Epic vs. Apple & Google – A right Battle Royale

Epic is spoiling for a fight.

• Epic Games clearly thinks it has a winning case against Apple as the events of last week were clearly orchestrated by Epic to result in a big legal fight that risks damaging much more than just Fortnite if it loses.
• Epic Games has filed lawsuits against both Apple and Google alleging that they “impose unreasonable constraints and unlawfully maintain total monopolies” when it comes to the distribution of apps.
• Epic has gone nuclear in its long-running battle with the app stores (see here) over what it views as an abuse of power by both Apple and Google in charging a 30% cut of revenues generated through the stores.
• This cut was started by Apple on iTunes and was originally designed to allow the store to break even with the return being earned by the store increasing the stickiness of the ecosystem.
• However, as the ecosystems grew in terms of the number of users and volume of transactions, this has rapidly become a source of high margin as well as a major bone of contention with developers.
• This fight now goes well beyond app store fees as Epic claims that Apple is threatening to cut off its access to iOS and Mac tools that allow it to distribute the Unreal Engine to games developers.
• Unreal and Unity are the two leading game development environments meaning that a large part of Epic Game’s business is also at risk in addition to Fortnite.
• However, it is clear that this turn of events has been deliberately orchestrated by Epic Games.
• In June 2020, Epic Games suddenly raised $750m that it did not need and I speculated at the time was to build a war chest to pick off competitors weakened by the pandemic (see here).
• However, it would seem clear that funds will be used to fight these two lawsuits that Epic has deliberately orchestrated.
• Epic has a case as there is plenty of evidence to suggest that Apple does not treat all developers in the same way (e.g. Amazon Prime Video).
• Furthermore, there is a wave of anti-big tech sentiment sweeping through the corridors of power in the US which Epic clearly hopes to surf to victory.
• The problem for Epic is that it is risking far more than Apple is when it comes to this fight.
• Even if it ends up winning, its Unreal Engine may lose the majority of its market share as nervous developers switch in order to be sure that they can keep developing for iOS.
• I think it highly unlikely that Apple will terminate Epic’s access to the developer tools before the outcome of the case is known as this would be a strong signal to the court of exactly what Epic is complaining about.
• The issue with Google is much less important because Fortnite is still available on alternative app stores (like Aptoide) and there is no risk of Epic being unable to support Android developers.
• Epic has some high-profile supporters as Spotify has long been a vocal critic of the size of app store revenue shares and I suspect its new shareholder Sony will also be egging it on.
• Epic states that it is not seeking a special deal from Apple and Google but is fighting to give all developers the freedom to choose which payment method they use.
• However, I suspect that if it ends up winning special treatment from Apple and Google, then it will quietly settle and the terms of the settlement will remain confidential.
• Epic is a private company and so a forensic analysis of any deal with Apple will not be possible as it has no requirement to disclose its financial performance.
• I think that this is the most likely outcome because the app store revenue is very high margin for Apple and it will not want to see it eroded which is what will happen should Epic achieve a high profile victory.
• Epic has a tiger by the tail and there are teeth in the other end.