Epic Games – App store wars.

The rebellion gains steam.

• The challenge to the existing status-quo when it comes to revenue sharing for app stores is gathering pace and sooner or later Valve, Google and eventually Apple will be forced to cut their take.
• The CEO of Paradox Interactive has gone on the record stating that the current 30/70 split is outrageous and went on to thank Epic Games for its Steam alternative where the fee is just 12%.
• There is a long history behind this sharing arrangement which began when media was physical and much more expensive to distribute but it has managed to persist since then.
• This persisted while physical media was a major part of distribution but was set in stone when Apple debuted the Apple App Store in 2008 with the same terms.
• To be completely fair to Apple, it originally settled on this split in order to operate its app store at break-even as it never anticipated the kind of scale it would achieve.
• The aim was to use the app store as a way to generate loyalty to the hardware and the ecosystem but as it reached scale and app economy emerged, this quickly became a source of large profits.
• Google and Valve quickly followed and while they undoubtedly make less money from their stores due to their much smaller scale, no one could say that they are not doing well.
• However, as it has become apparent that large amounts of money are being made to the detriment of the developers, discontent has continued to grow.
• Until, now there has been no real way to break the stranglehold that Apple, Google, and Valve have had on their platforms due to the old chicken and egg problem.
• This problem is that to get users you need developers and to get developers you need users.
• This has kept the 70/30 revenue sharing model intact but the huge success of Fortnite has given Epic Games, the ability to undermine this model.
• Fortnite is now so popular that users will download the Epic Games store onto their devices in order to get access to Fortnite which has given Epic the opportunity to disrupt the status quo.
• Both Google (see here) and Valve (see here) are affected by this and in Valve’s case, this is almost certain to result in it having to cut its revenue share to 12% to match Epic.
• Valve currently offers more functionality for users and has a bigger community, but I think that Epic will catch up given its clear strategy to move from content to communities (see here).
• The net result is that competition is beginning to emerge for app distribution on both PCs and Android devices which means lower prices for users and higher revenues for developers.
• The one hold-out is Apple which has complete control of the platform but once a new split becomes the norm, Apple is likely to come under withering pressure from developers to fall into line.
• This is good news for both users and developers as greater competition means a better user experience as well as lower costs for developers which should result in more apps and games being produced.
• Epic Games is showing signs of migrating Fortnite from just a place where players fight each other to the death to somewhere where users spend a large portion of their digital lives.
• This us why Fortnite has been added to the list of ecosystems that are regularly assessed by RFM research (see here).
• It is unfortunate that Epic Games is a privately held company, as it is currently punching well above its weight against its much bigger and more powerful competitors.