebrating the technical people that create and improve these products, to celebrating movie stars that are So Excited to show you a Sneak Preview of an upcoming DocuDrama that HBO, Netflix, and Disney passed on, but Tim, being the market-proven tastemaker he is, saw potential in. I believe those things matter, and just as the cultish devotion of external Apple developers has waned over the past few years, I imagine a great deal of enthusiasm internally has softened as well.

 

[Jurgis]

I'm #FreeFortnite and all that, but it's still TINA: there is no 3rd mobile platform and nobody's gonna build one (anytime soon). Well, maybe Amazon again on top of Fire tablets++. Maybe FB. But even these are unlikely.

 

So unless antitrust is persuaded that Apple + Google == duopoly that should be forced to provide access on reasonable terms, nothing's gonna happen. Or in other words, Epic Games & others who try to rebel will be f%^ked. IMO you can rebel when consumers have an alternative and can leave for whatever alternative platform. If they can't, rebelling is really pretty much just antitrust play.

[Liberty]

Lol, Apple would have 650 billion in cash if they didn't have the capital return program. You think whatever they're spending on hollywood makes a difference?

 

As I said above, it’s not merely that they’re burning billions in order to create Tim Studios, it is that they have put themselves into a position where they have to increasingly squeeze (and damage) the actual, critical parts of their profitable businesses in order to put the shine on the whole operation every quarter. I can’t stress this enough: Apple developers do not like Apple anymore. These were once a fairly fanatical bunch—they would sit around defending Steve Jobs over all sorts of totally non-sequitur bullshit where they had nothing to gain (options backdating, etc.). This is over, and it’s meaningful.

 

Beyond that, this sort of cultural shift at the top will change the entire firm. The teams that are responsible for value creation are already aware what they do is increasingly unappreciated and uncelebrated by the company. There are tons of people who have been with the company ten years, putting in incredibly important work on hard, tangible problems for the product that is generating all of the money for those buybacks and first-look deals you love.

 

They will notice as the keynotes shift increasingly from celebrating the technical people that create and improve these products, to celebrating movie stars that are So Excited to show you a Sneak Preview of an upcoming DocuDrama that HBO, Netflix, and Disney passed on, but Tim, being the market-proven tastemaker he is, saw potential in. I believe those things matter, and just as the cultish devotion of external Apple developers has waned over the past few years, I imagine a great deal of enthusiasm internally has softened as well.

 

I think you're conflating multiple separate issues.

 

The content play is clearly as a way to get people into the app so they can sell 3rd party channels, which is a sticky and profitable business (Amazon does the same through Prime Video/Fire TV), and to make the ecosystem a bit stickier (because every tiny reduction in churn is worth a ton -- it doesn't have to be monetized directly).

[Liberty]

https://www.aboveavalon.com/dailypremiumupdate/2020/8/18/the-app-stores-impact-on-apple-financials-facebook-launches-paid-online-events-4q20-microsoft-surface-results