Epic's maneuvers in the past week will impact every industry we discuss on Spotlit for years to come, and every day brings new developments in this story. Here’s what you need to know to get up to speed.
On Thursday morning, Fortnite’s iOS and Google Play applications received a game changing update that had little to do with actual gameplay. Instead, this update introduced Epic Direct Payment – a new in-game payment option that enabled users to circumvent Apple and Google’s integrated payment systems as well as the 30% fees these systems charge developers. Crucially, Epic wasn’t keeping this extra 30% as marginal profit. Instead they were passing on a majority of the savings to players who could now purchase Fortnite’s in game currency for a 20% discount.
Thursday’s update was an intentional provocation, one that Epic had clearly gamed out. Forced into a response by this explicit challenge of their store policies, both Apple and Google swiftly removed Fortnite from their respective app marketplaces (but not from users’ devices - those who already had Fortnite installed could still play the game without disruption.) Within minutes of the removals, Epic Games filed pre-prepared federal lawsuits against both tech companies – alleging that the marketplace payment and distribution policies in question were monopolistic. By Thursday afternoon, Epic Games had released a shot for shot adaptation of Apple’s infamous 1984 ad via in-game event - a stunt that quickly went viral. We recommend you watch it below – it’s simply brilliant.
Why Did This Happen?
Thursday’s orchestrated maneuvers (referred to internally at Epic as Project Liberty) have been positioned as a crusade undertaken on the behalf of developers and users alike. From Epic’s perspective, both Apple and Google’s store policies significantly limit innovation in favor of the platform – making it increasingly difficult for new apps to reach profitability and hindering competition with a maze of bureaucracy. Two quotes from Epic’s Apple filing stand out:
"Apple prevents iOS users from downloading any apps from any source other than Apple’s own storefront, the App Store. The result is that developers are prevented from selling or distributing iOS apps unless they use Apple’s App Store, and accede to Apple’s oppressive terms and conditions for doing so."
"Consumers […] are likewise denied [...] and are forced to pay higher prices and suffer inferior customer service from Apple, the unwelcome middleman."
Putting the virtue signaling aside, however, Epic has a very real strategic incentive for reducing the expense and bureaucracy of app stores. Those most affected by these policies – small to medium sized game developers – are those most likely to utilize a third-party game engine to power their titles. By meaningfully reducing the barriers to both profitable distribution and ongoing "as-a-service" monetization, Epic’s Unreal engine could see its total addressable market grow significantly as more developers try their hand at mobile games.
What Happens Next?
We are at the beginning of a long drawn out battle, any lawsuit of this size will take years to come to fruition. That said, players on every side of this conflict are going to aggressively begin jockeying for position. Let’s look at how:
Apple and Google Lean into Doublespeak – Both Apple and Google’s app stores can easily survive without Fortnite. On iOS, for instance, Fortnite has generated an estimated $360M in revenue for the App Store in the past three years – less than 0.3% of Apple’s total services revenue over the same time period. The bigger issue is Epic’s ability to mobilize the broad user base of Fortnite at a time where anti-trust sentiment is running high. Between now and August 28th (The launch of Fortnite Season 4) Apple and Google must do everything in their power to scare Epic off and communicate that their app stores are “safe and trusted place[s] for users and a great business opportunity for all developers.” Meanwhile, the behind the scenes fight with Epic will be one of mutually assured destruction. We’ve already seen Apple show it’s ready to go nuclear – yesterday they announced that they would revoke Epic’s (and Unreal’s) access to iOS and Mac developer tools if the Fortnite update wasn’t rescinded by August 28th.
Epic Stays the Course – The threats to Epic’s business are severe – getting cut off from all iOS and Mac devices could have a catastrophic effect on Unreal’s revenues in the short term and potentially shift mobile game development irreversibly towards competitor Unity. However, Epic’s got the war chest to fight this battle. A week before Fortnite’s update went live, Epic announced it had raised $1.78B in additional funding – with Tim Sweeney still very much in control. Our hunch is that we are going to see an Epic very much willing to take the hit in the short term for the long-term potential of cementing itself as the Apple of our generation – fighting the incumbents to create a new digital experience (that its various strategic initiatives will capitalize upon). Smart money is on another cutting PR move that lays out this narrative in the days leading up to Season 4. Keep your eyes out.
Everyone Else Chooses Sides – Until now, the largest developers have refrained from pushing app stores too hard. The success or failure of everything from a new SVOD (see HBO Max’s issues with Amazon and Roku) to a cloud gaming service (Microsoft’s xCloud vs. Apple) relies too heavily upon the reach and ease of installation afforded by these marketplaces. However, Epic Games opened the door for a mass rebellion and is looking for allies. As of writing, Spotify, Match Group and Facebook have openly voiced support for Epic’s position. Microsoft, Netflix, the major Hollywood Studios, and numerous other game publishers will also ramp up pressure in the coming months – pointing users to direct payment options outside of apps and renegotiating fee structures behind the scenes.