On August 13th Apple kicked the uber-popular, Fortnite gaming App off the Apple App Store for violating store guidelines. Epic Games (the company behind Fortnite) immediately responded with a lawsuit alleging anti-competitive behaviour in their App Store and then delivered a gut-shot to Tim Cook with an incredible online advertising campaign parody of Steve Jobs’ original famous ‘1984’ Apple Ad. Google then followed Apple’s lead and kicked Fortnite out of the Google Play store—Epic Games responded with the same lawsuit alleging anti-competitive behaviour.
So what did Fortnite do to get everybody’s knickers in a knot? Fortnite is a super popular multi-player ‘universe’ platform of hardcore gamers looking to customize their characters to gain an advantage or just to look way cooler. Fortnite makes money selling upgrades to users ‘in-app’. Apple and Google take a 15 to 30% cut on these in-app purchases even though they have no direct role in facilitating them. Epic Games and a lot of other App producers think this is unfair and anti-competitive behaviour—so they set a trap.
Fortnite announced an update that would allow users to buy upgrades and mods at a discount directly from Epic Games themselves—bypassing Apple and Google’s store payment gates. This is a violation of the App Store guidelines and Epic Games knew that when they went ahead with the update yesterday. The update prompted both Apple and Google to remove Fornite from their stores—and without hesitation, Epic Games filed to sue them for anti-competitive behaviour.
The position taken by Apple and Google is that they own the platforms (iOS and Android) that developers are using to deliver the Apps to users—so they should get a cut of any revenue derived on them. I can see how this would make sense to companies (like Apple and Google) that are used to having a monopoly on every business they are affiliated with—the problem is that monopolies are not good for business and the regulators know it, anti-competitive behaviour sounds a lot like anti-trust to them.
The opposing position taken by App developers is that Apple specifically, and Google to a lesser extent, exercise a monopoly position over anything that happens on a phone with a bought and paid for operating system. iPhone users paid a lot of money for their phones and the operating system on it—which includes the app store. If Apple allows developers to distribute apps on the App Store for free, how can they demand a cut of revenue derived later in a direct transaction between an app developer and a user? Well, that’s easy—by controlling the only means of distribution to Apps through restrictive licensing guidelines.
In all honesty, a 30% margin on revenues derived ‘in-app’ on a free piece of software is really steep and the fact that App developers have no other option but to pay to maintain access to their customers is akin to extortion and thus anti-competitive behaviour. It is hard to see how Apple’s App Store and Google Play will survive the inevitable antitrust investigations sure to come out of this.
What’s at stake here is digital trust. Both Apple and Google market themselves as arbiters of trust, that all software sold on their respective platforms can be trusted because they go through a stringent process of verification. Plausibly, they can say they deserve a 30% cut because the approval process keeps their users “safe.”
However, Epic Games is uniquely positioned to fight Apple and Google because, unlike other software developers, Epic owns and operates its own digitally-delivered software storefront for Windows and macOS. Unlike Apple and Google, Epic only demands a 12% margin from apps bought through the Epic Games Store. If Epic’s storefront can survive on substantially smaller margins, are Apple and Google asking too much from their developers?
Does Apple and Google’s position in the mobile handset market give them the automatic right to demand a 30% cut? Is a storefront even a good arbiter of digital trust?
Regulators in the US and the EU have been looking for an air-tight antitrust case against Apple and Google for years and Fortnite may have just provided it. Don’t feel too concerned for Apple and Google though, Fortnite just gave them the smoking gun—they chose to use it.