Friday, August 28, 2020

Epic Games’ Fortnite Takes on In-App Purchases

The stay at home orders instituted during the COVID-19 pandemic have resulted in booms in a number of perhaps unexpected industries, including the video game industry. In May 2020, The Washington Post reported significant increases in subscribers to the Xbox Game Pass service, sales of Switch gaming consoles, users of gaming platforms, and viewers of gaming livestreams. Fortnite, the wildly popular online battle royale game developed by Epic Games, has provided some particularly astonishing metrics. An in-game concert by rapper Travis Scott broke records when 12.3 million players participated in the event concurrently. A couple of weeks later, Epic reported that players spent over 3.2 billion hours in the game in the month of April. 

Much of Fortnite’s popularity comes from its accessibility. The battle royale portion of the game is free to download and play, and can be played across gaming platforms including Xbox, PlayStation, PC, Mac, Switch, and both iOs and Android mobile devices. That is, until two weeks ago when Apple and Google blocked Fortnite from their respective stores, preventing mobile gamers from downloading or updating the application on their smartphones and tablets. Epic Games has now filed suit  against both companies, alleging that each holds unlawful monopoly power over the distribution of applications for their respective sets of mobile devices and is engaging in unfair competition.

Epic’s newly filed suits exemplify some of the most significant issues faced by app developers. Mobile applications are generally downloaded through a specific platform provided and tightly controlled by the maker of their phone software: in the case of iOs devices Apple’s App Store and in the case of Android devices Google’s Play Store. This system has benefits, in that the Apple and Google can police the applications available for download through the stores and attempt to prevent the download of malware or applications that maliciously target user data. However, using this system comes at a cost. Many mobile applications can be downloaded for free and are financially supported either by advertisements or by in-app purchases. Apple requires developers of apps sold on its App Store to use its proprietary in-app purchase system and takes up to a 30% commission on these purchases. Google uses a similar system. Both companies’ systems have been the subject of numerous complaints, including an antitrust complaint filed by Spotify in the European Union

On August 13 Epic introduced a new in-app payment system for iOs and Android devices that allowed for direct payment to Epic (while Fortnite is free to play, Epic sells digital cosmetic items used in-game). Apple and Google promptly blocked Fortnite from their stores and Epic filed its suits claiming that Apple and Google employ anticompetitive and monopolistic tactics to control the distribution of mobile apps and the processing of payments within mobile apps. Its suits request that Apple and Google be enjoined from imposing their allegedly anticompetitive restrictions on iOs and Android applications, respectively. (In keeping with Epic’s typical flamboyance, this action was accompanied by a 20% price drop in in-game purchases across all platforms and a“Nineteen Eighty-Fortnite” short video short video parodying the iconic Apple “1984” advertisement.)

This legal challenge illustrates a legitimate concern of many app developers. Consumers increasingly spend more time on their mobile devices in comparison to time spent on desktop computers, download more mobile apps, and spend more money in these apps. In 2019, in-app purchases by App Store and Google Play store users were estimated to total $83.5 billion globally, a 17% increase over 2018. This trend is one that extends to the gaming industry, where in 2019 the number of mobile games users was estimated to have risen to 1.36 billion and mobile games generated around 60% of worldwide video games revenue. App developers, especially those in early stage entrepreneurial ventures, lack the resources to distribute their apps other than through Apple and Google’s stores and, consequently, to use in-app purchase systems created by these entities. Considering the rapid growth of the mobile app industry and the dependence of developers on in-app purchases, the commissions taken by Apple and Google create a significant impact. 

It is too early to tell whether Epic will succeed in its somewhat quixotic challenge to the practices of these behemoths. However, the suits exemplify a growing concern among those in the mobile app industry over the monopolization of app distribution and purchases for each mobile platform by a single controlling entity. In a world which is increasingly virtual and reliant on mobile devices, the market for mobile applications will only grow. The question is whether this growth will result in more options for app developers, including entrepreneurial startups, or the further consolidation of power with the large players. 

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