Battles among behemoths are always entertaining to witness, as long as one can keep a safe distance.
The donnybrook between Epic Games, the maker of the immensely popular game “Fortnite,” on the one hand and Apple and Google on the other falls into that category. So far, it’s a draw, but a lot of social media hubbub will be heard and lawyer fees will be spent before it’s over. Sit back and watch.
To sum up in advance, Epic filed federal lawsuits against Apple and Google on Thursday, after the latter companies removed “Fortnite” from their app stores, which serve Apple’s iPhone and smartphones using Google’s Android operating system.
Apple has become what it once railed against: the behemoth seeking to control markets, block competition, and stifle innovation.
Epic Games
Epic’s offense was to allow “Fortnite” players to make purchases directly from the fantasy role-playing game, rather than going through the app stores. As a come-on, it offered users a 20% discount for direct purchases.
In the Apple and Google catechisms, this is a sin since it circumvents the mechanism by which Apple and Google skim 30% from the users’ payments before advancing the game developer the remainder.
All of this has the flavor of a choreographed dance. In short order on Thursday, Epic introduced the direct-payment option, Apple and Google removed the game from their app stores, and Epic filed its lawsuits.
At the same time, Epic also launched a social media campaign under the hashtag #FreeFortnite, complete with a video parody of Apple’s iconic “1984” Super Bowl commercial, which positioned the maker of the new Macintosh as an insurgent fighting gargantuan IBM.
It’s conceivable that Epic could muster a large enough public reaction to force Apple and Google to back down, or at least come to the negotiating table, since it claims 350 million users for the various iterations of “Fortnite.”
Epic says it has tried to negotiate with Apple, but Apple has “refused to let go of its stranglehold on the iOS system”; that’s sufficiently vague to leave questions about how any negotiations have actually progressed.
Apple, in a statement made to the MacRumors website, reiterated its long-standing position that it maintains control over its App Store to “keep the store safe for our users.” Epic says in its Google lawsuit that it offered to negotiate over its app, but “Google would not budge.”
Whether Epic can prevail against Apple and Google on the antitrust issues Epic has raised won’t be known for months, even years. It’s proper to note that Epic is alleging that both are monopolists, although obviously they compete energetically against each other.
Epic also acknowledges that “Fortnite” remains available on Apple computers, just not on its mobile devices. That suggests that whatever monopoly Apple is trying to enforce is a narrow one.
But the fight does point to the long-developing evolution of consumer technology companies: Their future isn’t in selling hardware, but services.
That’s been evident from Apple’s own financial disclosures.
More than half of the company’s sales in recent years and quarters have come from the iPhone, which accounted for $142 billion of its $260 billion in sales for the fiscal year ended last Sept. 28, and $111 billion of its $210 billion in sales over the last nine months.
But the second-largest product category is “services,” which include the App Store and Apple’s Music and iCloud offerings. Services accounted for $46.3 billion in sales in the last fiscal year and $39 billion in the last nine months.
More to the point, services are growing while iPhone sales are slowing. In the last fiscal year, Apple says, its gross margin on products — the iPhone, iPad and Mac computers — was 32.2% in fiscal 2019, down from 35.7% in fiscal 2017. The gross margin on services was 63.7%, up from 55% in 2017.
If you’re Apple Chief Executive Tim Cook, you know where your bottom line is buttered.
Figures like these provide a major incentive for Apple and Google to position themselves right smack in the middle of the relationship between consumers and app developers, and hang on for dear life. So it’s unsurprising that the customers will become the hostages in the battle. To take a historical perspective, there’s nothing new about this.
Customers are the quarry, after all, in almost every unionization campaign. Unions often time their strikes to create inconveniences that will prompt consumers to pressure companies to come to terms.
Cable companies and cable channels put viewers in the middle of their frequent fights over carriage fees — the cable operators black out the channels or networks, blaming the latter for demanding too much money, and the channels and networks inform viewers that it’s the cable firms that won’t let them watch their favorite shows for the same reason. (In the end, the customers always seem to pay more, no matter which side “wins.”)
In this case, Epic thumbed its nose at Apple and Google, knowing full well that those companies would react by tossing them off their app stores, thereby preventing game users from updating their games on Apple’s iOS mobile platform and phones using Google’s Android system.
As for Epic’s lawsuits, which plainly were prepared well in advance of D (for “deletion”) Day, they involve a lot of typically lawyerly heavy breathing. It’s amusing to read them together.
Both filings accuse the defendants of maintaining monopolies in which they can impose an “exorbitant … tax” on “Fortnite” users.
Mischievously, in its Apple lawsuit, Epic invokes the shade of Apple co-founder and demigod Steve Jobs, quoting him describing the theme of the “1984” commercial as creating the perception of Apple as “the only hope to offer IBM a run for its money. … Will Big Blue [IBM] dominate the entire computer industry? … Was George Orwell right about 1984?”
Despite Jobs’ vision of a competitive computer marketplace, Epic says, “Apple has become what it once railed against: the behemoth seeking to control markets, block competition, and stifle innovation.” It adds: “Apple is bigger, more powerful, more entrenched, and more pernicious than the monopolists of yesteryear.”
There’s a heaping helping of revisionist history in this language. Jobs was by no means an avatar of open competition.
In contrast to IBM, which opened the operating system of its personal computers to all manufacturers, Jobs maintained a stranglehold on the Mac’s operating software so that every Macintosh on the market would bear the Apple nameplate. That’s true to this very day.
Epic even acknowledges Jobs’ monopolistic tendencies in its own lawsuit, quoting from an internal 2011 email in which he directed that Apple’s iBooks app would be “the only bookstore on iOS devices.”
Jobs said then, “We need to hold our heads high. One can read books bought elsewhere, just not buy/rent/subscribe from iOS without paying us,” that is, Apple. In other words, Apple isn’t rejecting Jobs’ vision by controlling the App Store, but upholding it.
As for the Google lawsuit, Epic’s lawyers exploit the code of conduct crafted in 1998 by that company’s founders, Larry Page and Sergei Brin: “Don’t be evil.”
“Twenty-two years later,” Epic asserts, “Google has relegated its motto to nearly an afterthought, and is using its size to do evil upon competitors, innovators, customers, and users in a slew of markets it has grown to monopolize.”
Epic should take a deep breath. “Don’t be evil” has been a joke for years, if it ever was serious as a mission statement. Google long has run roughshod over rivals.
That was one of the themes of the July 29 hearing before a House antitrust subcommittee, in which Rep. David Cicilline (D-R.I.) bluntly informed Sundar Pichai, CEO of Google parent Alphabet, “We heard throughout this investigation that Google has stolen content to build your own business. These are consistent reports. And so your testimony that that doesn’t happen is really inconsistent with what we’ve learned during the course of the investigation.”
“Fortnite” fans might think there’s a lot at stake in this battle — not least their ability to access upgrades to their games on mobile phones. But they should keep in mind that the battle is really not about their freedom, but about who has the right to send them a bill. Whoever wins, they’ll still be paying.
