Giants in the mobile app market
For several months now, we have been witnessing an extremely interesting dispute between Epic Games Inc. and Apple Inc. Although the case is being recognised in the United States, its outcome may determine the future shape of the global mobile app market. The manufacturer of iPhone and the App Store creator needs no introduction. Epic Games, on the other hand, is a well-known developer responsible for creating such titles as Gears of War or Fortnite. Epic Games is also known to gamers and game developers as the producer of one of the most popular engine series for computer games, i.e. Unreal Engine.
Apple and Epic Games have worked together for years. App Store is one of the most important platforms, along with Google Play, for providing mobile device users with access to applications created by developers, including Epic Games. The availability of games and other applications in App Store and Google Play translates to their success. As a result, the ability to work with Apple and Google largely determines an app’s visibility and its developer’s revenue. However, the rules governing App Store and Google Play have long been criticised by developers.
“Tax” on applications
Epic Games’ CEO Tim Sweeney questioned in particular the so-called “app-tax”, i.e. the fee charged by Apple for each transaction involving virtual goods, both for the purchase of the app itself and for purchases made within the app (e.g. additional functionality, artifacts in a computer game, etc.). He pointed out that the “app-tax” applied by Apple is 30% of the transaction value, while transaction operators present in other, more open markets charge no more than a few percent commission. However, it is not possible to use alternative operators in case of apps, as App Store and Google Play regulations prohibit developers even from including references to alternative payment systems in their apps.
In mid-August, Epic Games broke that rule and included in its flagship game Fortnite a mechanism which allows users to purchase the virtual currency used in the game (V-Bucks) bypassing the Apple Store payment system, but at a 20% discount. Epic Games also offered a similar option to Android users. This escalated the conflict and eventually led to Fortnite being removed from both platforms. Additionally, Apple threatened to remove Epic Games’ account along with access to developer tools. This latter threat has caused particular concern, due to the fact that Epic Games is not only responsible for Fortnite and other mobile games, but also for the aforementioned Unreal Engine. This engine is used by third-party games, making their creation, functioning and success heavily dependent on eliminating bugs and improving successive versions of the Unreal Engine. In practice, cutting Epic Games’ access to the IOS development environment would hit many players.
Apple’s monopoly
In response, Epic Games filed a lawsuit against Apple claiming breach of rules of fair competition and demanded the ability to freely choose operators for payments for virtual goods. It pointed out that there is a separate market for mobile or in-app payments, so-called ‘in-apps payment’, and that Apple and Google have a practical monopoly in this market. This monopoly is said to be rooted in both Apple’s actual actions and the contractual standards which it applies. As Epic Games points out, Apple, on the one hand, sells mobile devices with the App Store visible by default and blocks users’ access to other platforms, and on the other hand, requires that developers who place their applications on the App Store platform commit to using only payment systems provided by Apple. These rules, according to Epic Games’ lawsuit, do not apply in the case of apps for the offering of tangible goods, and also in the case of Mac users, who can freely purchase apps outside the App Store.
This practice, according to Epic Games, restricts competition in the market. Consumers are forced to pay excessive prices for virtual goods. Epic Games claims that many applications are not launched because their creators, forced to pay an “app-tax” of 30%, are not able to cover the costs of creation and development of new projects. Apple counters these allegations by referring to the need to ensure the safety of IOS users. At the same time, it has launched a separate lawsuit against Epic Games for breach of App Store regulations.
Will the court shape the mobile app market?
The case has not yet been resolved, but the court has already issued an interim order that Apple, for the duration of the dispute, has no right to restrict Epic Games’ access to developer tools and block the development of Unreal Engine on IOS. At the same time, the court accepted that Epic Games’ flagship game Fortnite will continue to be unavailable on App Store.
Although the legal battle between the two giants is likely to take a long time, the outcome could be a breakthrough. If the court finds that Apple’s actions violate the principles of fair competition, it will be necessary to remodel the current way of delivering virtual goods to consumers and it may force a decisive opening of the market, which has so far been divided between the two largest players.
