Ben Gilbert: evaluation

Transcript context

…Let's do it. All right. All right, David. Grading. Normally, for anyone new to the show, we would normally grade a transaction. Was it a good use of capital for Facebook to buy Instagram? In that scenario, that is our A+, and then everything else rolls down from there to our F for AOL Time Warner. In this scenario, I guess we could grade, was it a good idea for Tencent to deploy capital or something like that. The big thing that we all should be grading right now is this fight with Apple. What is going to resolve here, and what should each company do? The way that I want to evaluate this is if Epic holds strong, what should Apple do? And if Apple holds strong, what should Epic do? To set the table for that, I pulled up a bunch of numbers that I think are worth walking through here to contextualize this fight. The App Store last year generated an estimated $18.3 billion of revenue for Apple. That's a 30% cut, so $61 billion that was spent on the App Store that went to Apple and developers. For Apple, for anyone who's been following the stock and listening to earnings, when Tim Cook says services revenue, 40% of that is App Store. The $61 billion represents 40% of the services revenue. Fortnite makes, right now, about $200 million a year on iOS, which means about $60 million is going to Apple. And that's 12%, which actually came out in a court proceeding today. Fortnite last year did $1.8 billion in revenue across all of its platforms. You take 12% of that, comes to $200 million that they're making on iOS. That's what's at stake here is that $200 million. Then there's this other thing that has entered the arena, which is Apple pulling out the hammer and saying, we are going to make it so that anyone using Unreal Engine can no longer deploy on to Apple platforms. Which sounds really scary, and most people analyzing this are looking at it saying, well, that's the real problem here because the Unreal Engine loses credibility with developers if this major platform—where there's an incredible amount of spend going on in the App Store—no longer has Unreal Engine as a deployment target. You can deploy these five other platforms, but not the 6th, which is a big one. That’s a problem. It’d be one thing for Epic to lose $200 million Fortnite revenue over this. It’d be another whole thing for them to massively disappoint all of their Unreal Engine and all of their service customers.…

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