Why Epic Burns Its Own Money Cooking Apple

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Epic Games hasn’t sued Apple to get a big payout, but that’s because the lawsuit itself is an investment. And to rewrite Apple’s rules, Epic is spending a fortune.

The reason Epic’s Fortnite kicked out of the Apple App Store was that Epic rogue update Fortnite to offer a payment mechanism that bypassed Apple’s 30 percent cut in all in-app transactions. Apple has started Fortnite for breaking the rules. Epic threw in an … epic … hissing attack on this, culminating in the trial starting this week. While Epic has formed an alliance called the Coalition for App Fairness – along with Spotify, Match Group, Basecamp and Tile – there’s another tech colossus at play. Epic Games Store runs on Amazon Web Services. So does Fortnite self.

The fight with Apple echoes Epic’s tactics elsewhere. The Epic Game Store is a definite challenge for Valve, which has an iOS-style store called Steam that also achieves a 30 percent drop in sales. In a basic act of moral consistency, the Epic Game Store – in addition to games from other developers – includes other game stores. It also only costs a 12 percent drop in sales. Last week, Microsoft announced it would lower its view of PC games to 12 percent to match Epic, down from 30 percent. (It has also been submitted a letter of support for Epic in the present case.)

Epic CEO Tim Sweeney said in 2019 that the Epic Game Store’s hardball tactics against Valve will continue until the store is profitable or Valve cuts its discount. Epic will set fire to an estimated $ 593 million in the Epic Games Store by the end of 2021, it said court documents in the Apple case. For many companies, losing that much money would be a problem, but that figure is only slightly more than Epic’s Fortnite sales from April 2020, that was $ 400 million that month.

Fortnite virtually prints money because the video game industry has developed a business model that almost no other part of the entertainment industry can match: in-app payments. For Spotify, avoiding the App Store and its cut isn’t a fatal problem. I just go to a desktop computer, enter my credit card information, and – thanks to recurring billing – I’m done.

Fortnite is different, which is why a video game company is leading efforts to dispute the App Store’s payment rules. In Fortnite, if I want to buy a fun dance move, I’ll give Epic’s V-Bucks to do it. The store is renewed every day so if I want the new hotness I have to act immediately. (There’s also a season pass and a recently introduced monthly plan, but these don’t seem to be so explicitly focused on impulse purchases.) Last year, it was estimated that in-app purchases accounted for 40 percent of all game revenue.

Epic’s position is getting weirder. Part of the story will relate to people who have been pushing on Neal Stephenson like ducklings, but before we get there let’s see what we know about the economy of Fortnite and the Epic Games Store to get an idea of ​​how much money is in the game.

It is true that Fortnite is free to download, but in-app purchases more than make up for that. In 2019 Epic Games had sales of $ 4.2 billion, with a profit of $ 730 million. (We know this because Epic, a private company, has sold a stake, and those meddlesome kids at VentureBeat got their hands on the numbers as a result.) Epic’s numbers for 2020 are projected to be approximately $ 5 billion in revenue, with $ 1 billion in revenue, according to VentureBeat; In court documents, Epic’s total revenue for 2020 is estimated to be just $ 3.85 billion. In the two years Fortnite was available on the App Store, iOS customers alone accounted for $ 700 million in revenue for Epic, according to court documents.

“Epic is in a fortunate position because Fortnite is the most popular game in the world, ”says Christopher Krohn, an adjunct associate professor of marketing at the University of Chicago Booth School of Business.

The breakdown of Apple’s revenue from digital purchases is a bit complicated – it has special rates for small developers, for example – but in Epic’s case, Apple gets 30 percent of all in-app purchases. That is in accordance with Minitel, the French pre-Internet, which also had a 30/70 split for third-party content, says Bill Maurer, a professor of anthropology at the University of California Irvine who specializes in payment processors. Frankly, it looks like compensation to the carrier.

“At some level, Apple is greedy because it doesn’t depend on this revenue,” Apple says Michael Cusumano, a distinguished professor of management at MIT’s Sloan Business School. “It’s rolling in money from the iPhone itself.” On March 28, Apple reported its quarterly revenues – nearly $ 24 billion in net income, largely buoyant strong sales of the iPhone and Mac; the previous quarter was a blow to the company, with sales of more than $ 100 billion.

Greed is not illegal. It’s probably also what motivates Epic, despite the CEO’s blunder. Epic wants to build something called the “metaverse,” an online haven where superhero IP from various companies can finally kiss. (The idea is based on Snow crash, a 1991 book by Neal StephensonThe revenue potential here is the kind of thing that virtual currencies send out mind-influencing fever dreams.

Fortnite is already a hangout space, one where Marvel and DC IP can legally communicate. Add to that the Unreal engine, which fuels a number of games as well as shows like Disney’s The Mandalorian, and its other developer tools, and you look at what could be possible a piece of metaverse. Should Fortnite, the Epic Games Store or any other Epic offering support much of a metaverse, the amount of money Epic burns in its store and these attorneys will look like a wise investment against the fuckload of money it can earn.

You can see why they want to ditch Apple – or Valve, or Google, or not no one at all – at 30 percent.

See I’m gonna pop my popcorn and as Sweeney put it, “Enjoy the upcoming fireworks show” during the trial. I don’t think the outcome matters much, as any judgment can be appealed straight away. But at the very bottom, it seems clear that Epic’s position is the same as Apple’s: greed is good. Forget about the struggle to own the metaverse. The real world belongs to Big Tech, and we’re just NPCs dropping loot for the corporate players.