Why the Battle Between Epic and Apple Won’t End Anytime Soon
On Wednesdays, I gather together a ragtag band of thirtysomethings who work in corporate IT, and together we parachute onto a virtual island and proceed to have rings run around us by seven-year-olds who shoot us in the head and do funny dances as we crawl around helplessly. It is simultaneously entertaining and humbling. With Fortnite launching a new season in partnership with Marvel, the seven-year-olds have new ways of killing us: Iron Man’s repulsor, Thor’s Hammer, and Wolverine’s claws, among others. It says something about the modern world, I realize while running around as Thor, that I can’t work out whether Marvel paid Epic to insert product placement into Fortnite, or Epic paid Marvel to license its IP. There’s some sort of deal there, but it’s not obvious which way the money flows. Maybe I’ve become old and jaded, but the crossover feels like a corporate arrangement, leaving me more interested in the deal than the playable characters.
I also find myself wondering about the behind-the-scenes shenanigans. Did Epic Games, the creator of Fortnite, tell Marvel they were going to provoke Apple and Google into removing Fornite from their app stores just as their characters appeared, and were planning to respond with legal proceedings? Did they make it clear that as a result, the Marvel characters wouldn’t be available on iPhones and Android devices?
In case you haven’t been following along, this battle began when Epic added a feature to the iOS app that allowed you to buy in-game currency outside of Apple’s purchasing system. This is against Apple’s terms and conditions and after warning Epic, Apple removed the app from the App Store. Epic immediately released Nineteen Eighty-Four-style video, parodying a famous Apple commercial from 1984. The original Apple ad, directed by Ridley Scott, was influenced by the George Orwell novel (strongly enough that Orwell’s estate sent a cease-and-desist letter to Apple for copyright infringement.) In Fortnite’s retelling, Epic is the revolutionary, and Apple is the evil incumbent.
Epic is not seeking damages. It is seeking the right to launch its own competing store on iOS and Android.
There are times when I look at the world and wonder what we’ve created. Not just because of the Groots and yeets and slurps. There’s Epic, a new “plucky upstart,” valued at $17.3 billion, “bravely” trying to find a way to increase its profitability. And there’s Apple, struggling by on $2 trillion, taking 30% from every transaction processed through their not-literally-but-essentially-monopolistic platform. The tagline to Alien vs. Predator comes to mind: “Whoever wins, we lose.”
As unreasonable as Apple’s 30% cut is, it’s hard not to be cynical about Epic’s position. Partly because these are intercompany commercial agreements that don’t involve me as a player, partly because Epic knowingly triggered this with a marketing campaign prepared in advance, and partly because Epic, too, charges developers to use its platform — the Unreal Engine (5%), the Epic Game Store (12%). Apple’s Nineteen Eighty-Four ad at least pretended to be about individual creativity. Epic’s campaign is about shaving a few percentage points off its multibillion-dollar cost base. Epic may talk about value to customers, but it forced millions of seven-years-olds to sit through an allusion to a 36-year-old television commercial.
Epic is clearly playing a game (unlike, ironically, its users on mobile). And it’s one that is fascinating to tech writers and developers (including me.) I’ve spent a disproportionate amount of my life reading Apple terms and conditions and working around arcane oddities in developer agreements, so it’s nice to see these at the center of a more dramatic story. Epic “baited Apple into a losing battle,” Will Oremus notes, “when Apple followed through on its policies and kicked Fortnite off the store,” Russell Brandom says in a video on The Verge, dramatic music playing in the background. “The company got a big surprise.” It’s all very exciting. Like a sports match, there are two teams, so pick your side and get the popcorn.
There’s part of me that feels like I’m vicariously living through Epic here. When you write apps for iOS or Android, you can feel like a powerless serf. So it’s cathartic to watch a rebellion. Of sorts. Yet it’s difficult to side with Epic. They’re less a fellow serf and more a different feudal landlord who feels like the rules shouldn’t apply to them. “I guess this is a consequence for not reading the terms and conditions,” one YouTube commenter writes under Epic’s Nineteen Eighty-Fortnite video. “Yeah let’s just break the TOS that we agreed with and then say that Apple is in the wrong for banning us,” says another. If Epic were hoping for an outpouring of support from the public, it was the one in for a surprise. Another YouTuber: “This is like a kid cheating on a test, and getting mad when he gets a bad grade.”
Although Epic has taken this battle to the court of public opinion (CEO Tim Sweeney tweets frequently about Apple’s terms), it is the real courts, in the United States and Europe, that will decide. Apple and Google are under scrutiny by antitrust regulators. Tim Cook and Sundar Pichai have answered questions in hearings with the U.S. House Judiciary Antitrust Subcommittee. Epic’s timing in forcing the issue does not feel unrelated.
The App Store has issues that are bad for developers and bad for consumers.
Epic is not seeking damages. It is seeking the right to launch its own competing store on iOS and Android. A cynical observer might say this battle is less about freedom of choice for consumers, and more about Epic seeing Apple and Google profiting as middlemen and wanting in on that.
Epic is not the only company that criticizes Apple and Google for their high rates of commission and arcane rules. A few months ago the Hey email app was banned because it allowed users to sign up within the app, instead of paying through the App Store and giving Apple 30%. And a month later, WordPress was blocked for advertising premium themes. Over the last few years, developer dissent has risen, firstly with smaller companies and then with larger ones. I don’t think it helps that each year Apple announces just how much the App Store makes. Billions for developers, yes, but a third of that goes straight back to Apple.
Apple’s 30% cut only applies to digital goods — this is how Uber and Amazon are able to operate on the App Store. But this distinction undermines Apple’s argument that its payment platform is for consumer security: It is “insecure” to purchase an ebook, but “secure” to purchase the same physical book.
The reality is that Apple charges 30% on digital goods because it can get away with it. It doesn’t charge 30% on physical products because it can’t. But increasingly companies are struggling to make this work. Spotify, which has publicly taken issue with Apple’s fee, has made deals with artists and acts as a middleman, taking its cut before passing on what is left to the artists. The margins are so low there isn’t room for anyone else to take their cut. A 30% cut renders it inoperable. We’ve run out of middle to fit any more men into.
Apple says its policies are to help consumers. But its rules introduce strange and annoying edge cases like not being able to purchase ebooks in the Kindle app, and not being able to sign up for Spotify or Netflix through their iOS apps. Notably, these restrictions often affect companies with products that are direct competitors of Apple. Apple’s own first-party apps — Apple Music, Apple TV+, Apple Arcade, Books — do not have these same limitations. As a consumer, I do not feel helped.
Google and Apple aren’t the only companies that charge a 30% commission. This rate is standard across video games consoles like Sony’s PlayStation and Microsoft’s Xbox X Series X One (or whatever it’s called). However, in an interview with The Verge, Sweeney said that “there’s a rationale for this on console.” On the iPhone, though, “30% is disproportionate to the cost of the services these stores perform.” On Twitter he continued the debate, pointing out that Apple only “spends 12 minutes reviewing the update and takes 30%.”
Apple’s response is that before the App Store, software developers had to pay physical stores and produce packaging and physical disks. As Apple puts it, developers are getting the best deal they have ever had: Its fees “are vastly lower than the 50% to 70% that software developers” used to pay. However, that pricing model is from a decade ago when software used to sell for $50. Now apps go for 99 cents. Apple is competing with terms from the last millennium.
Apple also points out that it can’t be a monopoly because iOS only has a 25% market share worldwide compared to Android’s 75%. Others might point out that Apple does, however, have a 100% share of the iOS market. And that iOS users spend more on apps than Android users. When is a monopoly not a monopoly? When its continued success props up large parts of the global economy, perhaps?
Regardless of whether Apple has a market-dominant position (measured by units or financial returns), it does have an over-sized impact on the lives of individuals.
What I find fascinating about Epic’s position is that it is less a complaint about Apple’s specific pricing strategy and more an attack on the basis of capitalism and free-market economics itself. Apple charges 30% because the value it provides (access to the market of iPhone users) is worth 30%. The alternative model (philosophically and morally, as much as economically) is a cost-plus model. That is, companies should charge in proportion to their costs incurred. I may not be the biggest fan of free-market economics, but I can’t help noticing the irony of Epic, a company that has hugely profited from this model, attacking the foundation of capitalism. Talk about biting the invisible hand that feeds you. It is not the lack of choice that is a problem for Epic. It’s that someone else owns the means of production. Where is Karl Marx when you need him?
This leaks into the language that Epic, Spotify, and even journalists use. It has become common to refer to Apple’s fee as taxation. (“Apple charges a discriminatory tax,” Spotify says.) But Apple cannot charge tax; they charge a contractual fee as part of their business. Apple is not a government and evasion of their fee is not a criminal offense. As much as taxes get a bad rap, they are good for consumers. They fund public services. It says something about the way modern companies approach their corporate finances that labeling something as a tax is tantamount to saying they shouldn’t have to pay it. Tax avoidance is in their DNA.
Yet if Epic’s actions do prompt a change, it will be a technicality — like getting Al Capone on his tax returns. The App Store has issues that are bad for developers and bad for consumers. Fake apps turn up, sometimes appearing higher than the real apps in the search listings. Apple’s policies make things annoying and difficult for consumers. Apps are removed for fickle reasons, and for iOS developers whose only means of making money from iOS is the App Store, this can instantly put them out of business. Regardless of whether Apple has a market-dominant position (measured by units or financial returns), it does have an oversized impact on the lives of individuals. These details are knotty and difficult issues for regulators in the United States and the EU to grapple with, requiring detailed knowledge of technology and capitalism. I’ve got my popcorn ready.