An Epic F-U to Apple and Google Ignites a Hidden Tech War
It’s an exciting time to be in the media industry. This month, Epic games, makers of the immensely popular game Fortnite, released an update allowing mobile players to conduct purchases directly in Fortnite rather than through the Apple or Google app stores. In a public blog post, the game maker said consumers would get a currency discount by using their in-game store rather than the Apple or Google app stores.
Hours later, both Google and Apple removed Fortnite from their app stores, claiming Epic games violated their terms of service by allowing players to circumvent their payment system. For any app developer this would be crushing, as a blanket ban from these two mobile operating systems represents losing 3.8 billion worldwide consumers!
The catch — Epic Games knew this would happen. In one of the most gangster examples of corporate jiu-jitsu, Epic countered with a 60-page lawsuit against Google and Apple, accusing both of predatory monopolistic pricing against app developers. One of the lawyers filing the suit was Christine Varney, a veteran of the Justice Department’s anti-trust division during the Obama administration.
To add insult to injury, Epic simultaneously released a video satirizing Apple’s 1984 inspired ad that ran when Apple was battling to unseat IBM as the dominant personal computing company.
However, the tit-for-tat between Epic and app store owners represents one battle in a larger, hidden war about who owns the digital pipes that affect us all as consumers. The outcome of these individual battles will determine the future of how we consume media forever.
The Mobile State-of-Play — The Operating System (OS) Duopoly
Epic’s claims that Google and Apple practice predatory monopolistic behavior are not without merit or precedent. Similar lawsuits have been filed by other third-party applications. In 2019, Spotify filed a similar complaint with the EU commission over Apple’s business practices, saying that its operating system discriminated against their app in favor for its proprietary and, in this humble writer’s opinion inferior, Apple Music app.
The founders of new email software Hey.com testified in front of Congress for anti-competitive app store practices after Apple disabled updates and threatened to remove them from the app store. When Airbnb and ClassPass began to offer virtual products in the midst of the pandemic, Apple pressured both to pay for access to consumer via their app store.
The main grievance against Google and Apple from most third-party developers has been the 30% cut both OS providers levy on every application in their store. That means if you pay Spotify $10 a month for their music streaming service, $3 of those dollars go to Apple or Google. This can be a painful price, especially for smaller developers trying to get their app distributed to consumers.
This market power stems from the fact that Apple and Google control the pipelines of how digital services reach over half the world’s population. 3.8 billion people now own a smart phone with 99.82% of those devices controlled by Apple and Google.
As the gatekeepers to 3.8 billion consumers worldwide, Google and Apple are able to pressure developers to submit to outsized fees and terms that favor the OS owners. Their market share power is compounded by skyrocketing time spent on mobile device screens. In 2019 mobile screen time surpassed television in the U.S. This trend is forecast to only increase.
With 99.8% control over how more than half of the world population spends the majority of their media time, Apple and Google have achieved monopoly distribution power over consumers.
To be fair, consumers have reaped the benefits of network effects which have concentrated app development in two operating systems. Limited mobile OS systems have provided a uniform platform for millions of applications to be built. But if you are one of those app developers, you can either comply with Google’s and Apple’s terms or suck eggs.
Enter Epic games.
Epic’s Battle Royal with the App Stores
Jiu-jitsu is a fighting technique that uses your opponent’s body weight to gain a dominant position over them. By anticipating their opponent’s moves, Epic may have pulled off the most bad-ass corporate jiu-jitsu move of all time. Here’s how they did it.
Google and Apple are the one-ton gorillas of the tech world. Their dominant positions have drawn the ire of regulators while their anti-competitive business practices have increasingly come to light in the public consciousness. In June, the Apple App Store became the target of an EU anti-trust probe as a result of Spotify’s and other developers’ lobbying efforts. In July, Apple, Amazon, Google, and Facebook testified before congress, defending their position against accusations of anti-competitive, monopolistic behavior.
Epic has long decried what they saw as similar punitive app store terms and decided to throw down the digital gauntlet. In their August 2020 mobile update, they purposefully included in-game purchases that allowed players to circumvent the app stores which included the 30% fee to Google and Apple. They did this knowing full well that it violated the app stores’ terms of services and would likely result in their ban.
When the ban came, they used the market power of Apple and Google against them, filing a premeditated anti-trust suit and a pre-produced public relations campaign against the two companies. By using their own game as bait, they took Apple and Google to the mat, pointing to another poignant example of anti-competitive behavior to pressure the app stores into submission.
The Future of Digital Distribution
Last year, I predicted that the big 4 tech firms, Apple, Amazon, Facebook, and Google would face imminent regulations as a result of their monopolies. I initially thought Facebook and Google would be forced to divest as a result of coordinated privacy breaches among their different business lines and Amazon for using data from their marketplace to copy competitors’ products. While I was right on the imminent regulatory action, I failed to foresee that the mobile OS market dominance would be the impetus for anti-trust action against Google and Apple. The word is still out on my Facebook and Amazon predictions!
How these anti-trust cases play out will determine the future of how we receive all future information. Do we like that Google and Apple are the ultimate arbiters on what we can access on our own mobile devices? Given the big four’s market dominance in digital distribution, I don’t foresee any meaningful challengers until regulatory action is taken. If these anti-trust suits move forward, expect pressure to break these companies into their component parts.
As digital distribution closes the gap between company and consumer, these questions bring our relationship with tech into stark focus. The battles happening today will determine the information, entertainment, and media gate keepers of tomorrow.
