Morgan Stanley claims that Microsoft is the “biggest potential threat” to Apple’s App Store

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Under the European Union’s Digital Markets Act, Apple and Google will likely have to expand access to other companies-owned app stores on their mobile devices. The new rules will go into effect next March, providing an opportunity for rivals like Microsoft to join the fray.

Microsoft could launch a new app store for games as early as next year if regulators approve the company’s $75 billion acquisition of Activision Blizzard, Microsoft Gaming chief Phil Spencer has told. Financial Times in an interview on Monday.

“If we take a worst-case worldview and say Microsoft’s potential App Store could take all EU game revenue from Apple’s App Store – given that the DMA is currently focused on Europe only – This would equate to 8% of App Store revenue, 2% of Apple Services revenue, and an impact of about 1% on revenue and EPS at Apple’s business,” the analysts said. Apple generated $20.77 billion in services revenue in the first fiscal quarter of 2023.

But even if Microsoft succeeds in acquiring Activision Blizzard and launching an app store, analysts at Morgan Stanley don’t believe Apple cares.

In 2022, analysts found that Microsoft and Activision Blizzard had an “invisible impact” on Apple’s enterprise-grade revenue, as they accounted for less than 1% of Apple’s total services revenue combined.

“We estimate that the potential Microsoft App Store impact on iPhone will be limited to <3% of App Store revenue and <0.5% EPS, but it remains the biggest potential threat to with the App Store now,” they wrote in a Tuesday note.

Analysts added that there are still many unknowns about whether Microsoft can successfully complete the deal. Regulators in the US, UK and Europe have expressed concern about what the Activision Blizzard acquisition could mean for competition.

Morgan Stanley analysts also found that less than 30% of Apple users are willing to buy apps outside of the company’s App Store. Even so, they say Microsoft’s App Store could prove to be a real competitor over time. MSFT’s strong brand and technology leadership remains a potential long-term threat to watch for, the analysts wrote.

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