“Epic Versus Apple and the Future of App Stores”
Communications of the ACM, January 2022, Vol. 65 No. 1, Pages 22-24
Technology Strategy and Management
By Michael A. Cusumano
“What we need to do … is find a more equitable way to govern these marketplaces and share the wealth they are creating.”
In the early days of smartphones, many people found it difficult to find and install software. Online app stores solved that problem and fundamentally transformed the software business. App stores serve as marketplaces to help users find software from various companies that can work alongside the operating systems and applications that come bundled with their smartphones as well as personal computers. They work by establishing a set of rules that govern platform access, user interfaces, compatibility, prices, payment procedures, quality, security, and intellectual property rights. As of 2021, the Google Play Store for phones and tablets using the Android operating system had approximately 3.5 million apps, while Apple’s App Store for the iPhone and iPad had some 2.2 million apps. PC software companies followed the lead of smartphone OS producers, which remain the largest owners of app stores.
App stores have also become a two-sided platform business in their own right. Apple alone earned some $20 billion from its App Store in 2020 (even though the majority of apps were free), with mobile games accounting for approximately 70% of iPhone app sales. One estimate is that Apple’s App Store profit margins are as high as 78%. Producers have been paying a 30% tariff when they sell software licenses, upgrades, subscriptions, or virtual goods for video games through the Apple App Store, launched in 2008. Some developers have complained about these charges and Apple’s terms of use. Yet the convenience and distribution power of the app stores have kept them as the primary way smartphone users access software and developers access users. Nonetheless, Apple’s App Store has recently come under criticism and a legal challenge from Epic Games, a privately held software company valued at approximately $29 billion that makes Fortnite and other games.
About the Author:
Michael A. Cusumano is a professor and deputy dean at the MIT Sloan School of Management and coauthor of The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power (2019).
