Thread by @leah_nylen

Susan Athey of Stanford is up now, being questioned by Epic's Yonatan Even. She's former top economist at Microsoft and currently advises Expedia, Turo and Rover

Athey is explaining "switching costs," the costs a user bears when she leaves one platform for another. The average consumer has more than 100 apps and will have to figure out if each is available. Apple doesn't allow developers to say if they offer an app on other platforms.

If it's a paid app, the consumer would have to pay to download it again when they switch. And for some apps, transferring data between iPhone and a new platform isn't possible.

YGR says she thought that subscriptions were easy to switch over because you can just put your credentials in. Athey explains that it depends whether you purchased the subscription online or through Apple. If it's through Apple, you'd have to cancel and resubscribe to move

Athey explains that if someone has an iPhone and then get an iPad, they can download without any additional costs. But if they have an iPhone and then decides to buy a cheaper Android tablet, they then would need to consider the cost of rebuying any apps.

Developers face "porting costs" if they want to offer their app on more than one platform. They need account management software, payment infrastructure to allow users to work on both Android and iOS. Big developers will have that, smaller ones probably won't.

Switching and porting costs "stifle competition between iOS and Android. We have a stable duopoly where most users are already locked in. Even the few new arriving users, like children coming of age, are already going to be influenced by the platform purchases of their parents.”

“Even a popular developer can’t induce a consumer to switch platforms” to get an app, Athey said.

Economists believe that when you see firms choose to impose artificial friction costs "they are doing that in pursuit of profits" to keep users from switching, Athey says. "We don’t see a lot of switching" between smartphone ecosystems, she says.

Middleware is a type of software that bridges platforms, Athey says. An example of this would be a cross-platform app store that allows users to buy and download apps for more than one platform, she says

YGR asks about the NYT example. "The NYT can’t tell them 'Go and sign up on our website and have access across devices.' If they did that, there wouldn’t be the same kind of need for cross-platform app store you are talking about."

“That would be a big benefit," Athey said. But it only helps for “the problem of a single app. That would be helpful for the largest apps” but less so for smaller ones.

Apple has objected to Athey's testimony, saying she has made a lot of statements about consumer beliefs and habits. YGR has agreed to strike any statements about consumer habits except what is in her written testimony.

“I had lots of questions on this document about the factual basis for these opinions," YGR says of Athey's written testimony. "If there is not a factual basis, I will not consider it.”

Returning to Athey, she says an example of a cross-platform store would be Amazon Prime Video or Netflix. It works on multiple platforms and subscriptions or individual purchases are available whenever a user logs in.

The Epic Game Store and Steam are also cross-platform, Athey says. They work on PC and Mac so consumers can use any apps/games they've purchased on either platform. (Steam also works on Linux)

Cloud/streaming services also offer a middleware solution because they don't require users to download each app/video/game and run on servers in the cloud, Athey says.

One of the biggest constraints on these services is bandwidth, Athey says. "Just like Netflix has transformed the way content is produced and consumed, it could make a big difference," she says of game streaming platforms.

Apple's rules would force a user to download a separate app for each game. If that was required of Netflix, Athey said, “for every show I wanted to watch, I would have to download a separate app.”

Streaming services would be helpful to help a third company to enter the market. For example, a company could offer a low-cost tablet alternative to Google/Apple and if it had Amazon Prime Video/Netflix, a game streaming service and a browser that might be enough, Athey says.

Even asks about a 2013 email from Apple's Eddy Cue to Phil Schiller and Tim Cook. In the email, Cue says consumers aren't going to switch to Samsung because they would have to repurchase all their apps and movies. “They have to spend hundreds more to get where they are today.”

Athey says this shows that the friction was already something that Apple was considering strategically. “The economics are spot-on."

At the time, consumers had to buy movie/TV downloads through iTunes. Today, they don't because of cross-platform streaming services like Amazon Prime Video and Netflix. Those examples show the potential value for consumers to other cross-platform services, Athey said.

Now we're on to Apple's cross. (I think it's Karen Dunn)

Apple is hitting on Athey's former work for Microsoft (she was an employee from 2007 through 2015). She says she consults for them "on and off"

"Not all of my consulting clients are disclosed," Athey said. Microsoft "is just another client."

Apple asks why she didn't disclose that she still consults with Microsoft on her CV. "I don’t have a separate CV for this case," she says.

Apple's lawyer asks Athey why she declined to answer at her deposition what she worked on for Microsoft. “I had a non-disclosure agreement with Microsoft and I hadn’t sought their permission to disclose the nature of my relationship," she says.

Apple is asking about an Oct. 22, 2020 presentation that Athey gave titled "Apple App Store restrictions (an economic perspective)." Apple says the name of the company is redacted but Athey created the presentation for Microsoft

Epic's Yonatan Even objects because the name of the company is redacted and while Apple was able to figure out who it was from it was supposed to remain confidential. "The bell has been rung," YGR says.

Athey acknowledges she gave that presentation about Apple's App Store to Microsoft before she was retained by Epic.

Athey acknowledges that Apple has APIs and that third-party app stores would need to use those APIs to work on iOS. Apple's lawyer asks her repeatedly about whether that would force Apple to license its IP. Athey says she's not qualified to answer that.

"You’re imagining a world in which apple needs to license its IP to third-parties. What’s the plan?" Apple's lawyer asks. "Is the answer that Apple should just sue everyone on the platform?"

Athey acknowledges that she did not try to calculate how much it costs for users to switch, and that the study she cites that the average consumer has 100 apps also says that consumers regularly use about 30.