Apple’s Supreme Court loss could harm its App Store business

Thanks to the Supreme Court, Apple now has a big problem with its attempt to re-invent itself as a company that sells services.

The court on Monday ruled that an antitrust case against the iPhone maker involving the commissions it charges on apps sold through its app store could proceed, rejecting Apple’s efforts to dismiss the suit. The ruling increases the likelihood that Apple will lose the long-running case or ultimately be forced to settle it on unfavorable terms. In either case, the Supreme Court’s decision makes it more likely that Apple is ultimately going to have to reduce its App Store fees.

Unfortunately for Apple, the App Store is a linchpin of the services business that CEO Tim Cook is betting the company’s future on.

As Apple’s iPhone sales have started to decline, it’s been touting its services as the driver of its future growth. These services include its iCloud storage service, its deal with Google that makes the tech giant’s search engine the default one on the iPhone, and Apple Music. And in March, the company unveiled a slew of new offerings, including a new streaming video service and a subscription game service.

The court ruling endangers Apple’s App Store cash cow

Despite this growing catalog of service offerings, Apple’s App Store remains the biggest part of its services business, providing about a third of that businesses’ revenue, according to Wall Street analysts. What’s more, Apple’s App Store alone will account for 12% of the company’s total gross profit this year, KeyBanc Capital Markets forecast in March. That’s a remarkable figure, given that Apple’s entire services business accounted for just 16% of the company’s total sales in the first six months of its current fiscal year and attests to just how profitable the App Store is for the company.

But the Supreme Court ruling puts that cash cow at risk of being slaughtered.

The case revolves around how consumers get apps on their iPhones and the fees Apple charges for sales through its App Store. Apple has designed the iPhone so that, basically, the only way to get apps for it is to go through its App Store. The company charges a 30% commission on most app store sales; for apps that charge subscriptions, Apple takes a 15% cut after the first year.

The plaintiffs in the case allege that those commission rates are higher than they would be in a competitive market. They say that they and other consumers have overpaid for their apps as a result, because those fees get passed on to them in the form of inflated prices.

The case isn’t the only threat to Apple’s App Store fees

The court’s ruling was narrow. The justices didn’t decide whether Apple had a monopoly, whether it was abusing it, or what the penalty would be for doing so; instead, they simply ruled the consumers had a right to sue Apple and their case could proceed.

But that ruling is a significant setback to Apple, because it increases the likelihood that the case will actually go to trial. And it’s not hard to see how that could be a big problem for Apple.

It shouldn’t be too hard for the plaintiffs to show that Apple has a monopoly on the distribution of iPhone apps. It also shouldn’t be too difficult for them to show that the fees Apple charges makes those apps pricier than they would otherwise be. One has to look no farther than Spotify, which charged $3 more to customers who signed up for its service through Apple’s app store than those who subscribed through its website. Spotify has said it did that to cover the cost of Apple’s fees. And Spotify isn’t the only company plaintiffs can point to that had similar pricing practices.

In other words, there’s a good chance that Apple will lose the case on its merits.

But even if it doesn’t, the company’s app store fees are already coming under pressure. Spotify filed a complaint against Apple with European Union’s competition regulators, making similar charges. Meanwhile, it and a growing number of app developers have decided to opt out of Apple’s fees entirely by directing customers to sign up for subscriptions through their own websites.

Read this: Apple’s App Store fees are coming under increasing pressure from Spotify, Netflix, and regulators. Cutting them could lower its earnings by 10% next year.

All this could well mean that Apple is going to have to reduce its app store fees in a significant way sooner or later. Such a move would reduce its revenue and profits. Worse, though, it would likely sully its services story.


more recommended stories

  • Epstein had foreign passport to protect him from ‘hijackers’: lawyers

    Jeffrey Epstein, the financier recently charged.

  • Elon Musk’s sister runs passionflix video streaming for romance book movies

    Elon Musk may be the most.

  • The best competing Prime Day 2019 sales — Walmart, Target, eBay, & more

    After four years running, Amazon’s retail.

  • How to set up a custom voicemail greeting on a Galaxy S10

    One of the first things you.

  • I always wanted to be a millionaire and it was nothing like I expected

    Hansson at work. via Basecamp Facebook.

  • Apple AirPod Earbuds Deal: Save $14 to $20 on Amazon Prime Day 2019

    Truly wireless earbuds like Apple’s AirPods.

  • APPLY NOW: Insider Inc. is hiring editorial and video fellows and more

    Insider Inc. has a number of.

  • Video shows men in an over-crowded facility yelling “no shower”

    A video taken and posted on.

  • Sharp and McCann show the future of British boxing is fun and flashy

    02 ARENA, LONDON — Red hot.

  • Jeffrey Epstein launched PR campaign after 2008 sex abuse allegations

    Jeffrey Epstein launched a PR campaign.

  • Prime Day 2019 KitchenAid Stand Mixer deals — sale predictions

    There are some things that never.

  • The best vacuum deals we expect to see during Prime Day 2019

    No matter how diligently you clean.

  • Asylum seeker describes baby’s death from poor medical care in ICE custody

    WASHINGTON (AP) — A Guatemalan mother.

  • A new holding center for migrant children opened in rural Texas

    CARRIZO SPRINGS, Texas (AP) — A.

  • Video seems to show Trump embrace staffer who says he forcibly kissed

    President Donald Trump’s attorneys were accused.

  • How to back up photos from an iPhone with iCloud storage

    If you’re someone who loves taking.

  • Famous people who have flown on Jeffrey Epstein’s private plane

    The financier Jeffrey Epstein, the convicted.

  • 9 questions you should ask flight attendants next time you fly

    Getting on a plane is a.

  • DOJ to swap interpreters with videos at immigration hearings

    The Department of Justice is planning.

  • Federal court ruled against bikini baristas at Washington coffee bars

    Women serving coffee at the Hillbilly.

  • Greece election: Conservative party beats left-wing prime minister

    In his concession speech, Mr Tsipras.

  • Photos of US Navy guided missile destroyer USS Jason Dunham

    During the final days of June,.

  • No-deal Brexit: Boris Johnson to be hit by dozens of new Tory rebels

    LONDON — Dozens more Conservative MPs.

  • Turkey is last major Islamic state not to stand up for China’s Muslims

    In recent months, a wave of.

  • PHOTOS: Sophie Turner’s wedding dress with husband Joe Jonas

    Sophie Turner and Joe Jonas had.

  • The winners and losers of the opening days of NBA free agency

    The NBA offseason has been fast.

  • European stocks are jumping as traders bet on loose Fed policy, while US markets break for the Fourth of July

    Ritzau Scanpix Denmark/Reuters US markets were.

  • Megan Rapinoe shuts down critics: ‘I think I’m extremely American’

    Megan Rapinoe has been no stranger.

  • Steve Irwin and son fed the same crocodile 15 years apart

    Steve Irwin’s 15-year-old son Bob is.

  • Serena Williams will wait before giving Meghan Markle parenting advice

    Serena Williams says she will wait.

  • Stocks are dropping on trade-war jitters after Trump threatens another $4 billion in tariffs on EU goods

    Assoicated Press/Alex Brandon US stocks slid.

  • I went to Times Square to see why tourists love it

    Growing up on Long Island, I.