(Preview) What’s Next for Apple and the App Store, The Risks of Continuing This Fight, More on Meta and Its AI Vision

Ben's Daily Update on Friday and Apple's argument appealing the order in Epic v. Apple, the risks facing Apple as they've continued to fight these battles the past several years, and questions for the future as the present gets increasingly messy. At the end: Meta's plans for AI business agents, an emailer asks whether Meta's message today means Facebook failed yesterday, and a proposal for AI officiating in the NBA is soundly rejected.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Andrew Sharp?

  Hello and welcome to a free preview of Sharp Tech.

• 0:08Ben Thompson?

  They can push on, but it's been a decade.

• 0:12Andrew Sharp?

  And they haven't, they haven't. And look, when I go back to the initial Apple v Epic decision, maybe I read it wrong, but the way I read it was she was talking about Apple's property rights and their rights to monetize via in-app purchases. But then the injunction against the restrictions on linking to external websites was about allowing people to do it externally and find out what the competitive rates actually are. And so it was sort of like her trying to split the apple, acknowledging, apologies for the pun there, acknowledging that Apple can make money in its own app store, but see what rates look like elsewhere, or let companies monetize elsewhere. And Apple, you could argue, as extreme as the

• 0:57Andrew Sharp?

  judge is being, Apple was also extreme in response, saying, "We're going to track you and charge 27% fees on the open web if it was generated in the apps." And so I think that there are multiple reasons Apple should just surrender at this point. And I wanted to run this tweet by you. Matt Cowlin on Twitter, he tweeted, "Not sure I understand the hype around the Apple ruling. Taking your payments to your own website, you will, without a doubt, see more than a 15% to 30% drop in conversion rate." What do you think of that take for potential developers out there?

• 1:36Ben Thompson?

  Well, it's interesting. By and large, that's probably true. I've argued this case for a long time.

• 1:41Andrew Sharp?

  It reads very plausible to me, yeah.

• 1:43Ben Thompson?

  For why Apple should back down and let it happen. Actually, my argument has always been Apple should put a fence around games. Then you can argue in court, "We're just acting the same way Sony does, like Microsoft does, Steam does, 30% is standard for games. There's high risk for abuse. There's high risk for, there's lots of kids that play it. That's fine." And then they should have let productivity apps, bookstores, music services.

• 2:07Andrew Sharp?

  Substack, yeah.

• 2:08Ben Thompson?

  And let them just have. Let them have a web view, a page in their app that lets them process purchases and that's separate. That's been my take again for a decade. It's in when you came out in this case that games is so much of their revenue. It was such an obvious offer up. And then, by the way, you have most the ecosystem back on your side. Like, I love you, game developers. No one else cares. It's like, oh, sorry, the game developers aren't getting 100% of their magic gems, right? Like, like, it just doesn't engender the sympathy that a Spotify does. Where we're competing with Apple Music. This is unfair. Or an Amazon does. I want to buy a book and I have to go to the website. This is stupid.

• 2:48Ben Thompson?

  Or Netflix brings up the thing and they're like, yeah, call this number. Sorry, we know it's dumb. Like, so.

• 2:54Andrew Sharp?

  There are other ways. It's on you to find them. But yes.

• 2:57Ben Thompson?

  Well, but to this point, to, to the Netflix or sorry, to the Spotify Netflix examples, I think are interesting. So number one, 15 to 30%, the 30% is a lot. Like, that's a lot of margin. Like, so the. And the level of innovativeness and exploration to get a conversion rate good enough to over. There's a lot of room to experiment. Now, I tend to agree you're just going to convert better in app, particularly for the sort of purchases like in games where you're in the moment. You just want to get past the level. And kicking you out like almost makes it worse. And you're like, what am I doing? Why am I spending my money on this? Right? Like, I think, I think that's definitely the case. Number one. Number two, by virtue of Apple losing total control.

• 3:42Ben Thompson?

  One thing that's really interesting is they wanted to use this, this official link, like entitlement thing where it was just a link. So you're kicked out to a, to a website and then you have to log into the website and then you have to pay. And there's a lot of hoops. You have to like pick out what you want to buy because it's the same link for everyone. Now, because there's no restrictions, you can have what's called a tokenized link where the, the, the link can have URL parameters attached to it. Where it goes straight to a shopping cart with your 500 gems. You're already logged in. They know who you are. And it's actually pretty seamless. And, and this was a real, I think, mistake by Apple. I think they could have gotten away making security arguments by it needs to be a standardized

• 4:25Ben Thompson?

  link and blah, blah, blah, blah, blah. And then you're really killing the conversion rate by going for everything. They now lost total control and the chances at getting a good conversion rate are much higher than they were if Apple had more control. Now, is it gonna be as good? I don't think so, but I do like if you get the user logged in once, it's gonna be a consistently good experience for every subsequent purchase. Number two, if you're a Netflix or Spotify, this is the point I was getting at before, it's a one-time thing and you're paying the margin to Apple forever. So it's not just 30 or 15% for subscription apps. It's not just 50%

• 5:07Ben Thompson?

  on one purchase. It's 50% every month for the rest of time. So actually, how much conversion can you give up just to have been able, whenever you do convert, you're not giving up margin and you're not giving up margin for the whole lifetime of the customer. So actually, that gap is significantly higher for subscription apps than they are for these one-time purchases. So I think Matt's point is more applicable to one-time purchases that are mostly about games. I think by Apple not giving in, they lost total control such that if you just play Candy Crush all the time, login once and you're gonna get cheaper gems for the rest of time, like it's

• 5:51Ben Thompson?

  not gonna be a terrible experience. And for entities like Netflix or Spotify, like the payoff is, I think Matt's underrating the benefit. Yeah.

• 6:00Andrew Sharp?

  Yeah. Well, I raise it only to say that it's super plausible to me that if developers are forcing people to leave the app to complete transactions, there will be some level of drop off in conversions as there's more friction injected into the process. And I don't know whether it's the same neighborhood as 30% of overall sales, but that doesn't seem crazy to me. And so if Apple just abides by this order, the optimal approach for most developers could end up being continuing to use in-app purchases as opposed to restricting that as much as they can and trying to force people to their external websites. Like, there's no guarantee that suddenly all the services revenue is gonna go away as a result of this order.

• 6:43Ben Thompson?

  Right. Well, into the judge's general argument, Apple's easiest response to do this is to lower their rate. Right? And such that that delta becomes even smaller. And again, something they could have done for years and years and years. And to the extent, and this is what I meant that I had that line about a price discovery mechanism. To the extent Apple does respond to this by lowering their rates, they are in many respects, uh, making the judge's point that they had a super competitive rate.

• 7:11Andrew Sharp?

  Indeed, yes. Well, and so the other question that I have for you in terms of what Apple might do next. Because look, I, I do understand that Apple will want to appeal this ruling if for no other reason than to clean up some of the precedent around what happened here. But if they were to win on appeal and then try to reinstate the system that they just had, where you're charging developers a 27% fee for anything that happens on an external website.

• 7:43Ben Thompson?

  Right. Which they're never gonna do.

• 7:44Andrew Sharp?

  Six or seven days. Like, it's unbelievable. But if they win, it just feels like it inevitably ends with regulation that comes for not just purchases that happen on external websites, but all in-app purchases and Apple is hurt a lot more in that scenario.

• 8:04Ben Thompson?

  Absolutely. Like, Apple, Apple needs to realize they have a lot to lose here. They can keep a lot of what they have. And when keeping a lot of what they have implies they're losing some. And that some they're losing is all bullshit. So it's like, it should be fine, right? Like, no, that's exactly it. Like, I, I, again, my personal preference, which, which I think is very generous to Apple. Carve out games. I think there's legitimate security arguments. There's legitimate kid arguments. And sorry, game developers, I'm just not that respectful of you arguing over margin on the agenda yourself.

• 8:38Andrew Sharp?

  Has that ship already sailed now?

• 8:40Ben Thompson?

  Well, I'll get to that. I'll get to that. I get to that. And then have web views for productivity apps and media services. You have your own payment flow. You can scroll through the thing. You can go there. And then if you want the actual true native experience, that's. Genuinely pretty great. Apple owns that and they have a right to own that because they built the platform like that's their whole thing that like that is a place that Apple should have been okay with to your point. The problem now is okay. Number one, the game distinction is gone. Like it's be the whole app store is being treated as one. I think that's bad for Apple because there I think the abuses with entities like Spotify are so egregious that

• 9:22Andrew Sharp?

  Apple's abuses.

• 9:23Ben Thompson?

  All the arguments in favor of coordinating off games get ignored and just the whole thing gets put in the same bucket. I think keeping stuff in the same bucket as Apple's tried to do has been a real mistake. So that's number one. And then number two, to your point, if they're forced to open up the in-app purchase flow so you can drop in your own payment processor or whatever it might be. Now you don't even have the conversion problem because they have a great conversion flow. You're just using Stripe instead of Apple like that's not great either. I don't think that should happen. I think Apple in probably can still preserve that, but it's not out of the question precisely because Apple keeps pushing it.

• 9:59Andrew Sharp?

  Yeah, yeah, exactly. If they keep pushing it and they're successful, there's no telling what would happen because I don't think this fight is just ever going to go away. It's not going to be like, all right, well, we want on appeal. I guess the law is clear now.

• 10:12Ben Thompson?

  I will be front and center saying, I expected Apple to win. This is why my point all along is this is an egregious abuse that shows the limits of our antitrust and therefore Congress needs to pass a law mandating A, B, C, D. And, and there's, there's an aspect where the frustration with like some of the European laws like, like the DMA, for example, it, it's, it's too prescriptive. Like there's very broad principles that could work here, which is basically if you control a platform, people get to sell stuff on your platform. You don't get to tell people on your platform what to say or do. Like, like, and that's, that's one I think that appeals to the America. Like there's, it's not a, to be clear, it's not a legal free speech argument, but there's

• 10:54Ben Thompson?

  a bit here where Apple not like muzzling what people can say. It's, it's un-American.

• 10:59Andrew Sharp?

  Really gross.

• 11:00Ben Thompson?

  Like it bothers you from like a, just a visceral standpoint. And I think there's actually a pretty simple, pretty clear law that expressly address, and this, by the way, My whole pushback on the antitrust movement has been that it's not suited to aggregators. Apple is a platform. I think it is suitable to platforms and it could be, this one point, I think, could be clarified very easily by Congress, very simply, that, that basically, if you're a platform, you don't get a muzzle who's on your platform, period. And that appeals, that could appeal to people that are concerned about free speech issues, for example, right? Like, like if you're, if you're, if you provide APIs that let third-party apps do,

• 11:43Ben Thompson?

  you cannot mandate or put restrictions on what those apps say or do, like, and how they monetize. If you're a platform, you have tremendous benefits. We recognize the great benefits you bring to society, and because of that, you have a special mandate to uphold the values that we feel is important, which is free commerce and free speech. Like, who's opposed to that?

• 12:06Andrew Sharp?

  Well, and this is what's so crazy. If Congress acts, if Congress is forced to act, Congress isn't gonna say, "All right, well, it's fine that you continue to charge 30% for every transaction in your app store." So the further Apple pushes it, the more they're jeopardizing here. And there's an off-ramp that has been provided by this judgment, and I understand why they might appeal it, but regardless, I think they should allow external website payments and not track people for six days and try to take their pound of flesh, because it doesn't, the story does not end well for Apple if they continue this fight. But that was true three years ago. Yeah.

• 12:47Ben Thompson?

  Like, I would say, you know, Tim Cook's fundamental flaw, I think, has been, he's allowed principles to become religions.

• 13:05Andrew Sharp?

  All right, and that is the end of the free preview. If you'd like to hear more from Ben and I, there are links to subscribe in the show notes, or you can also go to sharptech.fm. Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from Stratechery and the Stratechery Plus bundle. Check it out, and if you've got feedback, please email us at [email protected].