In 2008, Steve Jobs pitched the App Store as a supplementary service to get more people to buy iPhones, rather than a significant revenue driver for Apple’s business. Even free apps cost money to distribute, so to make up for this Apple would charge a 30% cut of any in-app purchases. Don’t want to pay the fee? Don’t sign up and kiss nearly all chance of your app’s success goodbye. It was a pretty sweet deal for Apple.
Twelve years later and Jobs prediction has come only partly true. Yes, the App Store is a big reason that people choose to purchase an iPhone, but it is also a key revenue stream for the company. With iPhone sales dwindling, Apple’s services business has grown exponentially. (Think App Store, Apple Music, Apple TV, iCloud etc.). The App Store, a $519 billion developer ecosystem, is Apple’s second largest revenue driver behind the iPhone. Yet even with all of this success, Apple is still taking a 30% cut from its developers.
Sounds crazy? The U.S. government thinks so too. “Highway robbery” was only one of the phrases used to describe the App Store when Tim Cook took the virtual stand on Capitol Hill a few weeks ago for the Big Tech antitrust hearing.
For years, app developers have searched for loopholes to bypass this ridiculous requirement. Let’s use Spotify as an example. If you go to download the app, notice that you are unable to sign up for a paid subscription inside the app. Instead, it will direct you to sign up on a desktop, effectively side-stepping the Apple commission. While this might seem like an easy solution, it isn’t. Think of all the potential customers Spotify loses in their funnel by needing to guide users through a desktop only sign up, especially in under-developed nations where many people only have access to smartphones.
The only other option is to take legal action which for small developers is even less realistic (and more costly) than creating a successful app without distributing it through the App Store.
Epic Games owns Fortnite. Fortnite has taken the gaming world by storm with over 350 million gamers who have spent over 3.3 billion hours in game during April 2020 alone. Fortnite’s biggest revenue stream comes through the sale of V-Bucks, a virtual currency that lets users buy skins, dances, and props for their characters. The mobile app alone brought in $1.2 billion of in-app purchases last year. Apple’s cut was $360 million.
Last week Epic announced a “permanent” 20% discount on V-Bucks, as it had successfully found a loophole to get around Apple’s commission. Normally Apple needs to approve every app update. As we learned from the recent Hey! saga, any attempts to cheat Apple out of this cut will result in the rejection of the update. Epic Games was able to use a workaround to update its app without Apple’s approval, knowing very well that Apple would retaliate by removing the game from the Store. Apple made its move and Epic was ready for war, immediately serving Apple with a major lawsuit accusing them of having an “unreasonable and unlawful” grip over the iOS market. Google also got involved, as it removed Fortnite from its Google Play store and found itself on the receiving end of its own lawsuit from Epic.
As a digital era war declaration, Fortnite released an in-game video mocking Apple’s famous 1984 ad, encouraging users to speak out about the situation using the #FreeFortnite.
The #FreeFornite campaign has already blown up and will continue to grow as millions of frustrated gamers will be unable to download the new versions of the game to their mobile devices. This will make playing Fortnite on Apple devices nearly obsolete and may potentially cause users to switch to an Android powered device as the app can still be side-loaded on these devices.
I can already see the temper tantrums arising when little Jimmy can’t deck out his character with the newest parachute because Apple was too greedy. I can also see frustrated parents going out and buying a new Android device if that’s what it takes for the kid to put a sock in it.
While I agree Epic and other developers are getting the short end of the stick, I’m curious to see what it ultimately gains from the lawsuit. Best case scenario, Epic no longer needs to pay the commission, sets an industry changing precedent for future developers, and gets a bulk of its fanbase to blame Apple for the issue. Worst case scenario, the lawsuit drags on, Fortnite loses out on billions of dollars and will be forced to strike a deal, ultimately conceding to Apple’s demands. My money’s on the latter.
Only time will tell, but with the new season of Fortnite launching at the end of the month, Epic’s on the clock.
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