WEBVTT

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if you want to install an iphone app you must get it through the apple app store

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where apple charges developers 30 on all digital purchases

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well epic games thinks that's bunk so in august they sued both apple and google

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for that matter who also charges 30 on the play store alleging monopolistic

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practices now if epic can convince a judge that the apple tax must be reduced

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or that iOS should allow competing app stores it would be a huge boost to app

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developers bottom lines including epic games so is this just a silly slap fight

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between giant billion dollar sorry excuse me tim apple trillion dollar

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corporations or is it a conflict that may just shape the

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future of digital content platforms well okay the way i ask that makes it pretty

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obvious that i think it's the second one but you should keep watching to find out

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why why today's video is brought to you by

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the reason this conflict is so important is because no matter what you think of

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epic games their ceo tim sweeney and his sassy tweets or 10 cents stake in his

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company a win for epic here could essentially

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mean the death of the walled garden ecosystem all together

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imagine it a future where iphones and ipads for that matter could have

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multiple app stores side loading of apps or even custom operating systems without

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jailbreaking and you might think well gosh that sounds great but apple doesn't

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which is why in the lead up to the full hearing on september 28th they've been

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fighting this lawsuit tooth and nail and it's gotten pretty nasty

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it all started on august 13th when epic snuck

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such sneaky guys there a new payment option into an update for the iOS and

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Android versions of fortnite that allowed players to purchase v-bucks the

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in-game currency directly from epic at a

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discount rather than buying them at full price using the store's built-in payment

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processors now this is forbidden by store guidelines so apple immediately removed

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fortnite from their store and for that matter so did google but of course it

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was a trap that very day epic fired off

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60-page lawsuits to both companies alongside the release of a short film

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parodying apple's infamous 1984 ad

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you know the one that portrayed apple as the agent of change breaking ibm's

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monopoly over the computer market in epic's version titled 1984 night

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apple has taken ibm's place as the monopolistic bad guy with the bright

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bomber fortnite character replacing apple's idealistic one

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in a nutshell epic's argument is that apple's practice of forcing developers

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to a distribute iOS apps only through

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the app store and b only use apple's own in-app payment

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option constitutes a monopoly

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now Android allows third-party app

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stores and allows app side loading but

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epic argues there that google makes those options prohibitively difficult to

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use at scale effectively shutting out any real competition

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more on that later now after the suit was filed google mostly remained quiet

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while apple and epic filed multiple injunctions and counterclaims against

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each other including a particularly petty threat from apple that would have

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inflicted unnecessary damage on third-party developers who just happened

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to use epic's unreal engine for their own games

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the bottom line is epic wanted a judge to force apple to reinstate fortnite

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while the suit proceeds while apple sought damages against epic games for

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breaching a contract that they obviously entered into willingly which if you

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think about it it's kind of a fair point why would epic risk the revenue that

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they were getting from fortnite players on iOS a third of the game's player base

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accounting for tens of millions of dollars per month

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for this expensive and precarious legal

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fight what is epic after here well epic wants the opportunity to

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directly compete with apple services on iOS by either offering their own in-app

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payment option or by even launching their own iOS app store presumably for

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gaming and they don't just want this for themselves they want any developer to

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have the option to build or use these competing services they actually tried

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to do both of these things on Android fortnite's Android version was initially

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available only through the epic games website avoiding the play store and its

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30 cut of purchases unfortunately though this meant that the

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game wasn't nearly as accessible to less technically savvy Android users since

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Android requires changing system settings and dismissing scary malware

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warnings in order to install non-play store apps oh and then there was also

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the problem of actual malware infected copies of the game being out there on

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the web eventually at least the way epic tells

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it they were more or less forced to release fortnite on the play store now

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they also tried making deals with oneplus and lg to pre-load an epic games

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launcher onto those companies phones but epic claims google stepped in and

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blocked those deals from happening epic claims that this behavior together with

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the nine or so extra steps that users have to take to side load Android apps

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constitutes google's version of a monopoly now you'd think that epic

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having been shut down by the biggest tech giants in the world would just

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lie down and play by the rules but that's the weird thing

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it doesn't seem to me anyway like epic is just trying to make a few extra bucks

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here although as we've said they certainly are trying to do that it seems

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like the company is actually trying to affect industry-wide change that would

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benefit all developers not just them

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now pc gamers are especially well acquainted with their epic game store

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and accompanying shenanigans and it was pretty frustrating to see them snatch

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egs exclusives away from steam but tim

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sweeney maintained all that time that the goal of that disruption was

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ultimately to get more revenue to developers

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and his story kind of checks out the epic game store could still compete with

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steam if it took a 25 or 20 percent cut

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but it takes a 12 cut only with further

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discounts actually given to unreal engine games and that's compared to

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steam's 30 percent cut and hey actually now that we bring it up

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there's that thirty percent number again so yeah it turns out that that's just

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the standard cut found on basically every major digital platform including

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the app store google play the microsoft store all the major consoles and even

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otherwise physical stores like best buy and walmart

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and i don't know what's wrong with that right a 30 cut leaves

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70 percent for developers well yes

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but also no between platform fees licensing and

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other infrastructure costs developers can sometimes take home way less

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you see that standard 30 store cut is actually really old and comes from a

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time when most goods were physical rather than digital and needed to be

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inventoried warehoused picked packed and

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shipped well nowadays there's a case to be made that the distribution of digital

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goods doesn't require nearly as many resources so stores could make do with a

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much smaller cut but of course the incumbent stores

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including apple obviously don't want that to happen

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in 2019 apple's cut of digital content sold on the app store accounted for an

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estimated 18.3 billion dollars with a b

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and in earnings calls the company includes the app store in its services

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category along with products like apple music apple tv plus apple news plus and

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apple arcade so that 18.3 billion

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accounts for nearly 40 percent of apple's services revenue justifying

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apple's investment into other more prestige products like jennifer aniston

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and steve carell so apple google and all the rest are in no

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hurry to give up that 30 cut and the only way anything is going to change is

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through a legal attack like epics so how strong then is their case well it's

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going to come down to how the judge ends up defining a monopoly

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apple does not have a monopoly on mobile

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devices iphones actually account for under 50 percent of the market while

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typical monopoly cases in the past have dealt with much higher market shares say

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around 80 to 90

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but as we've said epic sued both google and apple and will

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be making the case that the two of them actually constitute a duopoly

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and the argument starts to look stronger here because with so few players in the

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space it's very easy for these companies to have an unspoken agreement to just

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not rock the boat so each of them can maintain control over app distribution

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and the in-app payment methods on their respective platforms

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for apple then the crucial objective will be to convince a judge that an

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iphone is fundamentally unlike general

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computing devices like pcs or macs

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steve jobs told the new york times in 2007 that he doesn't want people to

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think of the iphone as a computer i mean

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you don't want to install a bunch of weird third-party app store things on

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your phone and then have it not work because it got a virus right you can't

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miss that business call so from the get-go apple has seen iOS

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the app store and apple's own in-app payments as simple elements of one

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product the iphone not separate products in a market

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so a judge might think that epic's argument that apple has total control

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over the iOS app distribution market is nonsensical because of course they do

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that's iphone baby furthermore apple might argue developers

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are all treated equally on the app store and all the other app developers are

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abiding by these same guidelines to the mutual benefit of everyone involved the

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problem is well that's just not true

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amazon prime video and other high profile apps have negotiated their way

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to paying apple only 15 and then there's apple's strange

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distinction between apps that provide primarily digital or primarily physical

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goods for example uber and airbnb provide real

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world services so they are actually allowed to include direct payment

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options in their iOS apps you can just plug your credit card number in but then

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games like fortnite and other apps that only provide digital services

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must use apple's in-app payments this leads to a kind of absurd situation

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where some apps like netflix for example avoid paying the apple tax by removing

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the ability to sign up for services in-app and just redirecting users to

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their website but then email app hey

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used that same strategy and ended up getting removed from the app store for

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guideline violations only to then be reinstated once it added a two-week free

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trial using a temporary email address i mean i get i guess that's that classic

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apple simplicity right so if epic were simply asking for special

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treatment it actually wouldn't even be that out of the ordinary

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but they're not doing that they're trying to change the situation on iOS

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and on Android for all developers

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it's an incredibly ambitious undertaking and maybe even a foolhardy one most

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legal analysts say that the law as it stands now anyway is not on epic side

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but that's where the other prong of epic's two-pronged assault comes in the

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people fortnite players have been mobilized

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against apple here and even some large companies have come out in support of

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epic's overall goal a huge consortium of influential news publishers wrote a

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letter calling for apple to drop the 30 fee down to just 15

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microsoft wrote a letter asking apple to not revoke access to the unreal engine

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for developers and facebook even submitted an update to their app drawing

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attention to apple's thirty percent cut needless to say apple rejected

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facebook's update calling the bit about the thirty percent cut

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irrelevant information you don't say

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now full disclosure our sister company or one of them Floatplane has actually

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had its own clashes with apple and their app store policies in the past but

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that doesn't mean that i'm completely against them here apple deserves

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compensation for building and maintaining an ecosystem that is unlike

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anything that came before it and as apple will surely point out the app

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store has created from nowhere a whole

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industry for developers where there was none and provides exposure that many

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small developers simply couldn't afford to pay for through direct marketing and

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there are even consumer benefits direct ones like the fact that the app store

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has by and large done a pretty good job of keeping malware off of i devices over

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the years and indirect ones as well iphone users love rubbing their five to

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six years of software updates in the faces of us Android plebs who are lucky

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to get two or three years guys that ain't an accident

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most Android phone makers only make money at the time they sell you the

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device or by serving you intrusive ads after the fact they are financially

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incentivized to sell you more phones more often

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by contrast apple certainly makes money when they sell you a phone but they also

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continue to enjoy an ongoing revenue stream for as long as you keep using

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your device greatly increasing their motivation to keep it working for as

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long as possible so you can keep buying candy crush gold bars or whatever it is

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you spend your money on so those are all reasons that i think most

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developers and consumers would actually want to continue to use apple's official

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app store even if an alternate one existed

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so the real goal here seems to be to force apple to lower their cut either by

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negotiating with them directly which was actually epic's first strategy or by

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forcing them to allow third-party stores which would then undoubtedly try to woo

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over customers with lower rates incentivizing apple to compete with them

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so epic figures apple is abusing its powerful position and apple says my

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playground my rules which in fairness

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does kind of sound like abusing your powerful position but

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i'm not a lawyer and neither are you

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unless you are in which case good for you

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description you know it occurs to me now actually this didn't make it into the script but

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apple could have a bit of a weaker argument on their hands for the

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the differentness of the iphone when the same processor is going to end up in

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like macbooks and imacs in a matter of months

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oh no this is not a general purpose computer it just

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has a screen and the same processor and

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oh also oh snap you know like max can also run

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iOS apps now uh-oh the water is getting pretty muddy isn't

00:16:25.600 --> 00:16:32.160
it oh if you enjoyed this video uh maybe uh go watch what's another like more

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analytical video we've done recently oh yeah the uh buy a computer right now

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video about the effects of supply chain problems on overall computer supply and

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pricing that's a good one