If you have been following the news lately, you might have heard of Epic Game, the company behind Fornite, is suing Apple and Google for banning their game from their respective App-Stores.
The lawsuit against Apple was issued on the 13th of August in California.
Following this, the 23rd of August, news came that Microsoft joined Epic Games in the court battle and has decided to support Epic Games against Apple.
Let’s quickly analyze the backstory and the strategic meaning behind this news.
Backstory: The App Store
When apple launched their iPhone in 2008, it came with the very famous App Store. This platform serves developers to publish their app there and after it is approved by Apple, it can be purchased by customers. For every copy sold, the developer gets a 70% and Apple cashes in a 30%.
This has been pretty much the standard. Apple, Google and as you can see in our Steam Case Study, Valve applies the same percentage.
Depending on who you are, you can consider the 30% as very reasonable, especially as it takes away a lot of effort in releasing the product to the public, but there’s also a lot of people who consider this 30% too excessive. This current lawsuit is not the first one to come. A few years ago, Spotify also tried to sue Apple.
Furthermore, Apple makes sure his cash cow is well protected and ensures that there are no ways to circumvent the 30%. They analyze the apps and make sure that they get their cut on single-purchase apps, subscription-based apps and in-app purchases. And here is where Epic Games comes in.
What Epic Games did is to include in their App a direct link to their own market place where users could buy from. In other words, it allowed users to buy through the Apple App store, or directly through them, being the second option cheaper, as Epic Games would save on the 30% cut.
Why is this strategically important
We will not go into legal analysis, chances to win, etc. but purely focus on the strategic reasoning behind this move.
Epic Games released Fortnite on the App store in 2017. Since then it has been installed over 133 million times and the revenues generated from it are estimated to be in the range of $1.2bn.With a 30% cut, Apple has made over $360 million.
This move is very relevant for Epic Games, as it will give him back control over one of his distribution channels. If you remember the business model canvas, one relevant aspect were the Distribution Channels. These can be direct or indirect. Basically with or without intermediaries.
Selling on the App store turns what should be a direct distribution channel into an indirect. A 30% loss in the revenues/profits is a huge loss for any company, especially if the cost does not represent any value. And here is where the problem comes. For big players like Spotify, Epic Games, Microsoft, etc. the App store or Play Store do not add any value. They have the means and resources to build a product and everything around (sales channels, distribution channels, marketing campaigns, customer support. etc.) without the need of anyone else’s support. Therefore, they are not generating any value for the 30% cost they are suffering.
Currently, there is no way around this. Since Apple has full control of their OS and App Store, and so does Google of theirs respectively, if you want to reach the billions of users that use iOS or Android, you have to pay up.
What’s the End-Game
The goal of this suit, and this is why Microsoft joined Epic Games, is not for Fortnite to be even more profitable. The goal is for Apple and Google to lose control of their App Store. To open it up so that costs can vary and access is open. Epic Games and Microsoft claim that these stores are currently a monopoly held by Google and Apple. And there are antitrust laws in place to avoid companies holding monopolies as this restricts the market and affects negatively both consumers and suppliers (who are not the monopoly holders).
If the lawsuit succeeds, Apple and Google will lose billions. But more importantly, it will be a huge revolution in prices, access and options within the apps. Linking to other marketplaces, to other games, stores or publishers will all be open now. It’s effects can be very far-reaching.