Epic Games Sues Apple Over App Store Removal (and Google Too)

Fortnite on iPhone Credit: Domenico Fornas / Shutterstock
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In what is now shaping up to be one of the biggest App Store battles of the year, Epic Games has now launched a lawsuit against not only Apple but also Google following the removal of Fortnite from both the App Store and Google Play store yesterday.

To be clear, the bans were clearly the result of a master plan by Epic to goad the two mobile behemoths into a response, and Epic in fact not only had the two lawsuits ready to go, but also a clever advertising campaign spoofing Apple’s iconic “1984” ad to attempt to illustrate how the iPhone maker has become the very thing it once railed against.

The whole thing began when Epic Games turned on a switch in Fortnite late Wednesday that added a new in-app purchase option, offering customers an alternative to buying in-game purchases through Apple and Google’s in-app payment systems, and offering to let them do so at a cheaper price — since of course it doesn’t have to pay its 30% cut to Apple and Google for these in-app purchases, it was able to offer them for less, although it only discounted them by 20%, although to be fair it probably does have a small amount of its own payment processing overhead to contend with.

Of course, this move was a blatant and flagrant violation of the in-app purchasing policies of both stores, which state that all transactions have to go through Apple’s and Google’s payment processing systems, so when Epic did this, it was only a matter of time before Apple responded — which it did by removing Fortnite from the App Store yesterday. Google followed suit with the Google Play Store a few hours later.

Epic had to know this was going to happen, and it was clearly a shot fired directly at Apple, as within an hour of the Fortnite ban, the company filed a mammoth lawsuit against Apple that it obviously had ready to go, and went live with its “Free Fortnite” 1984 ad spoof.

A Hobson’s Choice for Apple

Epic’s move was actually as brilliant as it was distasteful, since it basically left Apple with the Hobson’s choice — one that offers only two possible options that are both equally unpleasant — of either letting Epic Games slide and opening up a massive can of worms, or wielding the ban stick and dealing with the legal and negative PR fallout from kicking a very popular game off the App Store.

And make no doubt about it, Fortnite is one of the most popular apps on the store, having made Epic a ton of money through in-game currency, and quickly rising to the top of the paid charts. However, Apple also showed some restraint in simply pulling Fortnite from the store — the thermonuclear option that was available to it would have involved revoking Epic’s developer certificate and effectively hitting the kill switch for every copy of Fortnite that’s already installed on users’ iPhones.

While Epic’s hardball move demanded a response, Apple’s more moderate approach means that the companies aren’t yet in an all-out war — for now, at least, Fortnite will continue to run on every one of the millions of devices that it’s already been installed on, and thanks to Epic’s addition of its own purchasing system, players can still buy in-game currency without needing to rely on the App Store. That said, Epic has already told its customers that they can expect to miss the new season of Fortnite launching this fall unless the matter is resolved.

Distasteful?

That said, however, while Epic is obviously trying to paint itself as the underdog here, that’s disingenuous at best. Fortnite has made Epic into a multi-billion company, and this is not a David-and-Goliath battle by any stretch of the imagination. It’s more like two Goliaths fighting it out over who gets a bigger pile of money — giants fighting in the playground.

It’s also worth keeping in mind that what Epic is selling is entirely vaporous digital goods. In-game currency has no intrinsic value beyond what people are willing to pay for it, and it has zero tangible costs. Epic is basically selling air — there are no manufacturing costs, no inventory costs, and no other direct overhead. It’s pure profit for Epic Games, and while of course it has to pay a development team, run servers, and generally keep the lights on, the same thing can be said of Apple and the 30% cut it takes to run the App Store.

Secondly, this is not at all the same as other recent App Store controversies. For example, last year when Apple banned a swath of parental control apps, this was a case of it making a sudden — and somewhat capricious — change to the rules, deciding that a category of apps that had been allowed for years were suddenly in violation. Regardless of whether we felt Apple’s reasoning for that was justifiable (and the company did have a point, to be fair), it was Apple that was easily seen as heavy-handed here.

Similarly, when the debacle with Hey ensued earlier this year, it was another classic example of Apple’s opaque App Store guidelines that made exceptions for certain apps like Netflix and Amazon to sell digital subscriptions and content outside the store while blocking others from doing the same thing simply because Apple decided it didn’t fit into the same category. The developers behind Hey really were the underdogs in this case, and Apple was the intransigent monolith. While Hey did eventually reach a compromise with Apple, it wasn’t really as a result of the larger company backing down, but rather the smaller one finding a clever way to fit within the rules.

In this case, however, Apple hasn’t changed any of the rules, and the rule that Epic is fighting against is not only a well-known and well-established rule, but it’s one that it agreed to abide by in good faith when it first signed its developer agreement with Apple over a decade ago. This is Epic giving a big middle finger to Apple in order to provoke a response and gain public sympathy.

It also doesn’t help that Epic’s CEO has been grinding this particular axe for a long time now, including testimonies to lawmakers and many exaggerated comments about how deep Apple’s 30% cut actually goes — even so far as suggesting that Apple would effectively “tax” schools and educators to use iPads for educational purposes by tacking a 30% cut onto videos distributed through the App Store (which is something that Apple had already stated it won’t be doing).

Taken together, all of this makes it hard to feel any sympathy for Epic, and while some can agree that its cause is a good one at its core — trying to push for change to the status quo — its way of going about it, and possibly even its true motivations for doing so, both make it somewhat tainted.

How Much Is the App Store Worth?

Perhaps one of the most interesting discussions that may come out of this, however, is how important the App Store is to both customers and developers. In short, is Apple’s 30% take justified for the exposure and convenience that it offers, and for that matter, even if third-party app stores became a thing, could they actually do any better?

It’s also difficult for most of us to comprehend exactly how big the App Store is. At this point, there are over 20 million registered developers, with 2.2 million apps (a discrepancy that clearly shows that a staggering number of developers have never published a single app, but that’s a discussion for another day). Since Apple charges $100 per registered developer, that means it’s taking in $2 billion from developer registrations alone each year, however it’s also paid out over $100 billion to developers over the lifetime of the App Store, and according to analysts, it grossed about $50 billion in revenue from the App Store in 2019 alone.

Of course, there’s no doubt that Apple is making huge profits, but there’s also a huge amount of infrastructure involved in running all of this, and then of course there’s the intangible value of the exposure that the App Store brings — a point that Apple often uses to justify its 30% take — and also the question of convenience of the end users.

In fact, Fortnite provides a good example of this. Epic’s stunt demonstrated the relative size of Apple’s cut by showing that there’s a cheaper way to go, and it did so right in the app, but it also wasn’t live for nearly long enough to see how it would have played out. Would users have automatically flocked to the cheaper option, even if it meant punching in their credit card info in the process, as opposed to just tapping and scanning with Face ID? Further, Apple’s in-app purchasing system is tied into the iPhone and iPad parental controls, allowing parents to monitor and manage purchases — many of whom wouldn’t even dream of adding their credit card to their kids’ Fortnite accounts.

Naturally, Epic could provide its own parental controls and other security features too, of course, but that becomes fractured, leaving users to navigate different systems in different games and different apps. With Apple’s IAP system, you know what you’re getting.

Is all of this worth an extra 20–30%? Obviously, Apple seems to think that it is, and as a parent it’s hard to disagree that there’s definite value here. It would have been interesting to see where the lines would have been drawn had Apple allowed Fortnite to remain on the App Store.

To be clear, lots of other services have offered cheaper payment options outside of the App Store. For example, you can subscribe to YouTube Premium for about 30% less by visiting YouTube’s website versus purchasing it in the YouTube app. Epic’s violation was that it blatantly put that option right inside its app.

What Epic Really Wants

Perhaps Epic feels that this is the only way to actually push for change, and that’s certainly the public face that it’s putting on this. However, there are also indications that Epic’s goal is considerably more self-serving.

Epic’s lawsuit against Apple is extremely broad, and it’s essentially asking for every possible form of relief it can get, from seeing the 30% App Store cut lowered or dropped entirely to Apple allowing it to set up its own competing App Store. In fact, in the lawsuit, Epic claims that Apple’s refusal to allow it to create a competitor to the App Store is an “illegal restraint” and “anti-competitive conduct” that harms both Epic and its users of Fortnite.

“Epic — and Fortnite’s users — are directly harmed by Apple’s anti-competitive conduct. But for Apple’s illegal restraints, Epic would provide a competing app store on iOS devices, which would allow iOS users to download apps in an innovative, curated store and would provide users the choice to use Epic’s or another third-party’s in-app payment processing tool.”

Since Epic has been trying to push for its own online gaming store on mobile devices for a while now, it seems likely that this is the company’s true motivation behind this move, and while its argument about offering more consumer choice is a fair one, the move would ultimately serve Epic’s own interests far more, since developers choosing to participate in Epic’s store would simply pay a cut to Epic rather than Apple. Even though that’s likely to be a much smaller cut, it’s still more money in Epic’s pockets at the end of the day.

It ultimately remains to be seen how this will all play out, and many legal experts agree that Epic doesn’t really have a leg to stand on when it comes to its actual lawsuit, especially since it was launched in bad faith after Epic breached its contract with Apple. In that sense, it’s fairly cut and dry, and while Epic hopes to get Apple’s conduct declared illegal and anti-competitive, that point has been made so many times before that it’s starting to ring hollow.

That said, however, Epic may very well know that it has little hope of winning the actual lawsuit it’s bringing against Apple (and remember it’s also launched one against Google, too), and that this is ultimately just a play to draw more attention to the Apple-Google App Store duopoly at a time when antitrust investigators are already sharpening their knives to go after the big tech companies.

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