Apple made at least $100 million on Fortnite app

Apple made at least $100 million in commission off Epic Games' Fortnite during the two-and-a-half years the popular online game was on the App Store, a company executive testified Wednesday.

Michael Schmid, head of game business development for the App Store, declined to answer whether revenue from Apple's 30% cut of all purchases made inside of the game totaled more than $200 million. He said it would be "inappropriate" to share more information.

The figure was disclosed on the third day since Apple formally opened its defense in a trial before U.S. District Judge Yvonne Gonzalez Rogers over the App Store's fees and payment processing restrictions. Apple has offered high-ranking company executives to testify that the App Store has promoted the app economy, innovation and security and privacy features on its mobile operating system.

Schmid detailed numerous instances in which Apple supported, and in some cases prioritized, Epic's promotion and troubleshooting of Fortnite. Apple approved over 80 requests from Epic in 2020 to expedite app review of the game in order for it to roll out a new update, he said.

In the 11 months before the game's removal from the App Store, Schmid noted that Apple spent roughly $1 million in marketing Fortnite per year.

"It was far more than any other game that I've worked on," he said.

But during questioning by Epic's counsel, Schmid testified that Apple generated a commission of more than $100 million over Fortnite's lifetime on the App Store. The game was available for approximately 30 months before it was removed for bypassing Apple's payment processing system, which led to Epic's high-profile antitrust lawsuit against the world's most valuable public company.

The figure might be much higher. Lorin Hitt, professor of operations, information and decisions at the University of Pennsylvania Wharton School of Business, estimated in court filings ahead of the trial that "Fortnite on iOS earned Epic more than $700 million" across 100 million users. This would translate to $1 billion in revenue for Epic with Apple taking $300 million from its 30% cut.

Hitt's calculation is in line with data firm Sensor Tower's estimation that Apple made roughly $354 million from $1.2 billion in Fortnite purchases made inside of the game on Apple devices.

Among Epic's central claims in its lawsuit is that Apple takes an unfair cut of all in-app transactions by forcing developers to use its payment processing system.

While most of the testimony from Apple's witnesses has been directed toward supporting its narrative that it does not have a monopoly in the distribution of digital games, a company executive who took the stand on Wednesday shifted the court's focus to whether the policies that govern the App Store are necessary to promote the security and privacy of iPhones.

Even if Rogers finds that Apple has a monopoly, she could conclude that those benefits outweigh the harm to consumers. Epic Games v. Apple Inc., 20-cv-05640 (N.D. Cal., filed Aug. 13, 2020).

Craig Federighi, senior vice president of software engineering who oversees the development of Apple's operating systems, testified that maintaining a centralized distribution system for apps and prohibiting alternative marketplaces provides enhanced security for iPhones. He acknowledged that "we have a level of malware on the Mac that we don't find acceptable and is much worse than iOS."

If the security techniques for Mac computers were applied to Apple's mobile operating system, he said iPhones would "get run over to a degree dramatically worse than is already happening on the Mac."

The testimony was aimed at discrediting one of Epic's primary arguments that Apple's control over the distribution of apps is not necessary to keeping iPhones safe and secure. Epic has repeatedly pointed to the security of Mac computers despite Apple allowing users to download third party software.

Although Apple has a variety of defenses against malware on its mobile operating system, Federighi testified that the human element of the app review process, in which Apple has to approve apps before they get onto the App Store, is a critical component to security.

A computer, he said, cannot tell whether an app is misrepresenting its function to trick users into downloading malware.

Rogers asked why Apple should be allowed to forbid the same stores that exist on the Mac for the iPhone.

"iOS has established a dramatically higher bar on protection," he responded, noting that phones store much more sensitive information on their users than computers. "Mac is not meeting that bar today."

Contesting the testimony of an Epic expert who said that Apple's operating system and the Android operating system are equally susceptible to malware, Federighi said that Android has "something like 50 times the malware of iOS."

"It's well understood in the security community that Android has a malware problem and that iOS has succeeded in staying ahead of the malware problem," he said.

Federighi also testified that prohibiting alternative marketplaces for apps also promotes privacy. Apps often collect information about users' activity, he said, that developers sell to data brokers that can be weaponized in illicit ways.

"This information can be used to simply try to sell you for more effective advertising," he said. "It can also be used to target you for essentially riling people up into activating them politically -- activating them in ways that are detrimental to society."

Federighi said Apple restricts the information collected on users solely to what apps need to function properly. Without centralized distribution, he said that most developers would be able to evade these privacy protections.

Apple is currently engaged in a highly-publicized feud with Facebook over its App Tracking Transparency feature, which forces developers to get permission from users if they want to track their personal information. Facebook, which makes the bulk of its money by collecting and selling such data, has been a vocal opponent of the feature because most users will opt out of such tracking.

Trial will resume on Thursday with expert testimony from Dominique Hanssens, professor of marketing at UCLA. Apple chief executive Tim Cook will take the stand on Friday.