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Apple is gaming the system

Apple is gaming the system

The tech company’s battle with Epic Games is about something big: the future of the digital realms we all inhabit. That future must be different to the present

A very significant, very 21st-century court case came to a close this week, in Oakland, California. The plaintiff was Epic Games, the developer of Fortnite, one of the biggest games – and therefore one of the biggest entertainment properties – in history. The defendant was Apple, the company that brought you the iPhone, the iPad and white headphones. And while the actual judgement is yet to be made, there’s a lot that can already be judged.

Here is what is at stake: the future of the digital landscapes that we access through our smartphones. While Epic Games were acting out of self-interest when they launched legal proceedings in August last year, they also happened to be representing the interests of millions of online citizens. Even ahead of the official resolution of the case, they have already made gains for us all.

It began with a provocation on Epic Games’ part. To publish an application on iPhone or iPad, you have to do it through Apple’s App Store and Apple’s own payment system. Apple then insists on taking a 30 per cent cut; some software developers call it the “Apple tax”. Epic set about demonstrating it by building an alternative into their Fortnite app: if players wanted to buy some “V-Bucks” for spending on various in-game items, they could do so through Apple’s system or they could choose to pay 20 per cent less by buying them direct from Epic. Apple immediately removed Fortnite from the App Store for violating its terms.

But Epic was ready. Expectant, even. As soon as Fortnite was pulled from the App Store, they released a mischievous redo of Apple’s famous ‘1984’ advert. More significantly, they also published a 65-page lawsuit against Apple and its “anti-competitive restraints and monopolistic practices”.

The true purpose of this posturing was clear at the time. In separate court documents, it was revealed that “during the two years Fortnite was available on the App Store, Epic earned more than $700 million in revenue from iOS [i.e. iPhone and iPad] customers” – which presumably puts Apple’s cut somewhere around the $300 million mark. For Epic Games and its 40 per cent owners, the Chinese tech giant Tencent, there are large sums of cash on the line.

It ought to be noted, though, that Epic and Tencent aren’t the only ones losing out – nor the only ones agitating against Apple. Here in the UK, Dr Rachael Kent from King’s College London is leading a separate lawsuit against the App Store, claiming that the 30 per cent charge is leading to “excessive” profits for Apple and “excessive” costs for consumers. “This is the behaviour of a monopolist and is unacceptable,” says Kent.

Is Apple running a monopoly? Many of the company’s counterarguments may be legally sound – we shall have to wait and see on that score – but they still ought to be concerning to consumers. One that has been deployed in the battle against Epic is that Fortnite can be played on other devices, from Android phones to PlayStations to PCs, so consumers can opt out of the App Store and its directives. There is competition because there are alternatives.

There are numbers that support Apple’s argument: they highlighted a survey suggesting that 95 per cent of iOS users “regularly used or could have regularly used devices other than their iOS device”. But what’s dismaying here is the revealed worldview of the world’s biggest tech company.

People pay a lot of money to join the vaunted Apple “ecosystem” of phones, tablets, watches and computers. They are forced to stay there by mobile contracts, and encouraged to stay there by Apple’s in-built services, covering everything from music to personal finances. The idea that the same people can just go elsewhere to play a game – or access some other software – isn’t just blithely dismissive of those for whom that option is unaffordable, it also glosses over Apple’s own business plan to keep users locked in.

Another of Apple’s arguments revolves around the history of software distribution. It used to be the case that, in the days of CD-ROMs in cardboard boxes, a developer would effectively pay much more than a 30 per cent cut – perhaps as high as 60 or 70 per cent – to get their wares to consumers. But thanks to the sort of digital distribution pioneered by the App Store, Apple say, the costs have plummeted.

Sure. But that 60 or 70 per cent used to go towards production costs and delivery networks and even the wages of shop employees, all necessary parts of that old supply chain. It doesn’t mean that Apple’s 30 per cent is fair now, particularly as the infrastructure required for digital distribution is minimal. Indeed, the Apple executive in charge of the App Store, Phil Schiller, asked the right question a decade ago: “[Do] we think our 70/30 split will last forever?”

In fact, the 70/30 split hasn’t lasted forever. Towards the end of last year – (oh-so-coincidentally) just weeks after Epic launched its lawsuit – Apple announced a new 15 per cent rate for “small businesses” who haven’t exceeded $1 million in total App Store earnings in the preceding calendar year. Naturally, this doesn’t include Epic Games, nor thousands of other developers and apps, but it’s a start.

In truth, Apple isn’t the only tech company that has reacted to Epic Games’ campaigning form of marketing. When Epic launched its own online game store in 2018, with a much more generous 88/12 split for developers, it did so while explicitly criticising the higher cuts demanded by Google and the PC gaming platform Steam. And some of those companies are now following suit: earlier this year, Microsoft announced that it will be moving to 88/12 on its games store.  

So why is Epic in court with Apple and not everyone else? The answer is that it’s not just about the 30 per cent; it’s about the enforced ubiquity of the App Store and Apple’s payment system on iPhones and iPads. On other devices, consumers can choose between different stores for their software – indeed, that’s why Epic was able to launch its own store on PC. But when it comes to iOS apps, there is only one way.

Apple’s main justification – voiced by their CEO, Tim Cook, during his testimony last week – is that Apple is purposefully trying to create a perfect realm for iPhone and iPad users. By not allowing other stores, nor the “sideloading” (as it is known) of apps, they are preventing infiltration by developers who may not meet Apple’s standards on privacy, quality or plain old decency. In Cook’s words: “There can be malicious things that occur, things that vacuum up people’s data, malware, the list is pretty long.”

This is the best of Apple’s arguments, but even it is imperfect – not least because they apply their principles inconsistently. The same app-sale restrictions do not apply on Apple’s own Mac computers, which are renowned for their security and superbness nonetheless. Nor do they even apply to all apps on iPhones and iPads: Amazon recently managed to strike a deal with Apple such that films bought or rented through its Amazon Prime Video app aren’t, in many cases, subject to Apple’s payment system nor the 30 per cent charge. Informed observers believe that this concession was related to Apple’s ambitions for its own Apple TV app.

The upshot – and the main problem – is a confused and confusing digital realm for its occupants: us. Nowhere along the path to buying a new iPhone is it made clear that, unlike so many other devices, there is only a single way to buy new software. Nor that a 30 per cent surcharge is imposed on developers and may well be passed on to consumers. Nor that popular apps like Fortnite might be summarily removed from sale. Nor that you can download the Amazon Kindle app but not buy books through it, because Amazon does not want to pay the 30 per cent.

These complications are ones that most people will discover when they start using an iPhone, and many will be able to ignore or get around them. But not everyone. With over a billion iPhones in use worldwide, Apple is responsible for the online lives – an increasing part of the whole lives – of many people. And in this case, there is a fine line between a protected area and a fiefdom.

We have argued before for the break up of the internet giants, such as Facebook, and for more assiduous regulation. Apple is similar but different. It also wields too much power over too large an area, but it isn’t doing so to collect and monetise our data. Our concerns are not about online privacy – they’re about consumer rights.

So we might ask: why is a largely Chinese-owned games company, operating in defence of its own interests, managing to do more to protect consumers than US – or, for that matter, UK – regulators? The main revelation of Epic Games vs Apple concerns the toothlessness of lawmakers and law enforcers in the face of Big Tech. And this must change. Cap the commissions that app stores can claim. Insist on competition. We’d quite like to play Fortnite on our iPhones. 

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Tech States: Apple