Microsoft shook up the PC gaming industry this week with the announcement that it is lowering the costs necessary to sell games in the Windows Store. On the face of it, it’s a welcome move, with Microsoft tweaking the 12 percent discount Epic Games takes and putting more pressure on Valve, which still saves 30 percent on most Steam purchases. But the cut is also a tactical move: Microsoft wants to pressure Apple, and this week’s changes could play a part in the bigger app store battles starting next week.
Microsoft’s announcement comes just days before a massive lawsuit between Epic Games and Apple, and just as the EU has discovered problems with Apple’s rules – claiming the company has a “dominant position in the music streaming distribution market” apps through the App Store. “Microsoft is quietly backing Epic Games’ action against Apple and not-so-quietly calling on regulators to investigate the App Store. Success in either end would directly benefit Microsoft’s software business, as well as its cloud gaming ambitions.
Epic founder Tim Sweeney has a long history with Microsoft and only recently have their interests aligned. Sweeney famously lashed out at Microsoft’s efforts to control the Windows software ecosystem with its store and Universal Windows Platform (UWP) initiative. Microsoft has since reversed much of this, and the company’s more open model for HoloLens saw Sweeney share the stage with the software maker and promise Epic Games’ support for Microsoft’s mixed reality headsets.
Apple’s App Store, which is central to the current lawsuit, is also a particular pain point for Microsoft. After losing iOS and Android with its Windows Phone efforts, Microsoft has been fighting its own battle against Apple’s App Store for years. After hitting the App Store last year with its own Windows Store policy changes, Microsoft will take every opportunity to enforce favorable fees, especially if timed right. The software maker tried to launch its SkyDrive app (now OneDrive) for iPhones in 2012, but got involved in a battle with Apple over a 30 percent cut in revenue for cloud storage purchases in the app. It was a test for the real cash cow from Microsoft: Office on iOS.
Microsoft has also competed to launch its xCloud game streaming service on iOS, where it would like to keep the 30 percent discount on game purchases and in-app transactions on cloud versions of Xbox games. Apple still blocks services like xCloud or Stadia, and Microsoft had to make a web version to get around the restrictions.
While Microsoft has not filed any formal complaints about Apple, the company’s chief legal officer Brad Smith reportedly met with the House Judiciary Antitrust Subcommittee last year to notify the panel of concerns about the App Store and associated fees. This was about the same time that Apple had commissioned a study which argued that the 30 percent cut was an industry standard. It’s hard to look at Microsoft’s cut in the PC gaming fee this week and not think of it as a well-timed push that will help highlight the disparity between PCs and mobile app stores.
Microsoft’s app store on Windows isn’t a huge source of revenue for the company, and it already had one 15 percent discount on apps ahead of these PC game changes. Gaming is the most lucrative part of any app store, but a large number of game developers do not currently publish their games on the Windows Store. That makes Microsoft’s cut at 12 percent sensible if it, or even Epic Games, wants to use the changes to push for overhaul of the App Store elsewhere. It also helps advance the Microsoft and Epic Games story that PCs and smartphones are common computing platforms with fairer app store models.
Microsoft also announced this rate change, which won’t start until August, with no solid promises about improving its ailing Windows store. It feels rushed, with no apparent consumer benefit in ways that matter, like cheaper games or a redesigned store. The cost reduction doesn’t apply to Xbox console games either, and the timing feels like it’s also designed to prepare you for future questions about the Xbox 30 percent discount by repositioning the PC.
Microsoft has previously defended its 30 percent cut in sales of Xbox digital games. “Game consoles are specialized devices optimized for a particular use”, said Rima Alaily, deputy general counsel at Microsoft, last year. Alaily argues that “the business model for game consoles is very different from the ecosystem around PCs or phones,” because Microsoft subsidizes the hardware and consoles are “vastly outnumbered by PCs and phones.”
But while Microsoft has offered more protection against the 30 percent discount accumulated on the Xbox, Epic Games seems happy to leave it in place. An Epic Games executive revealed in a court statement this week that the company has never attempted to negotiate with Microsoft to prevent it from using its commerce engine on Xbox. “We are a significant revenue generator for all three of these platforms [Xbox, PlayStation, Switch], probably in the top five, you know, sources of income for them, ”admits Joe Kreiner, Epic’s vice president of business development. So they have a vested interest in promoting Fortnite. We get a significant store placement that we don’t have to pay for. “
The same court application revealed that FortniteThe cash cow is PlayStation, not iOS, so there’s little reason for Epic Games to question platforms where it makes the most money and receives special marketing deals.
Coincidentally, the curiously timed change to the cost of the PC store was announced by Microsoft in the same week that the EU has accused Apple of antitrust violations in the App Store. While Friday’s announcement from the European Commission focuses on apps for streaming music in the App Store, the committee is also looking into additional, separate cases about ebooks and the App Store in general.
Commissioner Margrethe Vestager also revealed that the committee is looking at Apple’s policy on games in the App Store. “We are also interested in the gaming apps market,” Vestager said in response to a question about the money involved in gaming apps in the App Store. “That’s really an early day when it comes down to it.”
Next week’s case between Epic Games and Apple will be the start of a battle for the future of the App Store, which will last far longer than a season in Fortnite. The battle lines have been drawn in multiple directions, and Microsoft is sitting on the sidelines, patiently hoping that the app store war will go the way it wants.