Epic vs. Apple, Round 1

Man, it’s been a while since I’ve done one of those business analysis posty things.  Do you remember those?  How I would use my business education and past experience as an entrepreneurial consultant to sound smart while talking about video game business things and everyone thought I was so cool?  Yeah, good times.  So let’s do that again.  Because I’ve got some thoughts.  About a thing.

And that thing is the Epic vs. Apple lawsuit.  

And, looking back on that post after I’ve written the thing, those thoughts are really rambling and I’m not sure what kind of point I was trying to make, but hey, it was on my mind and now it’s out here so I hope you enjoy.

Now, going into this, I should put in a couple of caveats.  Epic has chosen to make their case in terms of antitrust law.  Now, my education did include a class in business law, but we didn’t devote a whole lot of time to antitrust, and my work following that was largely in small business and microenterprise and other areas where that sort of thing just doesn’t come up too often.  Also, I hate antitrust law.  So I’m haven’t devoted any more time to looking into it than is required to pretend I know what I’m talking about and properly enjoying the drama of this case.  I’m going to seem like I’m well informed here, probably.  But keep in mind that I’m not, and it’s not especially important to me that I am, really.  So although I am incredibly wise and intelligent and sexy and you can usually put a lot of trust in the things I say, don’t base any judgments on what I’m talking about with regards to the law, here.  Also, there’s a bunch of other factors I could look up here, like the contents of the emails between Epic and Apple leading up to this, but I choose not to.  Because I’ve got better things to do with my time.  Like making this post.  So go me.

Once upon a time, I used to manage an art gallery as part of my small business development program.  I worked with a lot of artists.  It made sense.  Trust me.  Anyways, we had one full time employee plus part of my hours devoted to it, and it held monthly shows and receptions where local artists with work meeting a certain theme could display and sell their work.  If they sold, we’d handle the financial transactions, and take a 20% commission on the sales price.  That was way lower than the industry standard 50% commission and the gallery never broke even financially but we kept it that low because the goal was really to create additional business opportunity for my artist clients.  See, I told you it made sense.  Also, we had a grant paying all our staffing costs for it.  So we didn’t need to make that much to keep it going.  

Anyways, did you know you can play Fortnite on mobile?  I had no idea.  And I still have no idea why you’d want to.  Doesn’t seem the best format for a shooty bang bang type of game but I’ve never actually played Fortnite, so what do I know. You can’t play it on iOS anymore, though.  See, to get on iOS, you’ve got to go through the iPhone App Store.  And to get on the iPhone App Store, you have to agree to give Apple a 30% commission on whatever income you make.  Which is apparently utterly industry standard.  Google charges the same rate.  As does Steam.  And the console manufacturers apparently charge something similar.  Epic Games didn’t want to give Apple the commission.  And there’s an option if you don’t want to give Apple the commission.  And that option is that you don’t put it on the App Store.  But Epic Games wasn’t satisfied with that choice.  So they e-mailed Apple.  And they asked, “Could we pay you maybe a lot less than that?” And Apple said, “Well, maybe, let’s take that under consider-NO.”  And normally, this would be where our story ends, with Epic Games either leaving it off iOS or swallowing the pill and dealing with the commission.  

But, remember, Epic Games makes Fortnite.  Which means Epic Games has Fortnite money.  And that Fortnite money has seen them make some unusual moves in the past several years.  In this case, they forced the issue.  They put themselves up on the App Store, then added a function to the iPhone version of Fortnite that let people buy the in-game currency at a discount if they used an alternative payment system in the app bypassed the App Store and bought directly from Epic.  Which is against the deal Epic signed when they agreed to the terms and conditions and whatnot that allowed them to put Fortnite on iPhone for everyone who apparently wants to play the game on mobile now that it’s a thing you can do.  Predictably, Apple pulled the game for breach of contract, and Epic, fueled by all that Fortnite money it has, leveled a lawsuit backed by a big glitzy antitrust law company against Apple, and then put out a marketing campaign painting themselves as the great moral hero of the people and the common folk rebelling against the cruel controlling tyrants.  Since then, we’ve gotten the sort of legal battle where the big, grown, professional lawyers for each side seem to be using fancy language in legal filings to snipe at each other like a bunch of catty siblings.

So, that’s the backstory.  Let’s unpack things here.

First, let me just say I hate antitrust law.  There.  Now you know.  Anyways, you want my rather uninformed evaluation of the suit?  My first impression left me surprised it survived first contact with the judge.  Which, again, is another sign of just how little I know about antitrust law, so don’t take my legal analysis with any bit of value.  Reading into it a bit more, there is some possible merit to it, although I still think it’s really going to be an uphill battle with Apple.  Anyways, Epic is suing Apple not seeking any sort of monetary relief, but rather to open up the iPhone to allow competing app stores on it.  A lot of big businesses are in support of Epic, getting behind that same idea.  For those who don’t know, antitrust is essentially the area of law that seeks to keep businesses from getting too predatory and ensure that there’s an open market full of fair competition.  As part of that fairness, antitrust law doesn’t outlaw monopolies, in which one business has an absolutely commanding market share to which no other businesses can compete, if those monopolies are gained by business merit alone, but it does prevent companies from using those monopolies to inorganically maintain it.  For example, back when the US Government was looking into breaking up Microsoft, the issue wasn’t that it was just acquiring and buying all the competitors that arose to maintain its controlling share of the market, because that was normal business processes that it was able to do based on its own organic success.  But when Microsoft started using its vast wealth and position in the market to destroy competitors by recreating their  products and forcing them onto Windows users, then the government stepped in.  So, here, Epic Games is alleging that Apple has a monopoly in its industry, and that its using that monopoly to artificially shut down competition.

In my amateur view, key to this case is going to be establishing that Apple is indeed in a monopoly position over its market.  Which seems somewhat unlikely to me.  If you look at mobile phone OSs as a whole, Apple’s only got about half the market share in the states and a third worldwide.  Epic could make the claim that Apple has a monopoly over iPhones.  Which sounds really stupid given that yeah, they’re the only company making the exact thing they make, but there was a case a while back where the government decided that Kodak had a monopoly over parts and service of specifically Kodak equipment and treated it accordingly even though Kodak had significant competitors producing competing equipment.  It’s considered a really, really dumb decision (by businesspeople, at least, not sure what the lawyer’s take on that is), and we’ve seen even more but there’s at least that bit of precedent.  However, there’s also a bunch more precedent to not do that, and actually consider the market segment as a whole.  Which they’d likely do here, particularly considering the judge’s comments at their first hearing.  Given that it’s basically iPhone vs. Android in the mobile phone market, the government may take action based on them being a duology, and do note that Epic’s been performing these same antics with Google.  Except, if the judges do consider the mobile phone market itself, Epic’s issue is that you can’t due business on iPhone without going through the App Store, but… you can totally do that on Android, which has most of the market share.  In fact, before all these shenanigans, Epic did just that, before finding it was too much trouble to not use the Play Store, and it didn’t like the consequences of doing so, and so they gave in and used the Play Store only to start these shenanigans shortly after with Google.  Which really just seems like Epic saying they want all the benefits of the Play Store but they don’t want to pay for it.  And if the judge decides to look at the market as being gaming hardware as a whole?  Then the case would be really limited, given that there’s enough competition between smartphones, consoles, and computers that there’s no real monopoly there.  I can’t say that last one is especially likely, although the judge has already made comments comparing what Apple does with the App Store to the console manufacturers requiring all games on them to be run through them.  

I’ve said it before that companies are not necessarily driven by a need to make money, unless they’re a publicly held corporation, in which case the mass of stockholders will drive its priorities in that direction.  Rather, companies are simply groups of people organized towards some sort of goal.  And this lawsuit exemplifies that thought.  It’s the kind of lawsuit that you’ll only see from a privately held company like Epic.  It’s a big, expensive, probably doomed effort that seems driven by values.  Some public corporations have voiced their support for Epic in this lawsuit, but they wouldn’t be putting this kind of bank behind this unlikely of an effort, because the stakeholders wouldn’t stand for such a risk.  Epic though, has CEO Tim Sweeney as majority stakeholder.  Which means he can unilaterally decide what the company does.  And I’ve seen a lot of conjecture that Epic is starting this in an attempt to grab as much money as they possibly can, and I’m sure that Epic’s potential financial gain is motivating at least some of this, but I think there’s more to it than just that.  As I mentioned, I used to work with a lot of creatives, and it is so common for creatives to chafe at the thought of anyone but them making money off of their work.  Many seem to feel like a lot of themselves, a lot of their identity was put into the creation of that work, and it just feels wrong to them that others may make a significant amount of money off of what is, in essence, them, and in my experience a lot of them do tend to undervalue the noncreative work involved in getting a piece to its consumer.  Even when the artist is the one performing said work.  So I can believe that Tim Sweeney feels that the creators aren’t getting a fair cut of game sales, given that it’s them putting the creative work in and that the various marketplaces aren’t contributing enough value for their cut.  I don’t think that I’d agree with him, but I think he’s being honest in coming from that perspective.  Particularly given that he’s been hammering on about that for years, and he’s been putting his money where his mouth is with both the Epic Games Store and the Unreal Engine.  I’m sure personal gain is part of the motivation, yes.  But I think he’s guided by his values, too.  I believe he’s not driven by greed, and he truly does believe his pursuit is good for the gaming ecosystem as a whole.  

As I said, this is the type of suit you’d only see from a privately held company, particularly one with a single value-driven individual with this degree of power.  But although he’s the majority owner, Tim Sweeney isn’t the only owner of Epic Games.  What if the other owners didn’t want to follow him along with this?  Well, they wouldn’t have the same decision-making power that Tim Sweeney does, but in this hypothetical situation, they would have options.  They could divest themselves of the company, either selling off their shares to Sweeney or another buyer or take an owner’s draw, taking cash or other assets out of the company up to their proportion of ownership, if allowed under their partnership agreements.  However, the other owners here are probably happy to be along for the ride.  The majority of Epic that’s not owned by Sweeney is owned by the Chinese technology holdings giant Tencent, who has its fingers in a looooooooooooooot of software pies.  This venture is a risky, expensive longshot, sure.  But if it works?  A lot of their holdings stand to benefit.  How much?  I wouldn’t know, given that the effects of the market disruption are difficult to predict.  But what would be good for Epic would be good for a lot of their other companies, and they’re large enough to absorb whatever potential loss this would lead to, so I don’t think they’d be too concerned about fleeing the ship before the water starts pouring in.  

I mentioned before that a lot of the creatives I’ve worked with undervalue the noncreative work performed in getting works sold.  I wonder if Tim Sweeney falls into that as well.  He chafes at the 30% commission marketplaces get from the sale of games, but… well, if that’s industry standard, there’s reasons for that.  I don’t know the reasons for that, but if many companies end up doing the same thing, it’s not a coincidence.  Let’s take something as an example… I don’t know… how about the Epic Games Store?  Fueled again, by Fortnite money and Tim Sweeney’s values, it’s a storefront that you can buy games from, and it gives a bigger cut of the money than other storefronts to the developers.  All well and good, right?  But the Epic Games Store kind of isn’t as good as other storefronts.  Even over a year in.  Like, it’s not even especially functional as a place to buy and play games.  There’s no shopping cart.  Their security software used to lock accounts for buying too many games.  There’s no shopping categories, to find something you want, you either have to find it off the front page, search for it by name, or look through the list of all the games they have on Epic.  Their app used to pull information from your computer you specifically told it not to.  And once, the app permanently crashed on me, rendering all the games I used it to install on my computer as junk data.  I do appreciate them constantly adding to my personal library for free, don’t get me wrong.  And I’m not going to recommend anyone eschew them.  But they aren’t making a good case that giving more money to developers makes things better for the people actually providing that money in the first place.  It seems that money is spent somewhere, and less money leaves a worse user experience and more significant problems.

Epic Games is really trying to position this as a good guy vs. bad guy sort of deal.  Which they’ve been doing a fair amount of.  They did the same thing when comparing themselves to Steam.  And you’d be a fool to buy into that.  Here’s a rule I have, and this works for pretty much every lawsuit, accusation, scandal, etc.; no moral judgments until all the chips are down.  Everyone’s going to be throwing different sides at you, believe nobody until it’s run its course and all the information is out there.  There’s nothing to be gained by judging a side good or bad at the start of it all.  And your judgment of these situations doesn’t gain anybody anything.  Unless you’re directly involved, you don’t need to have a moral evaluation of all the sides, until you’ve got more full information.  And the individual research won’t help you.  These situations are almost always crazy complicated, and even when the media aren’t filtering it before giving it to you, they’re not going to have the full picture.  Even this early, key facts about this case weren’t available until the hearings started, like that Epic was angling for a deal with Apple long before any of this started, so while it’s fair to distance yourself from the various subjects if you feel you need to, let the investigations go on and expose the shadowy corners to the light before you start deciding who’s good and who’s bad in all of this.  Especially so in this case.  When what Epic is trying to make you see as Good vs. Evil is really billionaire company vs billionaire company in a fight over who gets to make more money.

And just some miscellaneous thoughts here that aren’t necessarily worth a full paragraph.  Epic Games started this mess by deliberately going against the terms they agreed to, specifically so they could get banned and thus have grounds for this lawsuit in the first place.  I’m really not a fan of that.  It’s like someone hitting themselves so they can justify starting a fight with someone else.  I find it hilariously ironic that Epic Games is taking such umbrage with being exclusively tied to the App Store on iPhone when they highly value exclusively tying developers to their store.  Tim Sweeney has stated he doesn’t mind the 30% cut imposed by console developers given that they sell their consoles at a loss, but given that doesn’t make a lot of practical difference to developers, that strikes me as being a rather weak line to differentiate consoles from mobiles.  And not one that I feel will be especially relevant under the law.    And there’s a decent chance that a favorable decision for Epic would open up the walled gardens of consoles as well and potentially ruin that practice. Although they can breathe a sigh of relief that Epic doesn’t seem to be winning this fight, so far.

Anyways, that’s what I think of the Epic vs. Apple debacle. There are no good nor bad guys here, but rather, a bunch of grown adults in suits having a dumb slapfight with one another. It’s going to last for years. I guarantee it. And it holds the potential to absolutely change the way you get your content on your phones and consoles. But it probably won’t.