QUALITY WOLVES BLOG

Apple vs Epic Games:
premises, current situation, and possible outcomes

Diana Sadykova
August, 2020

The 30% service fees in app and gaming stores have been a topic of heated arguments for years. I've seen so many developers claiming the commission was too high I've lost count.

Netflix, Spotify, Basecamp, Telegram... the list goes on.
Update: Microsoft and Facebook supported criticism of Apple's policies.
In my opinion, the most prominent company that supports this stance is Epic Games. First, they criticised Steam and became competitors, launching their own gaming marketplace, Epic Games Store, with just a 12% service fee. Now, they're filing the lawsuit against Apple and Google after Fortnite has been removed from both the App Store and Google Play for providing an alternative way to pay for the in-game currency — which is strictly prohibited in both stores. Also, Apple announced they won't stop there and terminate the Epic Games App Store account on August, 28.

It's not the first attempt to bring changes to the worldwide mobile market. But before discussing it, let's have a more detailed overview of this conflict between stores and developers. As usual, both sides aren't completely in the wrong.

On one hand, Apple and Google have a great part in creating a user- and developer-friendly app distribution network and constantly develop new tools and features. Before they appeared, no one provided so many features: built-in developer tools, unified payment systems, DRM, fraud protection, and many other things that stores provide now for companies creating iOS and Android apps.

On the other hand, this lawsuit might help the mobile development industry stay more competitive and open to innovations. As Apple challenged IBM with its famous "1984" commercial, other companies now challenge its looming presence over the mobile market. In some sense, history repeats itself: the previous biggest hardware company, IBM, was forced to allow other companies to develop software for their platform.

Imagine the alternative universe where only hardware companies can develop software for their products. I think the state of software would be rather gruesome.

In addition, it's proven that Apple showed their apps higher even in unrelated search results, abusing its control over the App Store. Such behaviour diverted revenue streams from other developers as top 3 apps in search results received the majority of installs. There're other ways how stores influence the mobile market. Features like Apple's Today and positions in categories can be a powerful leverage too as they're great sources for organic (or unpaid) traffic.

Let's see if the situation changes. I just hope smaller developers don't suffer the consequences — for example, revoking Epic Games access to developer tools means they won't be able to assure Unreal Engine compatibility with iOS and Mac updates. This, coupled with iOS 14 release in September, might destroy mobile gaming companies that rely on this engine.
Let's rewind
Most Quality Wolves developers are the pioneers of mobile development and remember the times before the launch of the App Store and Google Play in 2008. They describe the distribution process before the app stores like this:

1
Developing landing for your app
Of course, this required much more additional resources and skills.
2
Hoping someone stumbles upon it
Social networks and ad services weren't that massive and lacked targeting.
3
Hoping they know how to install apps
Few users understood they can download a file and launch it on their devices.
4
Hoping users won't churn before they pay
Marketing automation didn't exist yet. And getting paid wasn't that easy back then.
The funnel of the conversion to install had too many steps, few users knew how to go through all of them, and there were little to no acquisition channels. It won't be possible to return to these times, thankfully, even if two well-established marketplaces, the App Store and Google Play, cease to exist at once. Though I don't think we'd soon have nice alternatives to them either. Google allows 3rd party marketplaces to be installed on Android devices but it doesn't seem that any of them come close to Google Play in features and user experience, to be honest.

Even Epic Games Store, if we take a look at PC gaming marketplaces, is pretty scarce in terms of features: despite having an opportunity to copy and hone Steam best practices, the UX isn't great. For example, they still don't have a shopping cart — though it's pretty vital for user experience, especially during sales. This feature has been sitting on their roadmap for at least a year. I think smaller companies have even less chances to quickly develop something decent without causing users' complaints.

Also, it's great that developers now have access to numerous features incorporated in just two marketplaces with a huge number of paying users. We can have a look at the Chinese mobile market where thousands of stores exist, users are scattered across them, and a developer has to accommodate to several sets of rules while rarely getting even a pinch of features that the App Store and Google Play have. Of course, the App Store is available there yet (while Google Play is blocked). However, if the App Store caves into Trump's demands and bans WeChat, the interest in Apple devices will decline — this app is vital for Chinese users, playing the same part as the web does in other countries.

Ok, I'm trailing off here. The trade war between the US and China is sometimes cited as an underlying reason for this conflict but I'm not sure I want to dive into this issue at all. I only know that Tencent owns 40% of Epic Games — but Tim Sweeney, their CEO, is still the decision maker.

So, there shouldn't be doubts that Apple changed the way apps and games are distributed to the better. Hell, the biggest irony of all this situation with lawsuits is that they lowered industry standard to 30% — and I recall 80% commissions before this standard was established in 2011 — while providing a bunch of tools that make developer lives easier.

Also, the commission isn't always equal to 30%. The App Store and Google Play commission structure is more favourable for app developers that use in-app subscriptions as their monetisation model, cutting the commission from 30% to 15% for each user after the first year of their subscription. However, for other monetisation models and games the commission rate stays at 30%.

And if your app qualifies as a reader or a business app, you can add an alternative payment method. Definitions of these two categories are rather vague, and Hey! by Basecamp tried to use this loophole but couldn't get through the review process in the App Store. Dropbox somehow qualifies as a reader though.

Digital Context Next also raised their concerns about the flexibility of Apple's policies regarding the subscription fee. During latest antitrust trials of Apple, Google, Facebook, and Amazon, it was revealed that Amazon Video Prime's fee was reduced to 15% for new subscribers and was waived for previous ones. The app was also allowed to implement other payment methods.

Oh, by the way. I'm not talking a lot about Google Play because it mostly follows the App Store trail. Also, Google allows installing other marketplaces on Android devices so it softens the power dynamics between an OS company and developers.

The ultimate goal of Epic Games is linked to this fact more than to service fees. They don't hide their intention to create a stand-alone gaming store as they did for Android, PC and Mac — it's mentioned in the lawsuit against Apple. Epic Games don't seem to think that the company that created an ecosystem is entitled to be the only beneficiary party.

Their strategy to attack the commission rates of a competitor instead of their place in product distribution has already worked once. In result, Epic Games attracted more users because Epic Games Store was lavishly mentioned in headlines, tweets, and subreddits. It was likely just a side effect that Steam lowered their commission for games that earned more than 10 million dollars.

I don't think this conflict will seriously affect the dominating role of the App Store and Google Play on the mobile market — as we can see, Steam haven't lost its leading position. However, it might tank some companies and nurture new possibilities for developing awesome products.

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