What Does Epic Games Hope to Gain From Its Lawsuit Against Apple and Google?

What Does Epic Games Hope to Gain From Its Lawsuit Against Apple and Google?

In what could possibly be described as a brilliant antitrust set-up, Epic Games is suing Apple and Google for removing its Fortnite game from the iOS App Store and Google Play store, respectively.

While Epic’s lawsuits are nothing more than complaints until the matter actually goes to court and a ruling is handed down, it’s clear that this was an orchestrated move against Apple, specifically — from the very public announcement that Epic Games was adding a direct payment to its iOS and Android apps to the legal complaint it quickly released after Apple and Google removed the apps from their stores, not to mention the Nineteen Eighty-Fortnite video Epic had prepared to rake Apple over the coals for its App Store practices. (Epic didn’t create a similarly satirical video to slap Google, which indicates this strategy was aimed at Apple primarily.) Legal papers and meticulously animated videos are not things that can be created quickly. Epic knew this was coming. But now that Apple and Google have fallen for Epic’s trap, what happens next?

Here’s what’s currently at stake for the two companies: According to statistics provided to Gizmodo from Sensor Tower, Fortnite saw approximately 2.4 million downloads in the last 30 days on iOS and generated $US43.4 ($61) million in consumer spending on App Store globally. By contrast, there were 2.1 million installs from Google Play, but the game only generated $US3.4 ($5) million.

Up until Apple and Google booted Fortnite from their stores, the companies were receiving a 30 per cent cut of the game’s revenue, which amounted to slightly more than $US13 ($18) million for Apple and $US1 ($1.4) million for Google in a 30-day span from just one app. The rest went to Epic Games. Does any company really care about the money here? I’m sure they do, but that doesn’t seem to be the main issue at the moment.

An Apple spokesperson provided Gizmodo with the following statement:

“Today, Epic Games took the unfortunate step of violating the App Store guidelines that are applied equally to every developer and designed to keep the store safe for our users. As a result their Fortnite app has been removed from the store. Epic enabled a feature in its app which was not reviewed or approved by Apple, and they did so with the express intent of violating the App Store guidelines regarding in-app payments that apply to every developer who sells digital goods or services.

“Epic has had apps on the App Store for a decade, and have benefited from the App Store ecosystem – including its tools, testing, and distribution that Apple provides to all developers. Epic agreed to the App Store terms and guidelines freely and we’re glad they’ve built such a successful business on the App Store. The fact that their business interests now lead them to push for a special arrangement does not change the fact that these guidelines create a level playing field for all developers and make the store safe for all users. We will make every effort to work with Epic to resolve these violations so they can return Fortnite to the App Store.”

Epic isn’t exactly pushing for a special arrangement, though Apple is spinning it that way. While it’s definitely in Epic’s financial interests to not have to hand over a 30 per cent commission on every Fortnite purchase, Epic seems to be pushing for Apple to change its App Store policies overall, which would benefit all developers and not just Epic itself.

Epic Games has long pushed for fair treatment of developers, which is reflected in its own business practices. Unreal Engine, Epic’s game and media development tool, is free for anyone to use, and Epic only takes a 5 per cent cut if the lifetime gross revenues of a game or other interactive product created with Unreal Engine exceeds $US1,000,000 ($1.4 million). Additionally, Epic takes a 11 per cent cut from games that are published on its digital store, and if a game is built using Unreal Engine, Epic will cover royalties on Epic Games store revenue.

CEO Tim Sweeney has also been a vocal opponent of Apple’s App Store policies for a while.

In an updated FAQ regarding Apple’s decision to remove Fortnite from the App Store, Epic Games said:

Apple intentionally sabotages consumer iOS devices to prevent users from installing software directly from developers, as consumers are free to do on PC and Mac. We know this is an intentional strategy because iOS does fully support installing software from the web — but only allows it for corporations.

Apple uses this direct-installation blockade in order to force consumers to use their App Store, and then demands that game developers use their payment processing service. By blocking consumer choice in software installation, Apple has created a problem so they can profit from the solution.

Epic’s position is that all mobile developers and consumers have the right to choose alternate payment providers that charge less, as is the norm on all other general-purpose computing platforms, including Web, Windows, and Mac. We expect to see a general change in smartphone practices industry-wide for all developers that brings greater value and freedom of choice to consumers. We expect Apple to unblock Fortnite.

A U.S. Congressional investigation by the House of Representatives’ antitrust subcommittee revealed that Apple made a special deal with Amazon to take less of a commission from Prime Video purchases the first year it was on the App Store: 15 per cent instead of the usual 30 per cent. That’s proof Apple is willing to make deals to smooth some feathers, but it will choose which companies it wants to make deals with. Epic’s high-profile stunt (and subsequent lawsuit) adds more fuel for antitrust investigators to use against Apple.

“Apple put out a white paper in June arguing ‘30 per cent is really not that high,’… but that’s mostly talking about up-front sales,” John Bergmayer, legal director of nonprofit public interest group Public Knowledge told Gizmodo. “What Epic is complaining about is 30 per cent of on-going transactions.”

Up-front sales include one-time purchases of media like books or albums, which Apple also takes a 30 per cent cut of.

The majority of transactions that the App Store facilitates are for physical goods and services, which totaled roughly $US413 ($577) billion in 2019. Sales of digital goods and services are a mere sliver of that, just $US61 ($85) billion, but that $US61 ($85) billion includes commissions from in-game micro-transactions, like users buying V-Bucks in Fortnite.

To be fair, there is a lot of controversy around the micro-transactions that have become an integral feature of many games, including Fortnite. The general model is that the game is offered for free, but the developers let users purchase in-game currency with real money so they can buy things like special skins (character costumes) and weapons to further customise their character(s).

The model for how games are monetized has drastically changed in a short amount of time, and nowadays it’s much easier to sell someone on a game that’s free and offer extras for a cost. Though there are still other modes of revenue too. Google was really the first to monetise in-app advertising, while Apple started out making money from paid apps, explains Moor Insights & Strategy analyst Anshel Sag.

“The reality is everybody’s hands are dirty, but now that Pandora’s box has been opened, there’s an expectation on the part of consumers of what a game will cost them,” Sag told Gizmodo.

Micro-transactions can be considered predatory because it’s too easy to spend more money than what the game itself might be worth. However, as a business model, it’s clear that micro-transactions work, especially on mobile — and Apple and Google are in on that business model without having made a game themselves.

Epic could also theoretically deactivate its in-app purchases and be quickly reinstated in the App Store, but this isn’t about being on the platform. It’s about the principle of forking over 30 per cent of every single in-app transaction.

“Apple set up this system that causes all kinds of conflicts with developers that really misaligns the incentive of putting the customer first and putting the product first, and instead focuses on making money in the short term,” Bergmayer said. “Apple has apps on Android. Apple has apps on Windows. No one has ever asked them point blank: ‘How much do you pay Google for Apple Music on Android?’ They’ve had iTunes on Windows since 2003. How much money has Apple paid to Microsoft for that? None.”

If we look at how downloads work at the most basic level, there is no difference between using Apple Music on an iPhone or on a Windows PC to purchase music. The payment is going to the same place, directly to Apple, regardless of the platform you use. The same goes for games. But Apple charges music apps like Spotify per in-app transaction. Netflix came up with a clever 30 per cent tax workaround last year by redirecting iOS users to sign up for Netflix through their iPhone’s browser, which seems to be against Apple’s App Store policy. Netflix also did the same on Android in the Google Play store. Yet neither Apple nor Google has banned Netflix from their stores.

Apple explicitly prohibits this practice in section 3.1.3(b) of its guidelines: “You must not directly or indirectly target iOS users to use a purchasing method other than in-app purchase.”

This isn’t the first time Epic Games has tussled with Google, as Bergmayer has written before. For a while, Android users had to download Fortnite directly from Epic’s website (a process known as side-loading) and then install the games on their phones, because Epic Games didn’t want to pay Google its 30% cut for every transaction. But that proved to be too difficult for many users, which forced Epic’s hand. The company put Fortnite back on Google Play. But now that Fortnite has been booted from Google Play, Android users must once again resort to side-loading — but they can still install the app. Apple doesn’t allow iPhone users to side-load apps, which could contribute to an antitrust showdown.

Fortnite actually isn’t a huge moneymaker for Apple or Google when it comes to gaming revenue. Roblox pulled in $US64 ($89) million, Candy Crush generated $US98 ($137) million, and Pokemon Go raked in $US156 ($218) million over the last 30 days, according to combined App Store and Google Play data for those three games, which was provided to Gizmodo by Sensor Tower. That’s a total of $US318 ($444) million, and if we split that number down the middle and give 30% to Apple and Google, each company made $US47.7 ($67) million from those three games in a month. In the grand scheme of things, Apple and Google aren’t losing much from Epic compared to those other games.

But this is a fight Epic may be poised to win, even if it’s not a huge financial loss for Apple or Google.

“Epic could not have timed this more perfectly,” Sag said. “Fortnite is still the most popular game in the world, and because of its popularity, people are going to take their side over Apple’s. People have a very strong, emotional attachment to their video games.”

He’s not wrong; I’m still sad over what happened to Star Wars Galaxies after the New Game Enhancement (NGE) update was released, and that was about 15 years ago, so I understand the emotional impact games can have on people. But more important than that, Sag believes that the timeliness of Epic’s lawsuit against Apple and Google potentially makes a stronger case against the companies in the Department of Justice’s antitrust suit against the tech giants — not to mention the ongoing antitrust investigation the EU is conducting into Apple’s business practices, too.

It’s unlikely that Apple will back down, and unlikely that it will reach an agreement with Epic Games unless it’s forced to, Sag said. And Epic makes so much money from Fortnite that it’s unlikely the company will buckle, especially if it had this entire strategy planned for a while (and it seems like it did). It looks like it’s time for Apple and Google to change their policies, or risk regulators forcing them to do so on far less favourable terms than they could design themselves.

“The world has passed Apple and Google in terms of their view of being a global ecosystem,” Saig said. “They are effectively the two gatekeepers now. It’s a duopoly. I don’t see how a duopoly can exist without additional regulation.”

It’s entirely possible that Facebook, Microsoft, and other companies burned by Apple and Google’s store policies will join Epic’s fight or file lawsuits of their own now that Epic has taken the first shot. With an antitrust investigation underway and Epic taking direct aim at the two tech giants, the situation just kicked into high gear. It’s gonna be a doozy of a shoot-out.

Google has yet to respond to Gizmodo’s request for comment.