A decade on, Apple and Google's 30% app store cut looks pretty cheesy

Fortnite spat sheds light on the duopoly

fortnite

Analysis The Google-Fortnite spat will be being watched keenly in Brussels and DC, although we understand no formal complaint to the competition authorities has yet been made.

The free-to-play "battle royale" third-person shooter has become a cultural phenomenon since it launched last year on PC and consoles – spawning dance crazes. This year Epic Games, Fortnite's developer and owner of the Unreal gaming engine, expanded the game into mobile. But with Android, where the mass market of mobile consumers live, Epic has adopted a bold and unusual strategy. It snubbed the Google Play Store to distribute it via the Samsung store and its own channels. This means it doesn't pay the high, non-negotiable distribution fee Apple and Google both require.

Epic didn't mince its words as to why.

"Avoiding the 30 per cent 'store tax' is a part of Epic's motivation," CEO Tim Sweeney told Forbes. "It's a high cost in a world where game developers' 70 per cent must cover all the cost of developing, operating, and supporting their games. And it's disproportionate to the cost of the services these stores perform, such as payment processing, download bandwidth, and customer service."

Small developers may need the Google Play Store for exposure, but as footballers celebrate with Fortnite moves in front of a TV audience of billions, Epic Games does not. Epic is a "platform" with its own thriving marketplace of developers, of which Sweeney said: "We gave Unreal Engine Marketplace content developers the kind of deal that we'd be happy with if we were in their shoes."

The saga is an important marker for the future of the software economy.

"I learned something," one reader wrote. "Google take 30%. That is some serious gouging."

More pertinently, after a decade, is the question why Apple and Google still take a 30 per cent cut. In a competitive marketplace, wouldn't that rate have been whittled down over the years? And it has been years: Apple unveiled the App Store in July 2008, and Android Market the following month, opening with the first Android device that October. Apple set the 30 per cent rate, Google simply followed suit.

Why do neither Apple nor Google have room for any flexibility? The flat fee reduces costs for the intermediary but generally isn't how blockbuster entertainment products are distributed. That's because success on such a scale as Fortnite is exceedingly rare – and rarer still for that success to be repeated. Perhaps Epic would have found 15 per cent acceptable... and Google would have settled for some of the estimated $50m it has lost by Epic distributing the game itself? Will we ever know?

It's even odder when you consider how much the two duopolists make from services. Neither breaks out app revenue from the pot of money it collects from "services" that include other content – games, music, AV and storage revenue. Apple made $9.55bn in services revenue for Q3.

In a functioning marketplace, surely that would have encouraged third parties like Amazon to enter the market. In short, why is that 30 per cent still 30 per cent?

In these two-sided markets, the app store, the distributor, usually holds disproportionate power. They're entrenched. As El Reg noted last week, very few people now shift from one platform to another. Android growth comes from new smartphone consumers in emerging markets. The iPhone depends entirely on the upgrade cycle – 25 to 27 per cent of iPhone owners upgrade each year, the exception being the year Apple upsized the iPhone (2014-2015), where that exceeded 30 per cent. It's very predictable. Apple has no great urgency to expand the market by making iPhones cheaper than its current cheapest iPhone model.

So the 30 per cent each takes is really profiting from consumer inertia. It's one reason why the European Commission was so keen to see more competition in Android. Competition commissioner Magrethe Vestager explained that with platform competition from BlackBerry and Microsoft now a distant memory gone, competition within Android for app developers' hearts and minds is what it wants to see. That means healthier and more vigorous Amazon and Samsung stores. Perhaps Samsung could do what Barclays attempted to do with payments, and make the service device independent?

Amazon's App Store is fairly shabby today, but as The Register pointed out last month, it doesn't need to stay that way:

Would Amazon's App Store stay shabby if it could provide incentives to app developers to submit apps? Submitting to more than one app store has a very low marginal cost to the developer, so this would make a good proof point for any remedy.

For a healthy software economy the distribution options must be attractive and competitive. It seems almost unimaginable to conceive of distribution channels competing for a developer's business. In a world where prices are falling everywhere, that 30 per cent over a decade is starting to look plain embarrassing. ®




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