Innovation Monitor: Epic vs. Apple & Google

Innovation Monitor: Epic vs. Apple & Google

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Welcome to this week’s Innovation Monitor. This newsletter regularly covers futuristic and cutting-edge technologies, but this week we wanted to focus on the burgeoning Epic Games (creator of Fortnite) vs. Apple/Google fight. This will have tremendous implications for the media and technology industries, especially in the realm of entrepreneurship and innovation.

As you might have read (or watched in a Fortnite Party Royale event) Epic Games is suing Apple and Google — with a heavy focus on Apple. It’s painting itself as a trust-buster leading a mission-driven fight for independent developers. Is the company justified? Why did Epic Games decide to sue? And where does that 30% App Store fee originate, anyway?

This week, we’ll dive into the circumstances surrounding this legal battle. We’ll begin with the story of Epic Games’ basement roots and its philosophical DNA. We’ll then consider the origins of Apple’s 30% platform fee, the legal battle’s possible effects on publishers, and a sharp but objective look by Ben Thompson on the matter. We hope this week’s newsletter offers more context to this… epic story.

Next week, we’re excited to be starting a five-part newsletter series on the new emerging technologies named in Gartner’s Hype Cycle. If you want to get a head start 😀 or just read something incredibly relevant for this audience, check out Gartner’s post listing the technologies! As always, we wish you and your community safety, calm and solidarity as we support each other through this unprecedented time. Thank you for reading!

All best,
Erica Matsumoto Apple’s Fortnite Ban, Explained

To begin, let’s start with what set off Epic Games. Any software approved for the Apple App Store is required to pay a 30% commission — for both app purchases and any in-app purchases.

Fortnite, a freemium game, makes all its money from in-app purchases. To get around Apple’s 30% fee, Epic offered Fortnite players ways to buy from the company directly, at a discount. In response, Apple removed the Fortnite app from its App Store for violating its TOS — as did Google.

In response, Epic sued both Apple and Google, claiming that their app store practices violate the Sherman Antitrust Act — the “first legislation enacted by the U.S. Congress (1890) to curb concentrations of power that interfere with trade and reduce economic competition” — and California’s Cartwright Act. The reaction is representative of the accretion of years of complaints about the Apple App Store’s practices.

Vox — 13 min read Read More Epic Used Its Playbook for Fortnite Events Against Apple and Google

Epic has used its island for a number of high-profile events, from kaiju monster battles to massive concerts. Now it’s using its violence-free Party Rolaye space to mobilize support against Apple, parodying the company’s famous Macintosh ad and promoting its #FreeFortnite campaign (and offering anti-Apple prizes). This isn’t the first time a popular proto-Metaverse game has staged a virtual protest, but it’s definitely the most massive. We wonder how future initiatives will use virtual worlds to influence real-world conflicts.

And credit to The Verge for pointing out just how fast things were moving when everything lit up: “On the afternoon of August 13th, Apple banned Fortnite. Bloomberg’s Mark Gurman tweeted about it at 2:53PM ET. Just one minute later, Epic announced a new ‘Nineteen Eighty-Fortnite’ short… which it said would be premiering in-game at 4PM ET in Party Royale. Twenty-nine minutes after that, Epic announced it was suing Apple and linked directly to the legal papers in a tweet from the main Fortnite Twitter account, which has more than 11 million followers.”

The Verge — 6 min read Read More Epic MegaFight

Ernie Smith’s Tedium newsletter recently dove into Epic’s history and recent legal battle — and this is a read you’ll definitely want to put aside some time for, as it not only follows Epic’s rise from a failed one-person software consultancy stationed in a basement to earning $4.2B in revenue in 2019, but also traces the company’s philosophical DNA, and why — despite the Tencent stake, loot box controversies, and plenty of other examples — the company is suited for the “trust-busting” job.

Tedium — 15 min read Read More Epic Games’ Fortnite Battle With Apple and Google Can Be Traced to Nintendo Tax

Another historical perspective, this time with a focus on the 30% rule Steve Jobs handed over to the App Store team. Bloomberg asks, “what was the 30% supposed to pay for in the first place?” It was actually the Nintendo Entertainment System (NES) that first introduced the platform fee in the early 80s.

“It began when Namco… wanted to expand its distribution via Nintendo’s nascent console…. [It] got together with another game maker, Hudson Soft Co. (creator of Bomberman), to persuade Nintendo Co. to open its platform to outside software makers…. Both were eager to be on [the] console, but Hudson couldn’t make its own cartridges…. so Namco proposed paying Nintendo a 10% licensing fee to be able to be on the console while Hudson paid an additional 20% for Nintendo to make its game cartridges. Nintendo agreed — and that two-component fee, licensing and manufacturing, became the basis of today’s 30% ‘tax’.”

Bloomberg — 6 min read Read More Fortnite’s Battle With Apple and Google Could Have an Impact on News Publishers, Too

Nieman Lab says news publishers should also pay attention to the legal battle, as the 30% fee applies to news subscriptions too (fun fact: FT pulled its mobile app from the App Store in 2011 over these reasons and returned in 2017). The fee has caused a number of issues:

• “Some [publishers] raise their subscription rates 30 percent to both (a) cover Apple’s cut and (b) hopefully push some would-be subscribers back to a direct subscription.”
• But it seems like most publishers just “eat the difference.”
• The fee makes it difficult to test subscription offers, and “propensity-driven paywalls… a real source of growth in digital subs for publishers… [are] just about impossible to pull off in the App Store.”

Nieman Lab — 6 min read Read More Apple, Epic, and the App Store

“What makes this distinction particularly challenging is that the question as to what is anticompetitive and what is simply good business changes as a business scales.”

Let’s wrap things up with Ben Thompson’s astute observations on the matter. “The App Store was, at least at the beginning, a wonderful example of this promise; as Jobs noted even the smallest developer could reach every iPhone on earth. Unfortunately, without even a whiff of competition, the App Store has now become a burden for most small developers, who instead of relying on the end-to-end functionality offered by, say, Stripe, have to support at least two payment solutions, the combined functionality of which is limited to the lowest common denominator, i.e. the App Store.”

Thompson says a best-case outcome could mean, “for example, allowing purchases via webviews, particularly for products and experiences that are not zero marginal costs. Sure, that could mean less App Store revenue in the short run, but Apple would be well-served having to build more and better products to win developers over. At the end of the day, squeezing businesses that can stomach the cost of Apple development, both in terms of implementing in-app purchase and that 30%, by definition has less ultimate upside than growing the pie for everyone.”

Stratechery — 15 min read Read More This Week in Business History August 23rd, 1852: The British historian Arnold Toynbee is born

Who may you ask is Arnold Toynbee? He is the economic historian who coined the term “Industrial Revolution.” Even more relevant, he was a critical voice in raising the conversation around poor labor conditions to academic and policy circles. Many of his lessons and writings could certainly be valuable in addressing the societal challenges rising from today’s technological revolution. From Wikipedia:

For Toynbee, this coupling seemed self-evident. Steam-powered factories, the Wealth of Nations, competition, the cash-nexus and the rise of pauperism formed part of a single phenomenon. In response to this bleak scenario, Toynbee proposed a test for when the state should become involved in the regulation of an economic or social sphere of society to even the balance between industry and labour. He proposed the “Radical Creed”.





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