Fortnite versus Apple, a game of Monopoly?
Monday 24th August 2020
On August 13, 2020, the video game ‘Fortnite’ was removed from the Apple AppStore and the Google Play Store for violation of in-app purchases payment policy. The very same day, Epic Games, the developer of Fortnite, filed a lawsuit against Apple accusing them of creating and protecting a monopoly over app distribution within the iOS ecosystem. Epic Games set a trap and Apple fell right in. This comes just over a month after Apple’s appearance in a US Congress antitrust hearing in July.
Epic Games issued an update to the iOS and Android version of Fortnite that allowed users to bypass Apple’s payment system when buying ‘V-bucks’ (in-game currency) and access a reduced price. Fortnite exists at the forefront of a new generation of games that are ‘Free-to-Play’, amassing a network of 350 million players that are willing to buy in-game currency, as “the actual game” was free. In fact, Fortnite brought in revenues of $1.8 billion in 2019.
In the past, games were produced by developers who would then spend millions on the packaging and distribution of a physical game that would then be sold at a retailer (often an independent local game store) at a small premium. This meant that as little as 30% of the profit would go to the developer and that only large design houses like Nintendo or Sega could afford to enter the market and tell stories through games. When Steve Jobs launched the AppStore as part of the revolutionary 2007 iPhone, they created a distribution platform where games and software could be downloaded. This eliminated the cost of producing hardware and packaging. In return, Apple asked for a 30% cut of the application’s sale price and in-app purchase sales, reversing the previous costs of selling a game, as the developer now accessed as much as 70% of the profit. Tim Cook, the current Apple CEO, made this very point in his defence of Apple before Congress in the aforementioned antitrust hearing, saying that it was now easier and cheaper to develop games as a result of Apple’s innovation, creating room for new smaller developers to create breakout hits.
However, Fortnite has called Apple out, declaring that their 30% cut served as a tax that was damaging to developers and the consumer. Epic Games is asking for the court to prohibit Apple from continuing to impose anti-competitive restrictions. Whilst the AppStore once allowed for easy exposure to consumers and allowed developers to use Apple’s server space, Epic Games now argue that by forcing all application downloads through the AppStore, Apple deprives consumers of choice.
On January 22, 1984, Apple broadcast an advert introducing the Macintosh, a computer that was designed to disrupt IBM’s monopoly over the computer market, comparing IBM to the controlling party of Orwell’s dystopian novel ‘1984’. The very night that Apple blocked Fortnite, Epic Games released a press video pointing out the irony in Apple’s modern practices, duplicating Apple’s original advert, declaring that Apple has created a bigger monopoly over iOS applications.
Epic Games’ lawsuit reads: “Apple has become what it once railed against: the behemoth seeking to control markets, block competition and stifle innovation”. They believe that Apple “refuses to let go of its stranglehold on the iOS ecosystem” and that Apple has violated the Sherman Act - antitrust law that prohibits monopolisation - as well as the California Cartwright Act and California’s Unfair Competition Law. Apple has a complete monopoly over iOS apps’ availability. You cannot install an app without going through their store, forcing all developers and consumers to pay Apple’s 30% ‘tax’. The ‘Apple tax’ in question provided $15 billion in revenue from in-app purchases alone in 2019 and is forecast to continue to grow.
At the heart of this matter is whether Apple holds the right to decide what software is installed on an Apple product, and how. The outcome of this lawsuit will be a landmark case in competition law and the technology industry, as such practices are commonplace. To that end, Epic Games has filed a similar suit against Google, as they too aim to force Android downloads through the Play Store, albeit to a lesser extent.
Apple has ejected many apps and developers from the AppStore, locking them out of the iOS ecosystem and away from consumers, but it has usually been against smaller development firms. This is the first time a 17 billion-dollar company has challenged Apple here. In the past, Apple has made exceptions to giants like Amazon and Spotify, allowing them to bypass Apple’s 30% ‘tax’. These companies were big enough to challenge Apple and the agreements have reinforced ‘Big-Techs’ control over consumer choice. We will see whether this lawsuit will enact change that allows developers to create installation and payment systems that are separate from the AppStore, giving consumers far greater choice and empowering developers.
Apple will undoubtedly argue that their AppStore provides a safe and cyber-secure application distribution portal that showcases new independent developers and promotes innovation. Epic Games has responded saying that they wish to offer an Epic Games app store to rival Apple’s, empowering the consumer and giving developers an alternative marketplace. Epic Games has already created a PC software store that successfully led to increased game marketplace competition. This disrupted the control that Valve Corporation’s Steam and the Microsoft Store had over PC game downloads. Apple has replied to Epic Games’ ambitions, saying that “Epic’s actions are putting the entire AppStore model at risk”.
It appears the games have truly begun.
