Digital rent

Last week, gaming giant Epic Games decided to take on digital players Apple and Google in a battle that could end up redefining the mobile app ecosystem. On August 13, Epic’s popular game Fortnite was removed from both the Apple iOS store and Google Play store after it released its own in-house payment system on its own Epic Game store. Epic promptly went to court, alleging that both Google and Apple were displaying monopolist tendencies. Google and Apple have clear terms and conditions for independent developers which wish to have theirs apps listed on the Android Google Play store and the iOS Apple store. The payments are processed by the respective stores, which both charge a 30 per cent commission. Moreover, app developers are forbidden from listing or publicising any alternative payment systems in the respective stores, even if those are for alternative device platforms such as Windows PC or Linux.

Epic has decided to challenge this by simply setting up a system that offers a 20 per cent discount for Fortnite coins, on its Epic Game store. This complaint about monopoly behaviour in the US courts could be backed by other app developers. For example, Spotify, the music streaming company, and Netflix have both complained about the “exorbitant” 30 per cent commission and Spotify has filed a similar anti-trust complaint in the European Union. Epic is a privately owned company with a valuation of about $18 billion, which means it’s dwarfed by the trillion-dollar digital giants which control the Android and iOS systems, and are used by over 95 per cent of the world’s smartphones. But Epic does own the proprietary Unreal Engine, which is at the heart of many popular games developed by other gamers. It is the owner-publisher of Fortnite with over 350 million users, and of Unreal, Gears of War, Infinity Blade, etc. So it has significant market share in its own niche.

Fortnite, which was released in September 2017, is free-to-play and available across multiple platforms. The game generated an estimated $2.4 billion in revenue in 2018 and $1.8 billion in 2019. The payments are for in-game coins called V-Bucks, which can be used to purchase new weapons and customised outfits. The discount is significant since 1,000 V-bucks cost $7.99 if bought directly from Epic, and $9.99 from Google or Apple. The Epic Games store charges a commission of 10-12 per cent for listing games from other developers. Google and Apple both claim, with some justification, that consumers receive significant value for the 30 per cent commission they are charged. They curate the content, remove malicious apps, and ensure that the payment systems are secured. In addition to the upfront cut, Google and Apple also derive considerable value by way of the data garnered from processing the app-store transactions, of course. It would be impossible for many independent app developers to set up similar systems and to access billions of potential customers. This commission could therefore be seen as “digital rent”. But consumers and app developers may also feel that the rent sought is too high. In many cases, if users are prepared to risk less secure payment systems, it is possible to “side-load” apps without too much trouble. Google and Apple may have to consider cutting commissions. Hence, by triggering this confrontation, Epic may have forced an opening up of this hitherto controlled ecosystem.

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