In what could be a fascinating “Battle of Titans”, Epic Games, the developer of the revolutionary online multi-player “community” action game “FORTNITE” has sued Apple for anti-competitive and monopolist practices connected to Apple’s “App Store” through which certain features of “FORTNITE” can be purchased by players by what is referred to as “In-App” purchases. The lawsuit applies to the version of FORTNITE that is played on mobile devices such as iPhones and IPads, where the Apps for such are purchased through Apple’s App Store. Payment for “In-App” purchases are also processed by Apple, which passes along the revenue to the game developer — minus a “small fee” to Apple for handling the transaction. The lawsuit alleges that the “App” to play Fortnite on Apple devices can only be obtained through the Apple Store because of Apple’s restrictions on what developers can design for their devices, and Apple “taxes” each transaction handled through the App Store in the amount of 30%.
But the straight forward allegations of the lawsuit are less interesting — except to legal nerds like me — that the outright spectacular PR strategy that Epic Games is playing out through the lawsuit.
Since the launch of its first iteration in 2017, Fortnite has grown into a worldwide phenomenon. Hundreds of millions of players are active worldwide. Friends are able to link up and play together using audio and video connections no matter where in the world they might be. Revenues are hard to come by — Epic Games remains a “closely held” business with majority ownership still in the hands of Tim Sweeney who founded the business in 1991 while operating out of his parent’s house in Potomac, Maryland. Even now Epic’s headquarters is a relatively nondescript office building in Cary, North Carolina.
What is fascinating about the lawsuit is that Epic starts out by recalling the origins of Apple, and the famous commercial introducing the MacIntosh computer — which ran only one time in a national airing during the 3rd quarter of the 1984 Superbowl. Here is how the lawsuit describes that:
The product launch was announced with a breathtaking advertisement evoking George Orwell’s 1984 that cast Apple as a beneficial, revolutionary force breaking IBM’s monopoly over the computing technology market. Apple’s founder Steve Jobs introduced the first showing of the 1984 advertisement by explaining, “it appears IBM wants it all. Apple is perceived to be the only hope to offer IBM a run for its money . . . . Will Big Blue dominate the entire computer industry? The entire information age? Was George Orwell right about 1984?”
In the next paragraph Epic claims Apple has become that which it told the nation to fear:
Apple has become what it once railed against: the behemoth seeking to control markets, block competition, and stifle innovation. Apple is bigger, more powerful, more entrenched, and more pernicious than the monopolists of yesteryear. At a market cap of nearly $2 trillion, Apple’s size and reach far exceeds that of any technology monopolist in history.
Epic Games has flipped the table on Apple — with a customer base of hundreds of millions of users. They make Apple out to be the villain, and Epic Games is the underdog. The tag Apple as being the cause for the costs associated with In-App Purchases. The goal is to force Apple to allow Apps for Apple products to be sold and/or downloaded outside Apple’s App Store and then create an alternative payment mechanism for In-App Purchases that cuts Apple out of the revenue stream.
Epic already had an Ad prepared that mimics the Apple “1984” Ad, showing an “Apple Talking Head” on a big screen lecturing Fortnite characters, when another Fortnite character runs in and throws a sledgehammer through the screen. “Ninteen Eighty For-tnite” — classic.
Certainly, Epic Games is not the equal of Apple. But they have stolen the script mastered by Apple and are wielding it against its maker.
The In-App revenue from Fortnite must be a billion or more dollars a year. Apple takes 30% of that just by breathing. If Epic wins, the implications for Apple’s revenue model that has its “tax” on revenues through the App Store — not just for Fortnite but for all Apps that run on Apple mobile devices — represents a huge downside for Apple.
This will be fun to watch. Apple should just buy Epic — Chinese firm Tencent owns about 45% now. Trade them some manufacturing facilities in China and get the hell out.