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Friday, August 14, 2020

Epic Games vs. Apple: Is Apple a Monopoly or Not?

By LUDWIG VON KOOPA - I read the details of the lawsuit, and...

I am fairly excited for some EPIC DRAMA within our industry this week (August 13, specifically). This may change the dynamics of mobile gaming, and all applications—even console gaming, dramatically.

First of all, if you're just an ordinary Fortnite player playing from a console (Switch, PlayStation 4, Xbox One) or PC, you should be happy. V-Bucks are now priced at 20% off. Permanently, according to developer Epic Games, calling it “The Fortnite Mega Drop.” (A mega drop in price?) This might be the entire extent you care about this story... but if you stop reading here, you're short-sighted and foolish. Keep going.

The Fortnite Mega Drop Nintendo Switch V-Bucks 20% discount prices August 13 2020
Old prices:
$10 for 1,000 V-Bucks, $25 for 2,800 V-Bucks, $40 for 5,000 V-Bucks, $100 for 13,500 V-Bucks.
New, lower prices, after the Fortnite Mega Drop:
$8 for 1,000 V-Bucks, $20 for 2,800 V-Bucks, $32 for 5,000 V-Bucks, $80 for 13,500 V-Bucks.

Why is Epic Games reducing their prices on one of the highest-grossing most successful games in the history of the videogame industry? Well, the answer is related to the platforms I didn't mention in the paragraph above: Google's Android operating system and Apple's iOS. Google and Apple collect a 30% fee (which Epic Games refers to as a “tax”) on in-app purchases. Apple in particular requires that app developers who distribute their games through Apple's App Store—which is the only way you can distribute apps on iOS devices, so it's everyone—use Apple's In-App Purchases for any additional payments for digital products, like Fortnite's V-Bucks for cosmetic features or whatever you buy stuff in there for.

However, Epic Games has went ahead and added an “Epic direct payment” option to their Android and iOS Fortnite versions, which violates Apple's guidelines by bypassing the platform holder and giving the money directly to the developer, at a 10% profit to Epic (remove 30% fee at cost of 20% discount). (This violates Google's guidelines too.) Apple immediately—and Google soon after—removed Fortnite from the App Store and the Google Play Store. (You can still download Fortnite to an Android device here, though you're out of luck on iOS.)

Epic Games then filed a lawsuit against Apple on the same day, (August 13), which they've been planning weeks in advance (including citing documents “last accessed July 27, 2020.”). That means the answer for “why is there a discount?” is “to trigger a lawsuit.” The basis is that Apple is violating American anti-trust laws that prohibit monopolist unfair competition. (They later filed a similar lawsuit against Google, with slightly different details.) Is the lawsuit against Apple justified? Let's look at the details.

Fortnite Mega Drop Shooting Starstaff Pickaxe Epic Games Nintendo Switch
Interestingly, Fortnite on Nintendo Switch is advertising to use “Epic direct payment” on mobile to get the discount.

First of all, full disclosure, I dislike both Epic and Apple as companies. I once acknowledged that the App Store was superior to traditional game digital storefronts in one specific way, but I've also acknowledged that Apple's rules are awful. Meanwhile, I think Fortnite has degraded worldwide culture and is a pretty good way for people to get large bills on their parents’ credit cards (though now at 20% off). I don't have a preferential bias here.

There is also precedent for this kind of lawsuit back 19 years ago, in United States v. Microsoft Corp. with how they distributed Internet Explorer on Windows.

If I do have one bias, it's that I've generally thought that companies deserve to get large amounts of profit if they're able to ensnare people into their product ecosystems like Apple has. However, it quickly became clear through reading Epic's lawsuit that Apple is absolutely in the wrong here, and their policies are anti-competitive and extremely anti-consumer and anti-innovation.

As I mentioned in my opening, there are two points of contention here: Apple monopolises the iOS app distribution market, and Apple monopolises the iOS in-app payment processing market. Epic then maintains that competition (market forces) can't do anything about it due to Apple device owners being locked into the Apple ecosystem, and customers also can't anticipate that these problems will occur before buying into the Apple ecosystem. That's valid.

By iOS app distribution market, Epic means the way that iPhone/iPad owners can get apps to their device. Apple preinstalls the App Store and you can't remove it. They block any other method for getting apps downloaded to your device. Other methods could include a direct download from a developer's website, or competing app stores that may have other kinds of features that Apple's wouldn't, such as specific curation or deals or layout. App discovery is always the biggest problem on content destinations, and there are lots of different theories and ideas on how to handle that, so there are absolutely plenty of reasons why different kinds of app stores should exist. But Apple doesn't allow for those.

...Though neither do traditional videogame consoles. Should they be sued too for their online stores, beyond the existing investigation into their automatic renewal terms? I don't think so, but then let's go into the second point of contention.

The only way you can buy in-app content is via Apple's payment method, which Apple collects a 30% fee on. This is wildly disproportionate to the ~2.9% market rate of electronic payment processing tools that vendors like PayPal, Stripe, Square, and whatever a Braintree is (apparently an acquired subsidiary of PayPal), offer. Why is there a much lower market rate? Because market forces pushed the payment provider's share that low. High fees would simply be undercut by another provider. (But if it was any much lower, the payment processors wouldn't have the revenue they need to make a profit.)

While it may seem difficult to believe—and I admit I myself don't fully understand it—there is apparently a lot of innovation (besides just the fee) in the electronic payment processing market space. That's why, for example, some online gambling websites will offer dozens and dozens of payment processing methods. These can range from cryptocurrencies, to prepaid cards, to many kinds of electronic money transfers, to lots of other kinds of things. Of course, Epic has apparently invented their own payment method that cuts out the middle man entirely and lets them maximise profits that way, and that'd be fine... if Apple allowed them.

To clarify, you can fund your Apple account in multiple ways, just like you can fund the Nintendo eShop, PlayStation Store, and Xbox Live accounts in more than one way. But you can only pay/make a transaction in one way. ...Well, you can only pay in one way for the consoles too (your account balance wallet). I should also note that Epic doesn't just have an issue with mobile trash platforms—the reason the Epic Games Store exists to compete with Steam is that Steam also took a 30% cut off transactions. Fortunately, computer gaming can be done outside of Steam, though mobile gaming on Apple's mobile devices cannot be done outside of Apple's storefront.

The console manufacturers also take 30% cuts, though Epic makes the discounts available on consoles without any action or selection required by the user. It's unclear at this time if the console manufacturers’ cuts are also taken on in-app purchases, though V-Bucks definitely go through Nintendo's payment portal on the Switch, so I dunno how this works. How can Epic afford to do that?


Nintendo Switch 13,500 V-Bucks Fortnite Mega Drop payment methods credit card eShop PayPal
You don't need to know what my Gold Points or taxes or existing funds look like.
Though I guess I'll tell you that it's not enough, in total, to buy 13,500 V-Bucks.

One key point is that Apple has no real justification for their actions. Apple and Google both cite consumer safety as the reason for their rules, which is a poor explanation. It shouldn't be up to Apple to determine what level of risk the consumer is willing to take. If they feel that they want maximum safety and they trust only Apple's storefront, alright. But consumers can make that choice in the face of competing products and vendors, can't they? It's similar to Nintendo selling (overpriced) official Nintendo-branded-and-tested microSD cards for the Switch, but the Switch also being open to normal (but technically not tested specifically for the Switch) microSD cards that do the same thing.

Throughout this article, I think I've demonstrated that Apple is definitely a monopolist when it comes to the billion-plus user platform they have, but also that traditional gaming console owners are also monopolists for their platforms. I think the difference here is that the market strengths of Microsoft and Sony and Nintendo aren't as dramatically unbalanced as Apple vs. Google are, and the dynamics of consoles (where most games aren't free-to-play) are much different. You actually could be financially viable catering to just one console platform, but that's harder to do on mobile. ...Still possible, though.

If this sort of thing ends up applying industry-wide, console gaming will get very interesting, very fast. The days of product owners centralising their own experiences may be over. ...Assuming developers and publishers will find pursuing that even worth their time.



Should every platform holder in the gaming industry be sued for anti-competitive behaviour? Is there something very very special about Apple? Or is Epic full of it and they should be happy with the profits they are already making? Let your comments be known in the comments section. By the way, Epic also made a stupid #FreeFortnite hashtag and marketing campaign around the lawsuit, which is asinine because all of this—even if it might be justified—is kind of their own doing, and marketing campaigns like that only appeal to dumb kids who don't understand economics or the law and just think Apple wants to take their Fortnite away. (While only dumb kids play Fortnite, you gotta be a really dumb kid to play Fortnite on an iPhone.)


This isn't even the first time Ludwig has read and explained a legal document about Fortnite. He breaks down its EULA here.
Apple reduced their fees to 15% if you're a small business, but that doesn't have much real impact and may be counterproductive.

20 comments :

  1. In my personal opinion, I believe Epic Games have an external motivation for pushing this lawsuit at the moment:

    To create an opening to operate an app store, without the regulations of Apple.

    A piece of circumstantial evidence that supports this theory is that Tencent owns a significant part of stake (around 40%) in Epic Games (https://www.pcgamer.com/every-game-company-that-tencent-has-invested-in/), and in their demands, they said they’d offer to operate “...a competing app store on iOS devices.”

    I made the argument on Reddit that the lawsuit was motivated by the WeChat and TikTok bans. 90% of Chinese iPhone users would exchange their iPhones if they lost WeChat, which to Apple, is a market that they still want to pursue, even though ethically it’s in the wrong. (www.macrumors.com/2020/08/13/china-iphone-users-prefer-wechat/)

    If such a lawsuit were to succeed, this would likely be implemented worldwide, and we’d see a Chinese App Store in China, much like what’s been with the Huawei phones. It’d also be insurance if Apple ceases production of the iPhone in China. The factories and manufacturing processes are already in place, and could be an opening for China to create their bootleg iPhone for their market.

    I’m surprised Apple hasn’t responded with the “software security” argument for their application distribution, that it could open exploits that can be abused by malicious users (ransom, extortion, plumbing I suppose).

    As for their market operations, I would agree that this is monopolistic behavior. Since Apple is offering their own streaming services (Apple Music, TV+), that puts them in a direct advantage against providers, notably Spotify. Spotify has argued that their disadvantage consisted of a pay percentage loss, nonexistent with Apple Music; the ability to directly advertise to iOS users; and use of native iOS functions that Spotify wouldn’t have access to.

    I believe I’m neutral as well, it’s been a while since I wrote something this in-depth. I’m actually fascinated by the lawsuit and spent some time reading about it. I’m surprised you didn’t mention Tencent at all, concerning your attraction against the company.

    ReplyDelete
    Replies
    1. Hmph, I see you've been hanging around the Reddit comments instead of the KoopaTV comments section. <_<
      Sheesh, this might be the first time I can remember for being admonished for NOT making a stretch out of an issue. Usually it's the other way around.

      Do I think Epic ultimately wants to do with mobile what they did vs. Steam? Yeah, that'd make sense.
      I don't think this has anything to do with Tencent, because I think they'd do this even without Tencent having a stake around them, so the Tencent connection is irrelevant. And, believe me, if I felt there's a China connection to an issue, I'll make it. Epic and their CEO Tim Sweeney have had this kind of animosity against 30% cuts for a while, long before Tencent came into the picture.

      I disagree that it'd be implemented worldwide, however. There are similar kinds of lawsuits occurring in Europe, and if those succeed, those wouldn't go apply to the USA or to China.

      But, like, I see no reason why the Chinese shouldn't get their own curated app distribution market.

      Again, I'm concerned that Epic's same arguments could apply to the console gaming market as well.

      Delete
    2. Well, I don’t really have much to say normally. I like to read your opinions, but rarely I kinda find it hard to offer my contributions without it sounding forced.

      Admonished? I was just mentioning my surprise you didn’t make the connection, but I didn’t think it came across as criticism.

      Well, worldwide might be a stretch of mine (lower-poverty nations). I still think it’d have an influence on at least major nations. GDPR set regulations on companies, and now they allow their consumers to download the data collected for their personal analysis (Google comes to mind).

      Yeah, I wouldn’t be comfortable with having to download a theoretical Epic Store on my Switch if I wanted to support indie developers. Rulings can set precedent beyond their lawsuit, and technically, a console manufacturer does have control over the apps that get distributed, and control over the payment processing.

      Delete
    3. Is there anything I can do to make things easier for you? ♪
      (And thanks for reaffirming you like reading my opinions!)

      GDPR is a bit different, because consumer data has to go across borders for any multinational corporation to function properly. But app stores and specific apps (let's say Epic Games Store opens up on Apple as a result of this; they might make it downloadable only via the Apple App Store) are easily region-lockable. Just ask Miles Edgeworth 2 on mobile. >_>

      Delete
  2. I don't care for Fortnite as a game and never have, but I have to respect these guys for actually pushing back against the old giants. It's a good small step toward making business fair competition.

    ReplyDelete
    Replies
    1. It's also another sign that you gotta have deep pockets like Epic to afford to wage legal battles like this, which isn't desirable in a legal system. >_>

      It's ultimately self-serving for Epic, but I suppose that's fine.

      Delete
    2. A deep pockets relative newcomer actually fighting for better consumer treatment is better than...that not happening, for sure.

      Delete
    3. Let's just qualify that...
      Epic isn't a start-up or anything. They've been around for almost 30 years!
      Though I guess having very deep pockets is relatively recent.

      I've read some speculation that Epic is only doing this because they dislike Apple's policy on refunds (granting them) as opposed to Epic's policy on refunds (don't grant them), though Epic in the lawsuit basically says they can't give good customer service because Apple handles the payments.

      Delete
    4. Let me qualify further. A deep pockets relative newcomer actually fighting established conglomerates is better than that not happening, whether it is explicitly for better consumer treatment, or if said treatment is merely incidental.

      Competition is supposed to be a driving force in a capitalistic system to promote fairness, so when you have the big dogs cooperating with each other to form a de facto collective oligarchy, that falls the heck down very quickly! Whatever their intentions, Epics actions are moving things, at least in one aspect of one industry, away from that trend.

      Delete
    5. I just wanna say that I don't think the market deciding on a 30% cut across the gaming industry (as opposed to a 2.9% for normal payment processing) was some kinda, uh, collusion. That's just where the competitive forces ended up.
      Same process for why Coke and Pepsi stop trying to undercut the other's prices.


      Anyway, if this is true, then Apple is clearly the villain, since they're retaliating against Epic for their lawsuit by trying to remove Epic's access to development tools, including Unreal Engine (and demonstrating they have way too much market power): https://gamasutra.com/view/news/368364/Apple_to_revoke_Epics_dev_tools_including_those_used_for_Unreal_Engine.php

      Delete
    6. Oh you're right, it's not active collusion at all. It's just another consequence of capitalism as a system gravitating corporations toward being money optimization machines. Practices that treat consumers unfairly generate more money than ones that don't, so they're perpetuated. And by the rule that this situation with Epic is an exception to, the disparate money optimization machines avoid stepping on others' toes about it because they do such things too.

      Delete
    7. ...Right! ^_^

      Though in this case, the consumers are less you and more the game developers, who are, in a way, the customers of the app platforms.

      Delete
    8. CAPITALISM SUCKS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

      Delete
    9. Without capitalism, none of these companies would exist.

      ...That's probably a net negative, even if I dislike them.

      Delete
  3. Fortnite!!!!!!! nInja!!!!! TSM MYTH! !! WOW !!!!!!! EPIC GAMERS SO COOL! HOPE THEY ARE IN THE BATTLE ROYALE VS APPLE!!!!!!!!!!!!!!!!!!!!!!!

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    Replies
    1. epic battle royale vs apple ninja help out on this right!!!!!!!!!!!!

      Delete
    2. Based on Ninja's Twitter, I don't think he cares about Fortnite. Just selling Ninja-branded merchandise.

      Delete
    3. U are huge ninja fan hahahaha lame

      Delete
    4. I'm not a Ninja fan. I just did research. >.>

      Delete

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