Epic vs Apple

September 12, 2020

Epic, the makers of Fornite, has been in the news lately due to their battle with Apple over in-app purchases and how much of a cut Apple takes.

Gameindustry.biz reports: In its original complaint dated August 13, Epic stated: “Apple’s removal of Fortnite is yet another example of Apple flexing its enormous power in order to impose unreasonable restraints and unlawfully maintain its 100% monopoly…”

Epic has a potentially hard road ahead, as it will need to provide evidence supporting its claims, including what actually constitutes “the market” for purposes of its antitrust allegations. Epic’s complaint asserts that the market comprises all iOS mobile devices, but Epic awkwardly separates the market into two pieces: 1) the app distribution market and 2) the app “payment processing” market.

If iOS mobile devices constitute the market, Epic will have a much easier time establishing that Apple engages in “anti-competitive conduct” and “monopolizes” the market for three reasons: (1) Apple prevents other companies from setting up their own app stores; (2) Apple prevents other companies from providing their own “payment processing” services in the market; and, of course, (3) Apple imposes an arguably unreasonably high fee upon sales in the market (30%), to the detriment of consumers.

However, if the market consists of all mobile devices, Epic may not be able to prove that Apple has a monopoly. The FTC states that, in antitrust cases, “Courts look at the firm’s market share, but typically do not find monopoly power if the firm (or a group of firms acting in concert) has less than 50 percent of the sales of a particular product or service within a certain geographic area. Some courts have required much higher percentages.”

However, the Epic Games vs. Apple battle presents an interesting issue: what happens when the defendant in an antitrust lawsuit actually created the very market it is accused of monopolizing? There is no legal precedent to assist in predicting how the court may feel about this unique situation.

Ian’s Take

I am mixed in this story.  Apple was the innovator in the creation of the app store, but it pains me when Apple makes arbitrary decisions for its App store.  Granted, Apple has a reason and their number one is user experience.

Apple makes deals with its vendors and the partners agree to the rules when they sign up for the App store.  Because of Apple’s walled garden, Epic is unable to side-load the app, unless they made it into a progressive web app. This is technically possible, as there is a precedent for web based shooters.  Epic could still provide in app purchases as they are supported by the Google Chrome web browser

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Ultimately Apple is getting pushed on all sides, they create something great from nothing, take a cut for their hard work, and then people get tired of paying the 30%, then 20%, then 10% cut. Epic is free to negotiate their terms, but the way the went about it is problematic and a clear violation of the iOS guidelines.  Epic was simply trying to bypass the 30% vig. 

When the in-app subscription service came out Steve Jobs stated it simply:

“Our philosophy is simple. When Apple brings a new subscriber to the app, Apple earns 30% share. When the publisher brings an existing or new subscriber to the app, the publisher keeps 100% and Apple earns nothing.

Time has changed and this strategy was envisioned at a time when a business was not built on top of an app store. So is Apple wrong?
I don’t know what the solution is, I’m a fan of Epic Games, but not a fan of their business practices.  One solution Epic could do is to charge more for the in-app purchases, bypassing the 30% hit they would eat.  Pass that on to the consumer.

The odd thing is that Epic is not making this same stink on the other non-mobile platforms including Sony, Microsoft, and PC. One thing that I would propose for Apple and Epic Games, since they need each-other is to come up with some kind of new revenue model.  Perhaps a Fortnite inspired iPhone like Apple used to do with their iPod lines.  Epic would get a cut of that phone’s sale. 

Google could do the same thing and revoke Epic’s keys to sign their software if they wanted to.  We shall see how far Epic wants to push it. 

The EU meanwhile will probably use this as an example in their ongoing proceedings with the Apple to call for Apple to open it up.  Apple would then have to allow side-loading of apps, bypassing it’s gatekeeper technology which keeps iPhones safe and uncrackable.

The bigger picture here is what different countries will do to the App Store.
The Objective-C and member of the original iPhone team, Francisco Tolmasky, other issue with Apple’s app store is this: 

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Is the App store stifling creativity?  Can Apple defend itself from its own success?  It’s difficult to say, but since I originally wrote this story, a few things have changed. 

Apple has thrown a “goodwill gesture” to epic by allowing the Epic Fortnite players the opportunity to use Apple’s “Sign in with Apple” capability.   Apple is now counter-suing Epic to recoup any revenue it would have made if it hadn’t had to punish Epic for their changes to their codebase.

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