Nineteen Eighty Fortnite: An Epic battle for control over in-app purchases

August 29, 2020

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3 min read

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What's going on here?

Epic Games, the company behind Fortnite, has filed an antitrust probe against Apple for anti-competitive practices in California.

What does this mean?

Epic’s complaint concerns the rules and fees that Apple impose on app developers. Apple’s App Store is the sole access point for third-party developers to the 1.5 billion iOS mobile devices around the world. This allows Apple to siphon off a sizable 30% from all in-app purchases (a.k.a. “The Apple Tax), which yielded $61bn in 2019. However, this protest is not confined solely to Apple’s iOS, as Epic have since launched a near-identical antitrust probe against Google. 

The protest is a calculated one. Epic intentionally broke Section 3.1 and 6.3 of Apple’s Developer Agreement by providing “mechanisms other than in-app purchase”. They did this by introducing a direct payment option when buying Fortnite’s in-game currency, V-bucks, on their iOS application. The firm incentivised players by offering a 20% discount, claiming to be “passing on” the saving (and pocketing 10% for themselves). This cut Apple out of in-app purchase revenues. Apple retaliated by removing Fortnite from the App Store, which gave Epic the evidence of “consumer harm” required to launch an antitrust probe. 

Apple claims that not only has the App Store created millions of jobs around the world, but that the fees it charges funds practices designed to protect iOS users, such as maintaining a secure payment system. Moreover, it says that Epic is only now questioning Apple’s commission structure only after it has found success by using their model.

What's the big picture effect?

Apple and Google share 99% of the mobile operating system (OS) market; Apple controls 13.3% and Google’s Android accounts for the rest. However, Apple is the sole producer of the devices which create a market for the App Store, which means it can set its own rules. According to Apple, if developers don’t like their terms, they can migrate to another OS platform instead. Developers claim that the iOS market is so large ($34b) and profitable (approximately twice that of Android users) that developers cannot afford to ignore it. 

This is not the first time Apple has attracted criticism from developers. Its treatment of streaming and non-streaming applications is indefensibly inconsistent. Last year, Spotify filed an antitrust probe that prompted a formal investigation by the EU. Despite their protests, we learnt that streaming apps like it surrender only 15% of app-based subscription revenues to the App Store. Non-streaming applications however, like Epic’s Fortnite, are on the hook for 30%. While Epic are being penalised for creating an alternative payment option within the Fortnite app, Spotify and Netflix have activity bypassed Apple’s surcharge by dropping in-app subscriptions in 2016 and 2019 respectively.

Epic and Apple have a lot at stake in this case. Out of the 2.2 million applications on the App Store, Fortnite is responsible for generating 0.93% total App Store revenue (yielding a $150m in commissions for Apple in 2019 alone). A loss here may set a precedent for other developers to follow suit, eating into a core revenue stream for the company. This is critical as in 2018, the App Store revenue accounted for 40% of total revenues, an income Apple will not yield lightly. Epic, on the other hand, is fighting to maintain its foot in a market that has facilitated 133m downloads, generating $1.2b in revenue.

Epic’s creativity embodies a novel approach to tackling a company that dominates a market. Its impressive media campaign, comparing Apple to the omniscient Big Brother from George Orwell’s 1984, also provides colour. That novel ended with a “blissful dream” where renegade Winston capitulated to Big Brother’s supreme power, which is a fate Epic will resist at all costs.

Report written by George Maxwell

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