It's true an open App Store is more dangerous, and that helps Apple
In his first-ever court appearance, Apple (AAPL) CEO Tim Cook on Friday laid out his case for why Apple should be the only company to sell apps on the iPhone, saying that allowing third-party app stores would expose consumers to malware and hackers.
Testifying in game developer Epic’s antitrust suit against Apple, Cook called the notion of putting third-party app stores on the iPhone “an experiment I wouldn’t want to run.” He’s not alone, either. According to New York University Tandon School of Engineering professor Justin Cappos, opening up the iPhone would imperil every iPhone owner.
“I think there's a very clear line to draw to say that if you let basically people go and run their own effective app stores,” Cappos told Yahoo Finance, “even if they're installing things like kind of within an app, the potential for malicious code and malicious behavior on the iPhone increases dramatically.”
Of course, there’s more to Apple’s objection to having third-party app stores on the iPhone than simply protecting consumers. There’s also the 30% fee Apple collects on the sale of many apps and in-app purchases made through the App Store.
In other words, while Apple is right that it’s protecting consumers, its App Store dominance is not purely altruistic. And Apple’s argument that it’s safeguarding consumer data might not be enough to shield it from antitrust enforcement over an App Store store that House Democrats found enabled the tech giant to “generate supra-normal profits.”
Cook is right about Apple’s exceptional malware prevention
In the closely watched suit, Epic claims that Apple abuses its monopoly power over the App Store by forcing developers to use its proprietary payment system and paying Apple a 30% fee on sales of apps and in-app purchases. (Apple charges a 15% commission for developers that make less than $1 million a year.)
In a coordinated campaign that kicked off last summer, Epic deployed an update for its game “Fortnite” that included the option to pay for in-game currency through Apple’s App Store or Epic’s own payment option, which was, naturally, less expensive.
Apple responded by taking down “Fortnite” and cutting off Epic from Apple’s developer program. To remedy the situation, Epic filed its antitrust suit against Apple seeking to cut out the 30% fee or allow third-party app stores on the iPhone. Closing arguments in the bench trial were Monday, and Judge Yvonne Gonzalez Rogers is expected to make her decision in the coming weeks.
Epic argues that if third-party app stores existed on the iPhone, developers would be able to lower the prices of their apps since they wouldn’t have to account for the 30% Apple charges.
But in his testimony, Cook suggested opening up the iPhone would come with grave risks.
He provided a stark contrast between the amount of malware on Apple’s iOS versus Google’s (GOOG, GOOGL) Android and Microsoft’s (MSFT) Windows, which do allow third-party app stores.
Cook told the judge that while iOS devices account for 1% to 2% of all malware infections, Android and Windows devices account for 30% to 40%. “If you look at malware on iOS versus Android and Windows, it’s literally an off-the-chart level,” he said.
Uneven update usage and third-party app stores put users in danger
Cook’s argument is backed up by Nokia’s 2020 Threat Intelligence Report, which states that 26.64% of all malware infections come from Android devices. That’s down from 47.15% in 2019, which Nokia attributes to better security on Android as well as a new focus by malware creators on Internet of Things (IoT) devices.
Windows PCs, meanwhile, are responsible for 38.92% of all malware infections. Apple’s iPhone was responsible for just 1.72% of all malware infections — though that’s up from 0.85% in 2019. The remainder of attacks have impacted IoT devices.
Why the differences between the three operating systems? Cappos says it has to do with a number of factors including the rate at which iOS devices are updated to the latest version of the operating system compared to Android and Windows devices, which are typically behind the curve in using the latest software.
Operating system updates can patch errors that hackers can exploit with malware, making devices harder to crack. It also doesn’t hurt that Android and Windows are two of the most used operating systems in the world, which makes them especially appealing targets for cybercriminals.
Both Apple and Google have automated processes that detect malicious software in their stores, but Google has run into trouble by allowing consumers to access third-party app stores. Most security experts will tell you to avoid downloading apps from third-party stores due to the increased risk of malware.
Windows, meanwhile, allows users to download apps through its own Windows Store, or anywhere on the web, which is especially dangerous for consumers who aren’t savvy enough to know if they’re downloading from a legitimate source, or a front for malware.
Security might not be enough to protect Apple
Apple doesn’t break out revenue for its App Store sales, instead lumping it together with its Services segment. Still, that business, which includes Apple TV+, Apple Music+, and iCloud subscriptions, pulled in $53.7 billion in 2020, or roughly 20% of Apple’s $274 billion in total revenue for the year. All of that is to say, Apple’s App Store makes a boatload of money for the company.
And that, combined with the company’s App Store controls, may mean that even its safety argument will come up empty in court. Syracuse University College of Law professor Shubha Ghosh told Yahoo Finance that for Apple’s gambit to pay off, it would have needed to show that its business practices justified its security concerns. And a 30% fee and security might not go hand in hand in Judge Gonzalez Rogers’ eyes.
But security might not even be a big concern for the judge, explained Cardozo School of Law professor Sam Weinstein. “Antitrust courts don't care so much about safety — they care about competition. So I'm wondering if that's ever been a persuasive argument,” he said.
It’s now up to Judge Gonzalez Rogers to determine if Apple should be forced to open up iOS to third-party stores. If not, the company could also be required to cut its store fees, or allow app developers to offer their own payment systems, cutting into Apple’s profits.
If Apple comes out on top, though, the company still has to contend with regulators in both the U.S. and the European Union, which have been looking into the company’s App Store practices, as well. And then there’s the potential for new antitrust legislation here at home. In other words, Apple shouldn't count on holding onto its App Store revenue forever.
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