Epic Games Is Pretending to Be the Poor Little David to Apple’s Goliath

SHOCKER: It’s not fighting for the little guy, it’s a public negotiation tactic.

Epic Games Is Pretending to Be the Poor Little David to Apple’s Goliath

Apple and Google created quite a buzz this week when they kicked out the popular title by Epic Games, Fortnite, off their respective app stores for violating its guidelines. That’s right, Google kicked out Fortnite too. But 99% of the news coverage would’ve been focused on Apple alone because of the better SEO. That’s understandable. Apple has also given an ultimatum to Epic Games, graciously giving it a fortnight, to make it’s Fortnite comply with its guidelines or risk losing its developer account without which it can no longer distribute apps on the App Store. I also interviewed a couple of independent app developers who weighed in on this matter. Let’s find out what they have to say.

Epic Games’ feud with Google and Apple

What Happened?

Apple and Google kicked out Fortnite off their respective app stores.

Why this Happened?

There exists a guideline regarding in-app payments that apply to every developer who sells digital goods or services on the App Store and the Google Play Store. It states that any commerce done within the app must use the default Apple In-App Purchases / Google In-App billing services as the method of payment. Apps cannot use or link to an alternate payment method within the app. Both Apple and Google charge a 30% cut on all transactions. This is the business model for both the App Store and the Google Play Store.

Epic Games violated this guideline by offering the following within its app, Fortnite.

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A clear violation of the guidelines indeed

This prompted both Apple and Google to remove Fortnite from its app stores.

For a long time, Fortnite wasn’t made available on the Google Play Store to bypass this very 30% cut on revenue. But since Android is an open ecosystem, it allows apps to be sideloaded onto an Android device without relying on the Play Store. This implies that you can install any available app off of the internet onto Android devices. Google doesn’t vouch for these apps, and they may or may not contain potential malware. So when you install apps downloaded from the Internet Android issues a security warning making the user aware of potential threats.

Epic Games intentionally chose to violate the guidelines of both the app stores.

Epic Games finally caved in and made Fortnite available on the Play store to avoid this, since a security warning while attempting to install the app isn’t ideal to a potential customer. However, Apple doesn’t allow apps to be sideloaded on to its iOS devices. Fornite had no choice but to make its app available on the App Store since it was the only place to install apps onto iOS devices. And it has been pretty vocal about the substantial revenue cuts it incurred in doing so. So to take a “stand” against Google and Apple, Epic Games intentionally chose to violate the guidelines of both the app stores.

Epic Games deployed its trojan horse

So Epic Games in response to Apple and Google removing Fortnite from their app stores (which they very well were expecting) is suing both the tech giants. Oh, they had the lawsuits ready to be filed as part of their pre-planned PR Stunt. Additionally, they had an ad ready to go, taking a cheap shot at Apple’s iconic “1984” ad.

A parody of one of the most iconic ads of all time

In the ad Epic Games claims,

Epic Games has defied the App Store Monopoly. In retaliation, Apple is blocking Fortnite from a billion devices. Join the fight to stop 2020 from becoming 1984.

Here’s the problem with this ad. Apple didn’t block Fortnite from a billion devices. Epic Games forced Apple’s hand in doing so by violating the well-established guidelines. If anything, Epic games banned Fortnite themselves.

Epic Games chose the potential increase in revenue over its users.

They were well aware of the consequences (removal from the App Store). They decided against the best interests of its users. Many users who aren’t on the latest version of the app yet, can’t play the game because they are unable to update to the new version since it’s been kicked off from the App Store. It has asked its userbase to join the fight using the #freefotntire hashtag. They are simply leveraging its majority young audience against an issue most don’t even comprehend.

But this is not the first time a major corporation has spoken out against Apple’s unchallenged rule over it’s App kingdom. It has faced criticism over the years for its mandatory 30% cut from competing services like Spotify, who claim Apple runs its store like a “Monopoly”. Let’s dive in a little deeper on this “Monopolistic” control.


Apple’s “Monopoly” on its App Store:

Apple is facing increasing regulatory pressure over its operation of the App Store economy. It is one of the many “big-tech” companies on the watchlist of the Department of Justice and the Federal Trade Commission, which is taking a closer look at whether Amazon, Apple, Facebook, Google have too much power(monopoly) and wield it in anti-competitive ways. To understand it’s “monopoly” better, we need to understand the App Store better. Let’s dive in.

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In 2008 Apple launched the App Store on its iOS devices. It was the first of its kind, and it allowed 3rd party developers to write apps for its phone and make them available for purchase on the app store. Google’s Play Store also launched shortly after.

Before the App Store most digital goods and services were sold in physical stores on a physical storage device /medium. So the goods sold had a significant markup because of the upkeep involved in physically storing the products. And the money that the developers were paid was significantly less. So with the launch of the App Store, Apple founded a revolutionary new marketplace where anyone with a developer account can sell apps and services digitally while paying Apple a cut of its revenue. It facilitated new digital businesses that would not exist without the platform. An entire industry has been built around app design and development. The App Store was a huge success, and this model of digital distribution became the new standard in the digital space.

The App Store was responsible for $519 billion in billings

Apple released a new study from economic consulting firm Analysis Group that says the App Store was responsible for $519 billion in estimated total billings and sales of both physical products and services and digital goods in 2019. Of that $519 billion Apple says, just $61 billion constitutes the digital items that it may receive a 30 % cut of (or it is a reduced 15 % in the case of longer-lasting subscriptions). Needless to say that from the sales generated, Apple’s App Store alone could secure a spot on the Fortune 100.

Apple’s App Store also continues to dominate the worldwide market in terms of revenue gained from premium apps and in-app purchases. The amount generated by Apple’s platform was approximately 80% greater than Google Play’s estimated gross revenue, despite the Play Store having 2.8 times more installs.

A part of this reason may be credited to the higher average purchasing power of iOS userbase over the average Android userbase. Even Epic Games in its lawsuit against Apple claims that,

“ The iOS userbase is also uniquely valuable in that its userbase spends twice as much money on apps as Android users. This is consistent with Epic’s experience, as the average iOS Fortnite user spends significantly more on in-app purchases than the average Android Fortnite user.”

But the App Store’s dramatically higher revenue in comparison to the Play store can also be owed to one of its rather unexplored sides, the “Walled Garden”.

Apple’s Walled Garden

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Apple’s ecosystem by design is a closed one. When you buy an iOS device, you essentially buy into its restrictions. You don’t have much control over your phone in the sense that, you can’t install apps from the internet, it doesn’t facilitate file sharing with devices outside of its ecosystem(iOS and macOS) and even the existing system has its limits. And the majority of the users can’t (aren’t aware) modify the underlying OS to run apps that are not approved by Apple.

This restrictive nature is designed with integrity and security in mind. Whether you like Apple or you’re on the other side of that argument, one thing you can’t deny is that Apple has had success. Apple’s tight control over both software and hardware is what arguably makes its products great. So you may be asking yourself, what does this have to do with App Store’s higher revenue?

Let’s talk about Android. The Android ecosystem is built on top of Linux, an open-source software. Meaning anybody can modify the underlying OS according to their needs. This means that Android users can possibly gain access to the code of any app on the Play Store. And you can modify the contents of the app to unlock premium features which are supported by the in-app payments.

There are huge online markets for pirated Android apps on the internet

And if the app does not support itself on a subscription-based model but rather a one-time fee, the app can be shared to other users easily because of the “open” file-sharing in the Android ecosystem. So there are huge online markets for pirated Android apps on the internet. You can get access to the premium version of Spotify free of charge on Android! And the pirated app catalogues are endless!

Pirating apps is absent for the most part on the iOS side of the spectrum. So the users are forced to do the morally right thing, purchase premium apps/features. So this anti-piracy is a huge plus for developers. So Apple’s “Walled Garden” in fact benefits its developers in a big way.

Epic Games wants to knock down Apple’s Walled Garden

In the lawsuit against Apple, Epic Games also shows its interest in building its third-party store on iOS. It essentially wants to knock down Apple’s Walled Garden(The very Walled Garden that makes the App Sore so much more profitable). Of Course, it wants to! Who wouldn’t want to set up shop on a platform with a billion users who spend twice as much money on apps as Android users, and collect a cut of revenue for hosting apps on its store? If Epic Games is allowed to build a third party iOS store, another company might want to as well. And the question arises, “Who has the authority to decide on who gets to set up shop?”

It’s Apple Of Course! They get to decide what they want to do, with the software that they develop, that end up on devices they design, and manufacture. Apple has decided that App Store is the only way to put apps on iOS devices, just as Sony decided the PlayStation Store is the only way to download games onto their PlayStations and Microsoft with their Microsoft Store on Xbox. One can infer from the design choices Apple has made from the beginning, that it has been quite clear where they stand on this.

Of Course, Epic Games wants the extra $360 million

Since it’s launch in 2017, Fortnite has used the App Store platform to gain 133.2 million users and made $1.2 billion in total sales. Of which Apple’s cut is $360 million. It has made also made an addition $10 million from the Play Store since it’s launch in the April of 2020. A report from SensorTower says, Fortnite has seen $43.4 million in total revenue and 2.4 million installs and $3.3 million and 2 million installs came within the past 30 days from the App Store and the Play Store respectively. Epic’s feud with Apple is more understandable now, because of how much money left its table. With this feud disguised as a “fight for all”, Epic Games is gambling with a high-risk stake.

Decoding Epic’s argument on the default payment processing system

Epic Games wants the ability to add 3rd party payment processing systems to exists alongside the default payment systems in the App Store and the Play Store so it can direct its users to choose its preferred payment processing service. This means that Epic Games will not have to pay either Google or Apple a single dime for existing on their platform. Even Epic Games in its store takes a 12% cut on revenue. Not quite the zero revenue cut they are pushing for with the in-app purchases on the App Store and the Play Store. So what payment processing method is trustworthy? Who decides it? Should Apple and Google accommodate any and all payment methods that want to exist on its app stores?

With more and more apps supporting itself with a subscription-based model or free-to-use with paid premium features, adding a 3rd party payment processing feature will take a significant toll on the sustainability of the App Store and the Play Store ecosystem.

Knocking down Apple’s and Google’s in-app payment monopoly and possible competing app stores might be good for corporate developers. But in a lot of ways, it can be bad for the consumers and small independent developers.

Benedict Evans brilliantly puts the consequences of changing this system.

Epic Games CEO, Tom Sweeny tweeted, “Another argument against supporting #FreeFortnite is “this is just a billion dollar company fighting a trillion dollar company about money”. But the fight isn’t over Epic wanting a special deal, it’s about the basic freedoms of all consumers and developers.” To which Benedict replies with a thread of tweets,

The good part of changing this: anyone could do anything they want in payment
The bad part of changing this: anyone could do anything they want in payment— Benedict Evans (@benedictevans) August 13, 2020
“This is similar to the fallacy ‘it’s my computer so I should be free to do what I want. It’s bad for users for any random app to ask for a card. It’s easy for a big trusted brand to do that, but much less so for other developers Is removing that level playing field good for devs? Today, any developer on earth uses the same safe, trusted app store and payment system. The smallest developer you never heard of is on the same playing field as Epic. Apple’s intermediate layer means you don’t have to trust the dev. Epic wants to remove that.
“This is, perhaps, a tragedy of the commons problem. it’s clear this would make Epic more money, and it would be good for some other developers. But it’s hard to see how it would be good for users at all, and it would be bad for lots of smaller developers as well. Apple is often capricious, arbitrary and inept in how it moderates the store, and rent-seeking in how it manages App Store payments. But the principle of a sandboxed store and a unified payment system are very good for users and, actually, developers.
“If you follow the logic of Epic’s argument, iOS wouldn’t just have Android’s security model — iOS & Android would have the Windows security model. Over 4bn people have a smartphone today. If you remove Apple and Google judgement from the process, and make those 4bn people solely responsible for deciding what software should be allowed to do what with those phones and their data… that would not be good.”

In-App purchases are one of the many conveniences provided by the App Store and the Play Store. The ability to pay for digital goods and services without leaving the app certainly helps boost the user’s decision on conversion to premium features.

There are apps like Spotify, Netflix, Amazon Kindle etc. that are under a category called “reader apps” on the App Store. These are apps where users exclusively purchase or subscribe to content outside the app, and the users can access its services on iOS. These apps have marginal costs on its content and can’t afford to pay a 30% cut to Apple while providing competitive prices for its products. So these companies opted out of the in-app purchases and chose the reader app model to distribute its services on the App Store. So Epic Games could possibly call for this distribution model for its “V-Bucks”, the in-game currency in Fortnite. However, it has no marginal costs. But of course, it doesn’t want to. Everything on the Fortnite store is an impulse buy which employs a ‘FOMO’ as its sales strategy.

Fortnite, like most free-to-play games, relies on users doped-up on its content, on a game frenzy, desperately wanting to level up in an ever so stimulating environment designed to disconnect the user from reality, one game at a time.

So Fortnite, cannot afford to not have in-app purchases within its app to facilitate the hunger of its doped up users which offers the least path of resistance. They don’t have to go outside the app, log-in, fill in the credit card details and then press pay and wait for the bill of sale, while they can rather do so with the click of a button(or Biometric authentication services). More time the user spends within the app, higher are the chances of a sale. Apple’s “It just works” setup, in this case, comes with a premium.

The App Store and Play Store are reputable platforms built with years of trust from its users on strict security implementations and it’s hassle-free use. The monopoly in its payment systems exist rather simply because of its competence and not because of some tyrannical greed. Changes to the system can't happen without fundamental changes to the very principles that made it successful in the first place. One cannot expect to set up shop rent-free on a platform of this scale, all while enjoying the conveniences of its establishment. Adding 3rd party payment services unnecessarily complicates things and comprises the integrity of the app stores. So the takeaway, is that a single trusted payment method is pretty good for users and many independent developers as a whole.

Decoding the 30% cut

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Apple (and Google) provides the tools necessary to build apps on their respective platform. It regularly updates the said tools with new technologies and hosts the apps globally, free of charge. Apple’s rigorous review process employs a combination of automated systems and people to review every app that developers submit. Even every update to an app is reviewed. (Although a lot of developers are complaining about reviewers being often misaligned in the way they handle the review process. And some reviewers reject apps for no apparent reason but simply because they aren't technical enough to have a clear conversation with developers and they don’t understand what they are reviewing.)

Anyway, to support all these activities there exists a business model that takes a 30% revenue cut on every sale from the App Store. 84% of apps are free, and developers pay nothing to Apple. Only those apps that are paid or rely on a subscription model are taxed 30% (Renewal of subscriptions after year one are effectively dropped to 15%). I’m in no way implying that it is fair or it takes 30% of all sales to keep the lights on at the App Store.

Apple, Google, Sony, Microsoft, Nintendo all support their platforms with a 30% revenue cut.

It is a pretty standard cut in the industry. Epic’s 12% cut can possibly sustain its rather significantly smaller library in comparison. But it can’t except the same on other platforms with millions of apps.

Apple’s 30% cut was the same when the App Store was established. And it is the same to date. They didn’t alter it just because its platform now has a billion users vs a million when it was established. I’m not going to comment on whether it’s fair. Could it be lower? Of Course. Who wouldn’t want free money? Could there a better taxing model based on revenue generated by apps, all while making it completely free for independent developers whose revenue fall below a certain cap? Sounds ideal right? I don’t know. Same rules for everyone is what Apple “preaches” at the moment. But what I’ll tell you is that just because a company is worth a trillion dollars doesn’t mean it can’t conduct its business the way it sees fit. Calling for a reduction in the revenue cut just because they can sustain it, is not fair or ideal in the capitalistic economy that we live in. At the end of the day, the App Store is a business, and Apple treats it like one. And they have all the right to.


What do independent developers have to say about it?

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Photo by Simon Abrams on Unsplash

Since I don’t personally don’t develop apps for either platform, I reached out to a few independent developers for their insights on this topic.

→ Byte-Sized Interviews

Edouard Barbier is an indie iOS Developer from Belgium who quit his day job at Google to pursue the indie-dev dream. With over 9 apps on the App Store including his viral title, “YT Tracker” with thousands of downloads, he had this to say on the matter,

“I would say… that for me personally as a solo developer; the 30% cut is fine because the App Store is a massive “free marketing” machine for me. If you know how to rank in search, the user acquisition is pretty much free for small developers, and that has huge value (for me personally), so I’m ok to “pay” Apple for this. Without the App Store, I wouldn’t be able to live off my apps.
“Now, for big companies that have huge costs of running servers and teams etc, I understand the appeal to find a workaround and try to reduce their costs by avoiding the IAP system provided by Apple. I don’t know if it’s always a good strategy to try to avoid it, the IAP system provided by Apple works well and is trusted by users. I would never pay for an app on the web with my credit card for instance. So they might lose some paying customers because their purchase flow is less smooth than what’s built-in and provided by Apple. It’s a calculation big corporations have to make”
“On the argument that Apple created a monopoly with the App Store, it’s tricky. They have built incredible devices and a powerful brand around what the iPhone can do. I understand that they want to control what ends up on the App Store and ultimately what ends up running on people phones. I think I’d be completely ok with them maintaining this current system if developers could have a much better relationship with the App Review team. There are many issues that need work and improvements. But I don’t see Apple opening up to alternative App Stores anytime soon.”

Aivars Meijers, another indie iOS developer, from Latvia, who developed the Apnea Training App, says,

“I will take Epic more serious if they will start the same fight with console platform owners as well. Now it is unclear why they are fine with the revenue cut on Xbox, Playstation & Nintendo.
30% is a lot, I would like to see less, but with subscriptions, it is 15% from the second year and that already sounds ok for me.”
“App sideload could be a good feature to have. But I don’t see a need or benefits from one or few more App Stores. Why do I need another option if the ‘revenue cut’ part stays the same?

Majid Jabrayilov from Baku, the developer behind the app, CardioBot says,

“I’m ok with the revenue cut. But I believe that the same rules should be applicable for all apps on the App Store. All the platforms have the same revenue cut. I think it is ok because they provide us with great tools to build apps.”

Consequences

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Apple is now putting the pressure back on Epic Games, by issuing an ultimatum. It’s giving Fortnite, a fortnight to comply with the App Store guidelines or risk losing it’s developer account, without which it can't exist in the App Store. Epic Games has filed against this motion saying that this would cause “irreparable harm”.

Here’s the statement Apple gave to The Verge,

“The App Store is designed to be a safe and trusted place for users and a great business opportunity for all developers. Epic has been one of the most successful developers on the App Store, growing into a multibillion dollar business that reaches millions of iOS customers around the world. We very much want to keep the company as part of the Apple Developer Program and their apps on the Store. The problem Epic has created for itself is one that can easily be remedied if they submit an update of their app that reverts it to comply with the guidelines they agreed to and which apply to all developers. We won’t make an exception for Epic because we don’t think it’s right to put their business interests ahead of the guidelines that protect our customers.

It’ll be interesting to see how Apple and Google tackle increasing pressure on decreasing its slice of the pie from its app stores.

Conclusion

As this tweet brilliantly puts it, Epic Games with its Fortnite squeezed user growth from Apple Store for more than 2 years, are financially secure, and diversified enough across platforms to spin their self-interest as a moral imperative. It also wants to run it’s own apps stores & take a cut on nearly a billion iOS devices.

Meeting epic’s demands would mean to abandon the smartphone software and security model almost entirely. The very model that arguably made the smartphone very successful. At the end of the day, this PR stunt is a result of corporate greed disguised as a fight for the little guys.

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