Epic Games threatens to upset the Apple services applecart

It is the classic, old-fashioned David versus Goliath story that is unfolding.

Epic Games, the company that has made games like Fortnite, Robo Recall and Infinity is the David in the story. It is facing Apple, the first US company and only one of the two to have ever touched $2 trillion in value, as the Goliath. A legal battle between the two is being watched by the entire tech world, particularly the gaming industry.

The two companies are sparring over the way the Apple-run App Store charges companies a commission on the sales registered through the platform. Over the last few weeks, matters have reached a flashpoint and threaten to hit the finances of the app-driven tech world. As Epic Games has knocked the doors of the courts, it is being watched by the entire tech ecosystem.

The case could be of great interest to gaming companies.

Epic Games has challenged the practice of App Store (and Google’s Play Store) of charging 30 percent commission for the first year of sales and 15 percent from the second year. It has already knocked the doors of the courts for what it calls an ‘existential threat’.

The legal battle between the two sides has well begun and it could stretch for months, if not years. If Epic Games manages to upset the applecart for App Store, it could end up being the apple of the eye for the tech world.

SEEDS OF THE BATTLE

The recent trigger in the battle came from a move by Epic Games. For the App Store, Epic implemented a tech workaround that allowed customers to pay it directly for its popular game, Fortnite. The workaround meant that Apple would not get its commission of 30 percent from the monies that customers would pay Epic Games. Retaliatory action from Apple followed as the App Store removed Fortnite. Soon, it was pulled off from Google Play Store too, which similarly charges from companies that have their games on its Play Store.

Fortnite has nearly 350 million followers across platforms. When Apple pulled down the games from the App Store, Epic Games launched an all-out campaign against Apple, calling its move “unfair and anti-competitive”.

As the battle escalates, Apple is threatening to not just remove Fortnite but also disable the developer accounts of the company. It threatened to also disable ‘Unreal Engine’, developed nearly 20 years ago, as a platform used by other companies to build their own gaming products.

The ‘Unreal Engine’ works across computing platforms and was first developed in 1998 for a game called Unreal. It is a technology for the display of 3D graphics, for creating virtual reality experiences. When it turned free in 2015, Epic Games was able to earn royalty from companies that made games with the ‘Unreal Engine’ at the core. It charges companies 5 percent of revenue from sales. After the success of Fortnite, the fee has been waived until the companies earn $1 million in revenue. Two years ago, the company had also launched its own gaming app store, called Epic Games Store.

The ‘Unreal Engine’ is also integral to games like Microsoft’s Minecraft Dungeon, Players Unknown’s Battlegrounds, and hundreds of others. With its use, it is possible to play the same game of Sony’s PlayStation or Microsoft’s Xbox. But, worse, if the ‘Unreal Engine’ does not work well, the performance of games for the mobile and online world could be impacted too.

The battle has also divided the tech world right down the middle. It could well be a twist of fate that Apple and Google find themselves on the same side. Last week, Facebook too joined the battle in the opponent’s camp, asking Apple to cut down the 30 percent fees. Epic Games already has had Microsoft on its side. Epic Games could soon count other tech and gaming companies on its side too.

EVERYONE WANTS LESSER FEES

The clamour from companies is growing louder. Now, the industry association of news publishers wants to find out how its members too can be given an exception just like others. Spotify and Netflix are also lending their voice to the cause.

APPLE APPS

Apple is defending its turf against everyone because nearly four years ago it had set itself a target to drive its services business to twice its size in four years by 2020. It had earned $24.3 billion in services in fiscal 2016. By the end of fiscal 2019, it had hit $46.3 billion. According to Sensor Tower, consumers spent $54.2 billion on buying digital products and services in 2019 on the App Store. On Google’s Play Store, consumers spent $29.3 billion on products and services.

If the commission charged by Apple and Google fall to a blended rate of 5-15 percent, it could hit Apple’s earnings by 21 percent and Google’s by 20 percent. Apple’s revenue during the second quarter of 2020 was $59.69 billion, while Google’s Alphabet earned $41.16 billion.

It’s all about the money, honey!

Ashutosh Sinha is the founder of WordWiseWeb Media. Read his weekly column on the business of sport here. He can be connected @ashutoshsinha00 on Twitter

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