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APPLE HAS FINALLY MET ITS FORTNITE MATCH
Apple’s walled garden gets an epic test
By Tom Warren @tomwarren
Aug 14, 2020, 10:12am EDT
Epic Games executed its most ambitious Fortnite live event yesterday, leading both Apple and Google to remove one of the world’s most popular games from their app stores. It was a well choreographed sequence of events designed to highlight the power Apple and Google hold over app stores, especially Apple’s walled garden. Epic Games has now filed lawsuits against both Apple and Google in a battle that’s likely to last months. Epic Games is uniquely positioned to pull off a stunt like this, and now poses a serious threat to how Apple, in particular, operates its App Store and iOS operating system.
Apple originally launched the App Store as a way to add value to the iPhone and sell more of its handsets. “It costs money to run it,” explained Steve Jobs in a Wall Street Journal interview at the launch of the App Store in 2008. “Those free apps cost money to store and to deliver wirelessly. The paid apps cost money, too. They have to pay for some of the free apps. We don’t expect this to be a big profit generator. We expect it to add value to the iPhone. We’ll sell more iPhones because of it.” Apple’s App Store is now a massive $519 billion developer ecosystem. It’s also a key part of Apple’s growing services business, which is the second biggest revenue driver for the company, behind the iPhone.
Yet Apple has maintained a lucrative 30 percent cut of in-app purchases for digital goods for more than a decade now. It’s a policy that continues to annoy developers and the basis for a fresh and very visible challenge from Epic Games.
The latest controversy kicked off when Epic implemented a “permanent discount” yesterday on the V-Bucks digital currency used within Fortnite to purchase skins and other virtual goods. The roughly 20 percent discount was made possible this week because Epic Games now offers its own in-app payment scheme within Fortnite on iOS and Android, blatantly bypassing Google and Apple app store guidelines. Both Apple and Google have, for years, forced developers to use their own in-app payment schemes that require developers to hand over a 30 percent cut of in-app purchases on digital goods, which is only lowered to 15 percent for long-term subscriptions after someone subscribes for at least a year.
Apple and Google both argue this huge 30 percent fee is necessary for them to maintain their app stores and the security and simplicity they provide, but developers don’t agree. Others have tried to fight Apple’s 30 percent tax in the past by encouraging customers to sign up to services or purchase digital goods outside of Apple’s App Store. Some have compromised by jacking up their iOS prices to help recoup the lost 30 percent.
While this policy is central to the battle between Epic Games and Apple and Google, the fight is ultimately about power, control, and Apple’s approach to games and the App Store. Epic Games is uniquely positioned to fight Apple and Google with a game that’s played around the world by more than 350 million people. The game maker demonstrated its own power yesterday.
While most iOS and Android apps have to be approved and updated through Apple’s App Store or the Google Play Store, both companies make exceptions for games to allow developers to regularly update them within a shell app. You download a smaller container app, and then this app downloads the larger game files. Epic used this exception to its advantage, implementing its in-app purchase system without Apple or Google having to approve or deny it.
This blatant disregard for the rules left Apple and Google no choice but to remove Fortnite from their app stores. Epic’s quick, calculated response shows that the real target of its attention (and attention seeking) is Apple.
To start with, the company immediately launched a protest video inside the game designed to mock Apple’s iconic “1984” Macintosh commercial.
Apple originally used this Super Bowl commercial to highlight IBM’s dominance back in 1984, comparing the corporation to the dystopian novel by George Orwell that focuses on totalitarian political systems. “Apple has become what it once railed against: the behemoth seeking to control markets, block competition, and stifle innovation,” says Epic Games. “Apple is bigger, more powerful, more entrenched, and more pernicious than the monopolists of yesteryear.”
Epic’s also encouraging Fortnite players affected by the ban to tweet at Apple with the #FreeFortnite hashtag. Epic is using all of its own power to execute a marketing campaign designed to highlight Apple’s control and power.
Epic made no such viral video or campaign targeting Google.
Given that Google has largely followed in the footsteps of Apple’s App Store, it makes sense that Epic’s attention seeking would mainly target Apple. You can also still play Fortnite on Android by sideloading the app, avoiding the Google Play Store. There’s also a lot more controversy surrounding Apple’s policy decisions and the inability for consumers to install iOS apps from outside the App Store.
Apple’s power and control over the App Store has come under increased scrutiny this year. Developers have typically avoided publicly calling out Apple for fear of retribution, but things are starting to change. Spotify was the first to file a formal antitrust complaint with the European Union last year, arguing that Apple harms consumer choice and stifles innovation through the rules it enforces on the App Store.
The EU is investigating Apple’s App Store policies. Illustration by Alex Castro / The Verge`
The EU opened a formal investigation into Apple’s App Store and Apple Pay practices earlier this year, and Epic Games, Match Group, and Rakuten all joined Spotify in protesting Apple’s App Store fees.
At around the same time, Apple got caught up in a bitter dispute over Hey — a new subscription email app — just days before its annual developers conference. Apple initially approved the Hey app in the App Store before rejecting a bug-fix update because it claimed Hey violated the rules by not offering in-app subscriptions. This led to a public back-and-forth that highlighted the inconsistent way Apple applies its rules, and it revealed just how much developers are terrified of Apple.
The Hey incident also led the chairman of the House antitrust subcommittee to label Apple a bully and say that Apple’s App Store fees are “highway robbery.” Separately, Apple CEO Tim Cook then appeared at a House Judiciary Committee hearing, alongside the CEOs of Google, Facebook, and Amazon a month later. The Big Tech antitrust hearing saw all four companies try to convince Congress that their business practices aren’t anti-competitive monopolies.
Cook’s testimony was particularly interesting, as he tried to argue that Apple’s rules are applied fairly and evenly to all developers. “We treat every developer the same,” said Cook. “We have open and transparent rules. Those rules apply evenly to everyone.” We know this can’t be true. Apple created a special program for “premium subscription video entertainment providers” that allows apps like Amazon Prime Video to let existing subscribers avoid Apple’s in-app purchases and 30 percent cut.
It’s a deal we still don’t really know enough about, although documents show that Apple brokered a special deal with Amazon that involved a 15 percent cut instead of the typical 30 percent for in-app purchases. Either way, it’s certainly not part of what Cook calls Apple’s “open and transparent rules.” This is just one, albeit significant, example of Apple not applying its rules consistently. Apple also tried to argue that “client apps” are allowed for business apps but not consumer ones in its justification for rejecting the Hey email app, even though this distinction never appears in Apple’s App Store guidelines.
These inconsistencies and rules have irked developers for years, but many have simply been too scared to call Apple out. The iPhone maker is the judge and jury when it comes to approving apps, and if you’re rejected, then there’s often no appeals process unless you can generate the press and attention to force Apple to change its mind. Hey eventually returned to the App Store on a wave of publicity (and a minor functionality tweak to its app). It’s a playbook that Epic is now looking to reuse.
Photo by Vjeran Pavic / The Verge
Epic Games is aligning itself to lead the fight for the entire industry, and the company has prior form. A mysterious “configuration issue” saw Xbox and PS4 owners playing against each other for the first time in Fortnite back in 2017, just months after Sony had refused to enable cross-platform play for both Rocket League and Minecraft. It put the focus squarely on Sony blocking cross-play, and eventually led to a public outcry when it was revealed Sony was blocking Fortnite cross-play between PS4 and Nintendo Switch players. Sony eventually backed down, after Epic Games laid the blame squarely on the PlayStation maker. Cross-play has since become an increasingly common feature in everything from Call of Duty to No Man’s Sky.
Epic Games’ rebellion against Apple and Google also comes just weeks after both Microsoft and Facebook spoke out against Apple. Microsoft condemned Apple for blocking its new xCloud game streaming service on iPhones and iPads. “Apple stands alone as the only general purpose platform to deny consumers from cloud gaming and game subscription services like Xbox Game Pass,” said Microsoft. Google is allowing Microsoft to launch xCloud on the Google Play Store, although in-app purchases on Android will only be available through Samsung’s Galaxy Store. Samsung also demands 30 percent of in-app purchases, but it also makes it clear that developers can negotiate an “alternative revenue share rate” during the certification phase for apps.
Facebook’s criticism of Apple’s App Store policies went a step further than Microsoft’s, describing Apple’s move to block its mini-games inside a Facebook Gaming app as a “shared pain across the games industry, which ultimately hurts players and devs and severely hamstrings innovation on mobile for other types of formats, like cloud gaming.”
Epic Games CEO Tim Sweeney is determined to fight Apple and Google. Photo by Rachel Luna/Getty Images
It’s clear that Epic Games wants things to change for both its own benefit and the broader benefit of the gaming community. Most smaller developers can’t afford to take on Apple or Google, but Epic Games is now valued at $17.3 billion and can certainly put up a fight. Games are also a key part of any mobile app store and a big part of how Apple generates revenue through its own App Store. Developers want a fairer cut of that revenue, but Epic also wants to shift Apple’s control here.
“We’re fighting for open platforms and policy changes equally benefiting all developers,” says Epic Games CEO Tim Sweeney. “And it’ll be a hell of a fight!” It’s a fight that Epic has prepared for, and its lawsuit specifically alleges that Apple has a monopoly in the form of the iPhone, its iOS ecosystem, and the App Store that binds them all together.
Epic has enlisted the counsel of Cravath, Swaine & Moore, which includes Christine Varney, a former US assistant attorney general of the antitrust division for the Obama administration. Varney also served as the Federal Trade commissioner for the Clinton administration. Katherine Forrest, a partner at Cravath, is also part of Epic’s lawsuit. Forrest is a former judge and antitrust litigator, and the Cravath law firm was also part of Qualcomm’s lawsuit against Apple.
It’s easy to dismiss this as giant companies squabbling with each other, filing lawsuits, and ruining Fortnite on mobile devices, but the resolution will have far-reaching consequences for Epic Games and the many other developers that rely on mobile app stores. Apple has met a defiant competitor that’s been able to bypass App Store rules and put two prices side by side to demonstrate the “Apple tax” that so many developers are upset about. Epic Games might not win its lawsuit in the US, but this isn’t about a single lawsuit. Epic is weaponizing Fortnite as a means to highlight Apple’s App Store policies and rally hundreds of millions of players to demand change.
Epic Games demonstrates the “Apple tax.
”It’s a risky move that Epic might be forced to reverse, especially as mobile players could miss Fortnite’s next season. Epic has gambled that most people already have Fortnite installed on their phones and tablets, so it’s unlikely to immediately anger its community, which can now see how much cheaper V-Bucks could be. More importantly, it has put the App Store, Apple, and Google directly in the spotlight for a showdown that will involve lawsuits, regulators, and the fate of mobile app stores.
Epic doesn’t want Apple to pay its way out of a lawsuit or reach a special deal with the company. It wants regulators in Europe and the US to stand up and pay attention. Epic isn’t your typical Fortnite player that hides in a bush until they’re the last person standing, it’s trying to be the loud and colorful llama standing strong as the circle shrinks around Apple and Google.