It was in some ways the biggest week ever for Big Tech. There was a time on Wednesday (Aug. 19) when Apple, to paraphrase Jimi Hendrix, touched the sky. It became the first U.S. company whose valuation touched $2 trillion. To provide some perspective, only seven countries on the planet have a GDP of more than $2 trillion. Among the companies whose GDP is less than Apple’s valuation: Italy, Brazil, Canada and Russia.
In some ways, the valuation is a trick of the stock market. If it looks like Apple could take a hit from any of the various antitrust lawsuits, the $2 trillion number will drop right along with the $477 stock price. But the staggering number begs the question of just how much Apple can grow. The jury on that seems to be split into camps: growth from device sales and growth from services – services being subscriptions like the App Store, Apple TV, iTunes and licensing deals.
“The reason we’re talking about ... $2 trillion when it feels like it was just passing $1 trillion is just how well they’ve done vertically integrating through their technology stack, starting with hardware, and now moving into software,” Ark Invest’s Nick Grous told CNBC. “When we think about Apple, long term, we may not be focused on what other analysts are focused on, being iPhone sales and device sales. We’re actually really focused on their services.”
When the conversation turns to devices, the major issue is whether the iPhone 12, slated for a fall release, will become a device that consumers will feel pressure to buy right away – or whether it will be one they can live without until the pandemic is resolved and the economy improves. The answer could hinge on 5G: Apple analysts say that all four iPhone 12 models will be 5G-equipped, with differences in screen size and camera resolution.
If the pandemic shows signs of abating and the economy looks to be solid, the iPhone 12 could be Apple’s ticket to even higher valuations. If not, it’s still the most successful company in the world – and most of that is because of the agility of its service-device business model.
“The milestone is the latest for Apple under Chief Executive Tim Cook, who succeeded late co-founder and product inventor Steve Jobs in 2012,” said The Wall Street Journal. “Mr. Cook has expanded the company’s footprint in China and leaned on its services business — encompassing everything from its App Store to Apple Music — to generate steady growth and dispel concerns that Apple is too reliant on the iPhone.”
Epic Struggle Over App Fees
When the summer started, Fortnite was just a video game that 350 million players were obsessed with. What a difference a month makes. First, the federal government got into the act by threatening to ban Tencent from U.S. devices and operating systems due to data privacy concerns. Tencent owns Epic Games, the creator and distributor of Fortnite. Then, Epic Games found itself in a serious dust-up over fees owed to both the Google and Apple app stores. So within just a few weeks, Epic found itself in hot water with the U.S. government and two of the planet’s biggest tech companies.
The fight with the Feds has been well-documented. The one with Google and Apple, not so much. That spat revolves around in-app purchasing fees. Most apps come with the little label disclaimer when a user downloads it that says “in-app purchases.” Let’s use the popular meditation app Headspace as an example. When a user downloads Headspace, there’s no charge at first, and a very basic level of meditations are available. For each level of “premium” meditations or teachers, a fee is charged, and either Apple or Google takes 30 percent. Epic is claiming that Fortnite has its own operating system and therefore is not beholden to said fee structure.
Both Apple and Google have bounced Fortnite due to lack of compliance with the fees. On the surface, it may seem to be an issue for gamers only. But the Nieman Journalism Lab at Harvard sees other ramifications.
“Publishers — news publishers, I mean, not just game publishers — should be paying close attention, because Apple’s tax on digital content impacts them in profound ways,” says Nieman. “News publishers only rarely charge directly for their apps — a one-time fee for an ongoing news operation doesn’t make much sense — but they do offer lots of subscriptions, which the demise of advertising has rendered ever more central to publishers’ business models. And if someone subscribes to a newspaper or magazine through Apple’s system, the publisher has to lop 30 percent right off the top of its revenue.”
Waiting in the wings is the lawsuit filed last week against Google, in which Epic alleged antitrust violations based on Fortnite being yanked from both the Google Play Store and iOS App store. Then came another, similar lawsuit against Apple. Per the Verge: “Epic’s complaint alleges that Google’s payment restrictions on the Play Store constitute a monopoly.”
Neiman’s analysis says the suit could end with both tech titans agreeing to structure fees by category or revenue, which would potentially help news organizations. Or Apple and Google could stand their ground, which they have done in most other cases.
Regardless of the outcome, the case is not likely to be settled soon, but the speculation around app store fees will rage on.