Fortnite, Apple, and the Rumblings of War

It’s possible you don’t play Fortnite.

250 million people do, but we don’t really know you; you may hate prison levels and viral dances. Understandable. But Fortnite is big business for Epic Games, earning them a ridiculous $1.8 billion dollars in 2019.

Fortnite is gold not just for Epic, but for any middleman. In just three years Apple has made $360 million in revenue from Fortnite, which was downloaded from the App Store 133 million times, generating $1.2 billion in in-app purchases.

30% of that went to Apple, because that’s their thing. Both Apple and Google flex their might by levying a 30% fee on app revenue. Want to get around that? Well, too bad. Where are you going to sell your app? The absolute security of Apple’s and Google’s positions as essential to the process means they can charge pretty much whatever they want.

Or could.

Detour

Back in August, Epic dropped prices of its in-game currency (we kind of want this skin). But this time — maybe they thought 30% on an $8 skin; maybe they figured $360 million is enough for anyone — Epic skirted App Store policy by offering purchases directly, rather than through Apple’s mechanism. Not only did they skirt the fee; they announced to users that they could save money by not purchasing from within the game.

Epic’s solution was cleverly, sneaky, absolutely guaranteed to infuriate Apple, and the beginning of an actual war.

Suddenly, players could pay Epic directly.

Of the change, Epic said: "Thousands of apps on the App Store approved by Apple accept direct payments, including commonly used apps like Amazon, Grubhub, Nike SNKRS, Best Buy, DoorDash, Fandango, McDonald's, Uber, Lyft, and StubHub. We think all developers should be free to support direct payments in all apps."

That’s technically true, but the difference is all those companies provide customers with physical goods. Apple charges their 30% fee for all one-time, digital transactions. And before you could say, “well, maybe…”, Apple, having none of Epic’s shenanigans, pulled Fortnite from the App Store.

They Said / They Said

Now, we can see both sides of the argument here. Apple and Google are strong-arming developers into paying a huge fee in order to list their apps for download. And the developers can’t go anywhere else, because there is nowhere else. Apple and Google run the show.

And that, friends, makes it an antitrust issue. Maybe.

And Apple has been the subject of European antitrust investigations for a while, and it looks like American authorities are following suit.

“In-app purchase is broken,” says Phillip Shoemaker, a former Apple executive who helped design and run the App Store. “As Apple is entering into more and more of these areas and putting out of business more developers, they really have got to think differently.”

Evidently so. Because within just days of Fortnite’s removal from the App Store, Epic filed suit against Apple, claiming Apple was violating the Sherman Act (which prohibits activity that limits competition in the marketplace), and had created a monopoly.

It’s hard to disagree with them.

Because Apple also threatened to shut Epic out from the Apple Developer Program, membership in which is required to use Apple Developer Tools or distribute to any iOS device.

And that, friends...oh we already said that. Would be, in Epic’s words, “catastrophic.”

We can see Apple’s position here. Would this be OK inside of Target (which also sells Fortnite bundles/V-bucks and ostensibly collects a commission)? In other words, what if all the packaging on the products in the stores said “If you don’t buy this at Target, you’ll save money”. Would Target take issue with that?

Of course they would. At the same time, when we walk into a retail store, we have the choice of different payment options: cash, debit, credit card (VISA, MC, AMEX), digital payments (NFC, Apple Pay). So the question becomes why Apple can’t allow the same option within Apps?

By forcing users to pay via only one method — a method which simultaneously levies a 30% fee to the developer, Epic argues Apple is committing a massive antitrust violation.

But if Epic were asking to stand in the checkout line inside the mythical Target we mentioned, and shout at passersby, “If you swipe your card here instead of paying Target, it’s cheaper,” that would probably not go over well.

So who will give first? We don't know, but it's an interesting battle royale.

#Antitrust #App Store #Apple #Fortnite #Google