Unless you’ve been under a proverbial rock for the last couple of weeks, you’ve probably heard about Epic Games war with Apple (and to a lesser extent, Google). It’s like the story of David Vs Goliath all over again. Well….maybe not so much but we’ll get to that.
Here’s my take on the entire Saga as a former Apple employee.
Apple launched the iPhone in 2007 with no support for native third party apps. Steve famously argued that there was no need for native apps and that web apps would be sufficient. That didn’t quite work out as planned and just a few months later, Apple announced the iPhone SDK and the App Store. Finally developers would have the tools to create and sell software on the iPhone while Apple would handle the distribution. In exchange for providing the tools and the digital store shelf, Apple took a 30% cut of paid apps and in-app purchases. That remains true to this day.
Epic games, while smaller in 2008 than they are today, wielded significant vocal clout in the gaming industry. At the time they were perhaps best known for their hit title Gears of War for the Xbox 360 and for their promising game engine, Unreal Engine. As it turns out so loud was Epic’s voice even back then, that they actually convinced Microsoft to double the RAM that shipped in the Xbox 360. The intention was somewhat self serving (to get Gears to run at 720p) but it turned out to be great advice. Epic has consistently enjoyed a cordial relationship with the wider gaming industry and for the most part, with the console manufacturers.
The Early Days of the App Store.
The App Store wasn’t the first digital marketplace for software, not by a long shot. But it was the first truly excellent one for mobile devices. Developers didn’t have to worry about distribution, handling payment processing or tax. Small developers and large developers alike were offered a level playing field. This was an attractive prospect to aspiring developers working from their bedrooms and just as attractive to large corporations like EA games. Apple provided the tools and resources to help developers bring their app to life and hooked them up with a huge audience of eager iPhone/iPad/iPod Touch users.
By design, the App Store was (and still is) a curated platform. Nobody had ever done anything like this on mobile phones before. When announcing the App Store, Apple contrasted what it meant for the iPhone Vs a fully closed system like their popular iPod classic. To distribute on the App Store, developers had to follow a series of rules. Some of the basics included things like:
- Apps must function as advertised. Perfectly reasonable to expect.
- They can’t use unsupported API’s to prevent them breaking with OS updates.
- The apps couldn’t include malware.
- They can’t incorporate third party payment systems.
The press were given the opportunity to ask questions to Steve Jobs (former CEO), Tim Cook (Current CEO) and Scott Forstall (Former SVP of iPhone software). One of the big concerns from the press was focused around how did Apple plan to keep users safe? To quote Steve:
“Since the direct distribution of their applications is going to be through the App Store, if users alert us to a malicious app that we didn’t catch, we’ll turn off the spigots so no more people download it. And so we’re putting controls in place, some of which we’re talking about here today and others which we’ll just keep to ourselves for now. But the goal is to keep the iPhone a great experience for users”
The deal seemed reasonable to developers at the time. Apple offered a huge audience of customers and handled distribution of apps while in exchange, collected a 30% cut of any paid apps. Some of that cut is a profitable cut for Apple and some is used towards the cost of running the store amongst other things.
Apple and Epic. Partners.
If you’ve been a follower in the world of Apple for a while now, you might remember a game series called ‘Infinity Blade’. Infinity Blade was the first game to ever use Unreal Engine on a smartphone. It was developed by none other than Epic Games. Tim Sweeney, the CEO of Epic had asked subsidiary ‘Chair’ to build the game and he wanted a playable demo available for Apple in just two months.
Epic built the demo and showed it to Apple. Apple was so impressed that they invited Epic to show off their game on stage at a keynote event. This was mutually beneficial. Apple got to show off the possibilities when developing games for iPhone and the use of a popular game engine. Epic in return received huge amounts of free publicity. And it worked. Infinity Blade became the fasted selling game on iPhone at the time. The game made $1.6 million in the first four days of availability alone. Or presented in another way, Epic made $1.12 million in the first four days and Apple took a cut of $480,000.
Epic would go on to make sequels and spin offs for several years in the Infinity Blade series and benefited from continued high profile exposure at Apple events and in the gaming press. At the time, this partnership was great for everyone.
Fast Forward to 2020.
In 2020 both Apple and Epic Games are much bigger companies than they were back in the early days of the App Store. Apple has increased 10x in value since that time. Apple has become so large that the worth of the company recently eclipsed 2 trillions dollars. That’s more than the entire GDP output of some European countries!
While Epic is a private company and harder to accurately value, CEO Tim Sweeney now has an estimated net worth of around 10 billion US dollars. Clearly some of that wealth could have been generated from other sources but it does help to create some context.
Epic has enjoyed major success in recent years thanks to their hugely popular battle royale game, Fortnite. The game is a freemium. Free at the point of entry. In app purchases available for everything else. Cosmetic items, season passes, new maps and equipment and so forth. This has become a highly lucrative and profitable business for Epic and has catapulted the company to levels of success rarely seen in the gaming industry.
Epic has become more successful and profitable than anybody could have imagined and so has Apple. Epic continues to enjoy huge profits from in-app purchases on the App Store. Apple continues to collect 30% of that for handling distribution of the app. Both are highly successful companies. So what’s the problem?
In a nutshell it all comes down to one thing. Money. Epic included their own payment processing option in a recent update to the Fortnite app. This was designed to side step Apple’s 30% revenue cut. This violates the terms and conditions of the App Store. So Apple removed the app from the store. Then Epic sued Apple in retaliation and made this video.
In the simplest terms, Epic is no longer happy or satisfied with the current arrangement. They aren’t happy with the way distribution of their apps takes place on iOS and they’re even less happy with how purchases are made inside those apps. Epic wants Apple to do one of the following:
- Offer more payment processing options to allow developers to charge customers directly (and avoid the 30% cut that Apple takes).
- Allow apps to be installed via third party stores or to be side loaded on the iPhone and iPad.
Epic argues that this will create more choice for consumers and allow developers to enjoy a larger cut of the revenue generated by their apps. It’s a fairly simple argument.
The App Store offers access to a trusted source to buy and discover apps. It offers developers a huge platform to sell their apps with a massive install base. In exchange Apple collects 30% of the revenue generated by paid content. Here’s why.
- The development of the future frameworks for the iOS SDK costs money
- The App Store costs money to maintain
- Staff that run the store have to be paid to test and approve apps
- Other research and development costs such as the swift programming language
- Apple want a cut (The reasons above and they’re a business)
The key point is that Apple doesn’t just provide a store front. They provide access to developer tools, resources, support and they handle the distribution. All of this costs money and so that 30% cut, isn’t pure profit. It does however make Apple a lot of money.
So whose in the right?
This is a hard question to answer. Some might argue that Epic have broken the rules (which they have) and Apple has simply made good on their terms and conditions. Both of these things are true. But it’s much more than than that.
On iOS the only approved way to get your app on to a customers phone is the App Store. Some people argue this takes away consumer choice and deprives them of options. Epic would certainly be in that camp. But there is a flip side to that argument.
The iPhone has a very small market share in the larger smartphone category. For every 87 Android phones sold, only 13 iPhones are sold. Android is an open platform where consumers can install apps from any destination they like. If people don’t like the lack of third party app stores on the iPhone, they can just buy an Android phone right? They have plenty of choice?
It’s certainly true that people that don’t like Apple’s policy can buy a smartphone from another manufacturer. But some will argue that they shouldn’t have to. That they should be able to buy an iPhone and do whatever the hell they’d like to do with it. But this ignores some really important points.
When you buy a smartphone, you own the physical product. You don’t own the operating system. You own a license to use the operating system within the terms set by the manufacturer of the system. Ok fair enough.
“But I still want to install apps from other sources and that should be my choice!!” I hear you say.
Here’s the problem. 98% of all mobile malware is on Android. Why is that? What does Android do differently to iOS that would result in this? It’s quite simple. Users can install software from third party app stores. When you open the system, it comes with this trade off. Unfortunately a system can’t be both open and closed.
“Yeah but it’s still my choice!! I want to install my apps from where I want!!”. Ok sure.
This still ignores another important point. Some people value the security, privacy and reliability of the closed system provided by iOS. If Apple were forced to allow third party App Stores onto the platform, this would actually take away a choice for some consumers. It would deny people that wanted it, the option of a fully curated platform.
“Well just have a switch in settings for those people to disable access to third party stores!!”. But this still doesn’t address the problem.
As just one example of this, a malicious developer could choose to create an app that looks innocent on the surface and is designed to include ‘shareable content’. This content might be shareable by text message, or email and could quite easily contain a virus or other malicious code. Code designed to be executed specifically on iOS. So even if you were to go in to settings and turn off the switch that enables third party app installations on your iPhone, it wouldn’t protect you from receiving malicious code. The current system greatly limits this because the only way to really install third party apps right now outside of the App Store is via Jailbreaking. *Side note – Android malware creators don’t tend to spend too much time targeting iPhones. They tend to focus on other Android devices.
“But how about Gate Keeper on the Mac!! Having a switch works on the Mac!! And why do Apple keep trying to stop jail breaking?! Give me my third party app stores!”.
As small as iPhone market share is compared to Android, Mac market share compared to the PC is even smaller. Anybody that tells you that a Mac can’t get a virus is at best foolish and at worst a liar. Macs can and do get viruses because of the open nature of the platform. Macs don’t get anywhere near as many however because the market share of the Mac is positively tiny compared to Windows PC’s. The iPhone is a way bigger target than the Mac. It enjoys a cult status amongst its following that paints a red target on the iPhone for malicious developers. That just isn’t the same on the Mac right now. Maybe that’ll change someday. As for jail breaking, the argument is clear. Apple closes the loopholes because those same loopholes used by innocent home brew developers, can also be used by malicious developers. It’s like having an X marks the spot on a treasure map.
I worked at Apple and I can tell you that Apple doesn’t care about you jail breaking your phone to install a custom theme or springboard tweak. They care about the vulnerability in the software that was used to make it possible.
Does that mean Apple is right?
I personally agree with Epic on some of their points. I do think Apple should look at the cut of revenue they take. They’re a company of unfathomable wealth that have enjoyed success for many years. They can afford to cut their share. And perhaps they should. I also think Apple was wrong to prevent cloud gaming services like xCloud and Stadia from being made available on the iPhone. That’s a whole different subject though.
I also think Epic needs to be more transparent. They have sued both Apple and Google for removing Fortnite and preventing use of their own payment processing service. But they haven’t taken similar action against Microsoft with Xbox, against Sony with PlayStation or against Nintendo with the Switch. This is unusual given that the console manufacturers take a similar (or larger cut) than Apple and Google. Epic claims this is because consoles aren’t ‘general purpose computers’. This argument ignores the fact that these platforms already have first party App Stores. So why can’t they have third party App Stores too? And what Epic hasn’t talked about is:
- Sony own a substantial part of Epic games as a private investor.
- Microsoft have been very close partners of Epic and helped them bring franchises into existence such as Gears of War. Microsoft also purchased the rights to Gears of War and so have a significant business relationship with Epic.
- Epic can’t just sue Nintendo without also doing the same to Microsoft and Sony.
So while I agree that Apple does need to make some changes to their policies, specifically with regards to how much they charge for distributing apps on the App Store, I don’t agree that this should force Apple to allow third party stores on iOS. I’m also not against the idea of Apple being forced to offer third party payment systems on the App Store. Apple could even push the benefits of the privacy and security of Apple Pay and Sign In with Apple to allow their payment option to compete with others.
This saga has a long way to go and will likely take years to be resolved through litigation. Who will back down first? Epic or Apple? Whose right and whose wrong? Let me know your view in the comments!