We used to say that if you wanted to see the future of technology you should look no further than the porn industry. It was typically the earliest adopter of new technologies like CD-ROMs, DVDs, streaming, haptics and more.
But today if you want to see the future of technology and policy, look no further than digital gaming. Who would have thought that entertaining pastimes like short silly videos of dances on TikTok and battling to rule digital worlds on Fortnite would become the cutting edge in consumer behavior and also targets in the crosshairs of national debate about state-of-the-art tech regulation?
TikTok, a social media platform for creators of short form personal video, recently became the centerpiece for the Sino-American conflict. (Microsoft and others are urgently negotiating to buy its American operations as the Trump Administration has set a deadline of mid-September, after which a Chinese-owned TikTok will not be allowed to operate in the U.S.) Now Fortnite, a massively-multiplayer game which is massively popular, along with its creator Epic Games, finds itself poised for attack over business practices on the app stores of Apple and Google.
In 2018, Fornite Battle Royale caught the world’s attention by generating more than a billion dollars in revenues. That was impressive, considering the game is absolutely free to download and play. The revenue came from in-game purchases made with V-Bucks, the game’s internal native currency. V-Bucks buy everything from outfits and accessories for your player to events entry and dance moves. It has been reported that 70% of Fortnite players make in-app or add-on purchases.
As is standard operating procedure for both Apple and Google’s Android, the app stores take a hefty 30% of Epic’s sales price from these purchases. Apple requires both that all apps be installed and that all in-app purchases be made through its App Store. The Google Play store, by contrast, generally offers more opportunities to bypass the Google-owned store for in-app purchases.
But Fortnite declared war on both the Apple and Google app stores in mid-August when it added a feature called Epic Direct Payment to its own site. This gave a discount to users who bought their in-app purchases directly from Epic. The action, in violation of the app store’s agreements, resulted in Apple and Google both removing the Fortnite app from their stores.
Round two? Epic Games filed lawsuits alleging anti-competitive practices. It followed the lawsuits with a parody of Apple’s 1984 Orwellian ad, suggesting Fortnite would prevail. The hashtag #freefortnite gained an avid following.
Round three? Apple retaliated, saying it would cut Epic’s access to Apple development tools.
Round four? Epic added a second lawsuit, citing “irreparable and unquantifiable” harm based on Apple’s move. A look at this second suit makes a pretty strong case that Apple’s retaliation is going beyond Fornite into Epic’s other businesses like the Unreal Engine, which developers use to develop their own apps.
Who will land the knockout punch? In an interview with Ars Technica’s Senior Gaming Editor Kyle Orland, he told me that the public relations battle may prove more important than the legal battle. Apple does not want to seem to be the company that stands between a Fortnite’s 350 million players globally and their game.
Mobile Devices are Terra Incognita
Understanding how gaming platforms have historically generated revenues is key to understanding this state-of-the-moment “battle royale” of tech. Orland walked me through the landscape of gaming revenue. In the world of game consoles like Sony’s PlayStation, Microsoft’s Xbox and Nintendo’s platforms, paying 30% of sales to the platform is the norm for game makers. Those companies typically pay without complaint. Orland says that is in part because the hardware (the consoles themselves) is sold at greatly discounted prices. Game purchases offset the hardware loss for Sony, Microsoft, and Nintendo. The console and the game are often tied together in joint marketing events. The game formats are proprietary. It is a “razor and razor-blade” model.
On traditional desktops and laptops, the expectation is that the game developer makes the app available on its site and claims all of the profits. The platforms, mostly Microsoft’s Windows and Apple’s Mac OS, are not part of the equation. For better or worse, just as with other applications, they typically don’t know, see or vet what software you use.
The mobile device is a relatively new player in gaming. Should it be treated more like a console or more like a PC? In theory, the app stores are making discovery of an app easier and offering some modicum of safety. At least that is what Apple and Google think. Is that worth 30% of revenues?
Orland suggests that Apple is inconsistent in enforcing its policies and that it needs to show some flexibility as we get into new media territories like streaming music and interactive movies. He emphasizes the importance of the public relations fight as fans are already raising their voices. (Check out the activity on the #freefornite hashtag on Twitter.)
This week Apple’s stock climbed past a $2 trillion dollar total company valuation. (Can you calculate 30% of $2 trillion?) This colossus owns both the railroad and controls the cars, exacting its tolls on whoever travels those rails. It seems to me that the fair thing would be to create a sliding scale based on a number of metrics, including in-app revenues, length of time an app has been on the store, spending on promotions, and more. And it should be spelled out how the app stores offer services, not just a tollgate, if that is true. As these newer sorts of after-app purchases like streaming content, emails, videos, and avatars etc., become well entrenched, the app stores need to change.
Coming out of the old fashioned world of publishing I use this analogy: I’ll will happily pay you a fee to distribute and showcase my magazine. But the ad revenues are mine. What do you think?