Fortnite Fights Back, Apple Pats Itself on the Back
Its getting real folks.
One by one major digital brands are standing up to their mobile oppressor, Apple.
These high profile defiant actions are meant to break the hardware giant, but really serve to elevate the importance of the web and progressive web applications. Businesses of all sizes and demographics should take notice because there are lessons you can use to improve your business.
Epic Games Fortnite was pulled from both Apple and Google's mobile app stores for implementing their on payment system.
Apple responded with a statement:
"Today, Epic Games took the unfortunate step of violating the App Store guidelines that are applied equally to every developer and designed to keep the store safe for our users. As a result their Fortnite app has been removed from the store. Epic enabled a feature in its app which was not reviewed or approved by Apple, and they did so with the express intent of violating the App Store guidelines regarding in-app payments that apply to every developer who sells digital goods or services."
Their main complaint is Apple's 30% purchase tax as compare to normal 2-3% credit card fees charged by banks.
Apple counters by saying the extra 27% is because they keep users safe. But is that really work 27%?
And is Apple really the only channel for you to engage customers on iPhones and iPads?
Of course not. The web is an open and free marketplace. And oh yeah, everything you, Epic, Spotify, Netflix and everyone else needs for online success is possible.
According to Sensor Tower Epic games collected $43.4 million in the last 30 days via iOS. That means Apple collected $13 million of that bounty.
So chosing to cut that much revenue out of the monthly cash flow hurts just about anyone, Epic chose to take a stand.
In the long run not only will Epic win, but so will the consumer. And that win extends beyond Epic's personal concern. It will lift everyone who conducts business online. It also helps consumers level up as they will eventually have more freedom to chose.
Epic owns the Unreal Engine, used in many games. They even have their own digital store platform. Their fees are a bit more realistic and include, what I would call, legitimate fees for marketing. They charge 12% for positioning in their store, but as far as I can tell you do not have to use their platform for distribution.
So does Apple have a chance to win this battle?
Maybe, but not really. They lost a long time ago, they just don't know it yet.
- Apple Tried to Make Its Case
- Apple Says They Are the Only Way Consumers Can Find Your Business
- The Faux Sense of Exclusive Security
- App Stores Make Online Commerce More Expensive
- What Can Epic Do?
- Key Takeaways
Apple Tried to Make Its Case
Facing criticism from vendors, the European Union and United States Congress, Apple commissioned a study of digital market places. Their goal was to demonstrate the Apple App Store is no different than other app stores and digital content distribution platforms.
Despite patting itself on the back, Apple has helped indict not just their store, but other digital market places as well.
They did this by omitting the most powerful digital market place, the web and selling direct to consumers.
The web has been around longer than any of the platforms Apple's study included. It also offers the lowest cost to reach customers and distribute applications and content.
The study tries to make a case for digital marketplaces like app stores.
"Over the last two decades, with advances in digital and mobile technologies, digital marketplaces have emerged as a new type of business model. Digital marketplaces are platforms that use digital technologies and tools to connect buyers and sellers." "Digital marketplaces create value by facilitating and promoting valuable transactions between buyers and sellers. As a result, they typically share certain features that are critical to their management and success."
By this definition the web qualifies as a digital marketplace. Let's continue
"A marketplace’s attractiveness is determined primarily by its ability to bring on board enough buyers and enough sellers, in a way that preserves the platform’s trust and integrity. By enrolling more high-quality sellers, a digital marketplace becomes more valuable to buyers."
By this definition the web is a digital marketplace. Consumers can access a product, and businesses can directly promote goods and services.
In fact businesses can conduct sales as well as distribute through their website. Amazon, Netflix, Hulu, Major League Baseball and many others already provide digital services from their websites. In fact I use the progressive web applications for Hulu, Netflix, MLB and Amazon Prime on my computer to watch content.
Millions of retailers provide online marketplaces which we buy physical goods shipped to our front door.
Google and Bing handle several billion searches a day. Google processes 4.5-6 billion a day or around 85,000 per second. Various studies identify search as the starting point for between 68% of all online activity.
This means search engines alone provide bring enough potential buyers to vendors.
Apple Says They Are the Only Way Consumers Can Find Your Business
They make the assumption that without their platform businesses could not sell their products. Of course we know this is far from the truth. There are thousands of brands selling digital and physical products through the web for 3 decades.
No third party digital marketplace required.
The study shows most distribution platforms charge 30% for transactions with some minor exceptions.
Example exceptions include: Apple's store reduces subscription fees to 15% after the first year. Amazon reduces their Kindle commissions for titles priced between $2.99 and $9.99 (which is why my eBooks are within that range).
They also go out of their way to compare their 30% tax to the classic brick and mortar overhead. Many retailers and retail distribution channels reduce the manufacturer's cut by 50% or more.
At the same time those brick and mortar retailers have reached extinction or are on the brink. Examples from my youth include the local record, book and software store. Oh how I miss Babbage's.
Grocery and most big box retailers operate on 4% margins or less. They also provide the warehousing and distribution for products. For digital the actual distribution is a litte more hazy. Storage and distribution are far cheaper. And the product is replicated at purchase without any physical space needed.
Another key difference for digital distribution is once the game is downloaded Apple is out of the picture. At that point the app (FortNite for example) connects to the developer's server (Epic) to conduct any online game play and content updates. The developer of course covers these expenses, which are as much if not more than the application download.
Proctor and Gamble does not have those sort of post purchase expenses when you buy shampoo.
In comparison to classic retail Apple operates on a close to 100% margin.
But brick and mortar are more or less dead today, mostly due to the web. For example Amazon Prime free delivery has eliminated the need to waste time shopping in person. And it is the direct to the porch feature that beats most retailers, not the ability to sell direct online.
The Apple study omits merchant account or credit card transaction fees. For online transactions these are 2-3%, not 30%.
The study also reviews popular technology platforms like Uber, Lyft and food delivery services like GrubHub.
"examples include retail marketplaces such as Amazon and Etsy, ridesharing apps such as Uber and Lyft, travel platforms such as Airbnb and Booking.com, and food delivery platforms such as Grubhub and Uber Eats."
I felt the rideshare comparison was a stretch. I have been following the food delivery business for the past year. GrubHub and other third party delivery services are killing restaurants. Their fees make most transactions a loss for restaurants. Many local establishments are seeing monthly bills as high as $8000.
Food delivery will be the next platform where vendors rebel. I am already seeing this in my research.
Third party platforms often sell their services by creating the appearance they are the only way to reach customers. This is exactly how Apple views its app store. Often the platform users, developers to Apple, do not invest in direct marketing because they buy into this distortion.
Of course being the only marketing game in town can't be the only benefit digital market places sell. They tout additional advantages:
- rules, policies & governance
- distribution, search, reviews
Oh the cloak of security. Sure they review apps and arbitrarily decide who is good and bad. But do they keep you secure? Not any better than TLS and the web does. Plus any good online retailer is PCI compliant, which is the same security Apple offers.
The web offers this as well. By definition the web distributes digital content. Google and Bing provide 99% of all searches and do a far better job than any of these digital marketplaces.
The Faux Sense of Exclusive Security
As for rules, policies and governance, this is replaced by consumer's free choice and browser security measures.
Website including content or practices consumers don't like, for example unruly popups, most leave and go to a competing website. Consumer choice now drives a user acceptability on the web. Free choice rewards good behavior and user experience. We punish undesirable web experiences with a simple point and click or tap.
Browsers utilize HTTPS and robust security measures to do the bulk of keeping us safe from malicious behavior.
Merchant providers enforce PCI compliance for secure payments. And, just like native, we are migrating from a username/password authentication to biometric. It is matter of adoption rather than capability.
App Stores Make Online Commerce More Expensive
App stores in general, and Apple to a higher degree than others, raise the cost of doing business with their fluid and ambiguous policies.
I summarize their guidelines in one statement: 'does your app sell iPhones? If not then we will reject your app at some point'.
Unlike the web, Apple and most digital platforms charge to participate.
- Apple charges developers $99/year to distribute apps through the store
- Google charges a one time $25 fee
These fees do not account for the cost to then develop a custom application for these platforms. The web offers a single code base to reach everyone on every device.
Also, these 'fees' are said to cover the cost of auditing your app before it listed on the platform (its that faux security thing again). This means the 30% transaction cost is for in store marketing as well as the merchant account fee (remember that is 2-3%).
In store marketing means you may be included in a general search, but for most you will only surface for a direct brand name search. I don't know about you, but 30% feels like a rip off.
Search engines and direct ads are also needed. These are not included in the app store's services. You use these channels to drive traffic to your website, which then promotes the app.
Compared to a progressive web app, advertising an app store app cost more to get the conversion. I mean 10x what it costs to earn the conversion through the web.
Having a progressive web app means as soon as someone visits your site they have installed your app. No store required. Even if they have not paid to access the paid content the code is there.
Comparing that to a native app you promote a web landing page to encourage the visitor to then go to the store and go through all the steps required to download your app.
Good luck with that.
Progressive Web Apps mean visitors can start using or accessing your app immediately, even as a trial. Nothing to download, no third party to visit.
Plus you do not need to depend on a third party like Apple to approve and distribute your application before someone can access it.
Reports are Apple rejects 40% of app store submissions, which is extremely high. The reasons they reject app store submission are all over the map. There seems to be no consistency.
What Can Epic Do?
Of course losing $30 million a month is nothing to brush off. I expect Epic will make another major move.
Are they going to become a progressive web app?
They should and could. Unreal Engine based games can be ported to the web. The combination of WebGL and WebAssembly make the web a great gaming and game distribution platform.
A few years ago (and the tech stack has only improved) the Microsoft browser team created a set of example games. One was a web version of an Assassin's Creed game.
I am not a 'gamer' nor have I ever been a game programmer. So the low level details are outside of my scope of expertise. But a cursory review of FortNite gameplay and previous experience playing Unreal based games says this should be no problem.
Today's web base video conferencing platforms also show simultaneously connected clients for online gameplay are no problem either.
Assuming a web port of FortNite was released Epic would just need to add a service worker and valid manifest file. It could even cache much of the game locally for offline play.
Heck they could start by using PWA Starter to get the initial PWA assets!
Apple is never one to waste an opportunity to self-congratulate. It lives in its own world, with a limited view of reality. In fact they love to distort reality to fit their own narrative.
Until Apple amends their digital marketplace study to include the web, the findings are not valid.
The web does not charge an annual fee just to write code. It does not charge 30% when someone purchases your product.
The web also offers feature parity or capabilities with native apps today.
That is what this report does. Only include data that makes them look like a good party or at least no different than other brands in the same limited space.
They conveniently omitted the best digital marketplace, the web.
Because it makes their business practices look like the only option.
Epic games is not the first to fight back and I am certain they wont be the last. They are drawing attention to the 30% tax.
The argument goes beyond just the tax. It is about free choice, something I consider an innate human right. The primary right if you ask me, even if you make a bad choice.
Epic, Spotify, BaseCamp and thousands of others are not making the bad choice. In the end Apple is, even if they win in court, they are losing and will loose in the public court.
Here is your key takeaway, native apps are not the only way you can market and distribute your products and services. The web is a far more effective channel, with lower overhead and expenses.
Plus you still need to use the web to entice someone to go through the hassle of installing your app. And even then you only have a 10% chance they will use that app more than once.
Before you spend hundreds of thousands of dollars on a native app and give Apple 30% of your retail sales consider a progressive web app instead.