Fortnite, a game of skill, strategy and the ability to create different worlds and battle arenas, came in 2017. It quickly went on to amass 350 million users across the world and about $1.8 billion in revenue.
This is where the trouble begins. Fortnite is a free game. It makes its money from selling skins and other goodies within the game, through various app stores. Unlike the usual 10-15 per cent cut, Apple takes 30 per cent on any transaction that goes through its App Store and rarely makes exceptions. A notable one is Amazon, which pays only 15 per cent for App Store purchases of Amazon Prime Video.
Epic Games had been pushing for a better deal given that 133 million iPad and iPhone users play the game. Apple has made an estimated $360 million from the $1.2 billion that Fortnite users have spent on it. But Apple stuck to its guns. That is when Fortnite encouraged users to buy stuff straight from its site and pay 20 per cent less. As soon as it did that, Apple took Fortnite and later all Epic Games software off from the App Store.
So did Google. But unlike Apple, Google pushes Android, an open operating system. Android users can buy an app or upgrade from anywhere. However iPhone and iPad users cannot download anything to do with Fortnite anymore. They can only play the version they have. Epic has filed a lawsuit against both Apple and Google. It is categorical this is not about financial damages but commercial fair play.
In terms of sheer size and staying power, Apple and the $161-billion Google can annihilate Fortnite. The alacrity with which Epic came out with the ad and lawsuit (within minutes) indicates that it knows where this is going.
This play for a better deal comes in the midst of various anti-trust proceedings going on against the App Store. There is a huge public relations element to this battle with the David versus Goliath element thrown in. It seems like many similar battles —between broadcasters and DTH and cable operators, music labels and Apple’s iTunes/Spotify, news publishers and Google/Facebook. In a competitive market, some commercial jostling is normal.
But this is not a competitive or a normal market.
The world’s biggest online distribution platforms are owned by a handful of firms each with crazy amounts in revenue and humongous reach. Apple (1.5 billion users, $260 billion revenue), Google (1.7 billion users, 161 billion revenue), Facebook (2.6 billion users, $71 billion revenue) and Amazon ($280 billion revenue). Google and Facebook account for over 56 per cent of all digital advertising in the US. Amazon, which is gaining in on digital advertising, will soon join the duo. On the pay side, Apple and Amazon have huge hardware, app or e-commerce businesses which subsidise everything else and help create a walled garden.
These audiences are then available to any newspaper, music firm, broadcaster, film studio or game only on terms that four firms get to decide on. If it doesn’t work, a firm is locked out of the global market in one go. Each of these firms has bought out potential competitors time and again. As they keep growing, the network effect has made them way bigger than their actual size. It is hard not to use the word “monopoly”. That is what regulators in the US and EU are thinking. There is talk of breaking up big tech a la Standard Oil (1911) or AT&T (1984). The latter had become so big and dominant in telecom that regulators broke it up into eight firms.
The timing of the Apple-Fortnite skirmish is critical. In France and Australia, regulators are now forcing the platforms to pay publishers. Spotify, which had complained to the European Commission last year about Apple, calling it a monopolist came out strongly in support of Fortnite. Last week, a news publishers’ trade body with some of the biggest names on board has written to Apple CEO Tim Cook asking him what it would take to get a deal like Amazon’s.
Note that this is not just about the US market — things are playing in roughly the same manner in the rest of the democratic world. In India, Google/Facebook walked away with almost 70 per cent of the Rs 22,100 crore spent on digital advertising last year. All the rah-rah around the growth of digital essentially boils down to a duopoly. This is a battle we should be watching closely.
