June 2, 2022 • 50 mins
Apple is facing pressure from regulatory agencies around the world to allow developers to use payment systems outside of Apple's own. You could say the battle with Epic is where that got started.
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Episode Transcript
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Speaker 1 (00:04):
Welcome to Tech Stuff, a production from I Heart Radio.
Hey there, and welcome to tech Stuff. I'm your host,
Jonathan Strickland. I'm an executive producer with I Heart Radio.
And how the tech are you. I am currently on vacation,
so hopefully right now I'm doing great. I hope you
are too. But obviously I don't want to leave you
(00:26):
without an episode, so we are going to have a rerun.
This episode is called the Epic Epic versus Apple Battle.
It originally published in twenty twenty, and I think this
one is an important episode because if you have been
paying attention, you know that Apple is facing pressure around
the world due to its policy of making developers use
(00:50):
the in Apple payment processing system, where Apple gets a
thirty chunk in most cases of every transaction. And Epic
found kind of a work around on that and then
got into hot water with Apple, and then Apple got
into hot water all around the world. So really, while
I wouldn't say this is the very beginning of the
(01:13):
world pushing back on Apple, UH, for those policies, UH,
this is probably the highest profile case. So let's sit
back and listen to this episode. As I record this,
it is August twenty twenty, and there is an epic
showdown going on between two tech companies, an epic epic showdown,
(01:37):
or or maybe an epic epic showdown. What I mean
to say is that the company Epic or Epic Games,
known for video games in general and the juggernaut game
Fortnite in particular, is facing off against the sometimes trillion
dollar monolithic company Apple, and things are getting spicy. But
(01:59):
why are these two companies feuding and how are things escalating?
As I research and write this, the fight is just
gearing up, but it promises to get much nastier over time.
Today we're going to learn about the conflict between these companies,
as well as get a deeper understanding of the way
that apps, services and Apple make money, because really that's
(02:22):
what this all boils down to, the method that companies
follow to make money and how they can make more
money and keep more of the money they make. So,
you know, spoiler alert, that's really what this is all
about when you get down to it. But first some background. Now,
I've done an episode about Fortnite that published back in
(02:43):
February of two thousand nineteen, so I'm not going to
go over the entire history of Fortnite. But let's do
a quick rundown of Epic Games so we understand where
they're coming from. Way back in, a guy named Tim
Sweeney was programming video games and saying them onto floppy
disks and then sending those disks out over the mail.
(03:05):
And he was using the company name Potomac Computer Systems.
He hired on a couple of important people as well,
Mark Rhyan and Cliff Blazynski. In Sweeney would rename this
company and it became Epic Mega Games, and the founders
started creating lots of games that got a pretty good reception.
(03:26):
A few years later, as computers got more powerful and
graphics cards began to be a thing, Epic evolved into
Epic Games and the company released a computer engine, a
game engine called the Unreal Engine. So computer engines or
video game engines are sort of a block of code
that provide tools to game developers, like physics engines and
(03:49):
graphics engines, and a game engine saves game developers a
lot of time and a lot of effort. It provides
some basic functionality that the game developers can then build upon.
It's like the framework, and it keeps developers from having
to reinvent the wheel every time they want to build
a game. The Unreal Engine would become a really popular
(04:10):
game engine, and that will play an important part in
our story. Around two thousand and six, Epic Games began
to saunter casually over to the world of console video games,
developing titles or adapting existing PC games for the Xbox
three sixty. The company was branching out beyond PC and
(04:30):
Mac titles. Some of their earliest games that you know
Epic produced were available on the Mac computer. That will
also play an important part of our story. The company
announced Fortnite in two thousand eleven, it would take a
few years before it actually would debut, and in a
Chinese company called ten Cent Holdings ended up buying a
(04:53):
forty percent stake in Epic Games for a three hundred
thirty million dollars, a princely sum. This, by the way,
makes Epic another potential target in the ongoing political and
trade battle between the United States and China for much
the same reason that TikTok is under scrutiny. But that's
(05:15):
a different topic that will probably not come back into
this episode. I think I don't know. I'm just at
the beginning of writing this, I'm reading my old notes, okay,
so I can say definitively no, that's not going to
come back in. In two thousand and fourteen, Epic announced
that when Fortnite would launch, it was going to be
a free to play game. Now, this is also a
(05:37):
big part of our story. So a free to play
game is a little bit deceptive. It is free to
download and install and play one of these games, but
it typically has in game transactions, and these are transactions
where players can spend real world money and enhance their
(05:57):
game play in some way. Games do this different ways.
Some games allow players to purchase upgrades that give them
an advantage in the game. The derogatory name for this
style of game is called pay to win, the implication
being that a mediocre player can dominate people who have
spent more time and developed more skill in the game
(06:19):
just by dishing out more cash for upgrades, and a
lot of gamers view this as being inherently unfair. Other
games only allow for cosmetic transactions, so it's stuff that
changes the appearance of different elements in the game, like
a player's outfit or their weapons, skins or whatever. And
some games incorporate are element of randomness in the transactions
(06:43):
with loot boxes. With these games, you don't buy specific
upgrades or cosmetic changes. Instead, you buy a crate or
a loot box which you then open within the game,
and only then do you find out what you've got
from inside the crate or box. It's a classic mystery
bag idea. If you ever went into a store where
(07:06):
the country stores used to do this all the time
where I was growing up, where you would have bags
that would just be a a mystery bag. There'd be
a toy inside, but there'll be no way of knowing
what toy was in there until you bought the bag
and then you could open it, So you have no
clue what's inside, and you have to take a gamble
if you purchase it, maybe it will be something cool
or maybe it'll be something lame. And on a side note,
(07:28):
there's a definite art to designing these style of loot boxes.
You want there to be just enough payout to keep
players engaged and buying the crates, So you need to
keep those payouts just rare enough so that it feels
like an accomplishment to get, you know, a rare skin
or something like that, but not so rare that people
(07:49):
feel they're getting nothing but garbage every time they buy
a lootbox. So this is not easy to do, and
it's also something that can encourage unhealthy behavior as akin
to addiction. And it's set the core of why games
that have these sorts of transactions often come under scrutiny
by various advocacy groups and governments around the world. Now
that's another kettle of fish, but the micro transactions get
(08:12):
to the very heart of the matter we're looking at
in this episode. In two thousand nineteen, Epic Games made
another big move. They launched the Epic Games Store. Now,
over its relatively short history, the PC games industry has
seen some pretty massive changes in how companies sell and
distribute games. So in the old old days, you had
(08:34):
game programmers like Sweeney who would build a game and
then make copies of it on discs floppy discs, and
then sell them either by mail order or sometimes going
through like a local computer hobby store. And that evolved
into game developers and publishers selling games through brick and
mortar retail shops like game Stop or best Buy or
(08:56):
Walmart or whatever. But over the last decade, the model
has shifted dramatically over toward digital distribution. The vast majority
of games are now sold through digital downloads, more than
eighty percent since two thousand eighteen. This changes the model
a lot, and it's one of the reasons why companies
(09:17):
like game Stop are really in trouble these days. But
you still need a place to sell your games. You
need a shopping portal or something. Now you could try
and do this through your own company's web page, but
the problem with that is that you're asking gamers to
go to a lot of different websites when they're in
the mood to buy a game. Most gamers like to
(09:38):
play a variety of titles from a variety of companies.
There are very few gamers who are like, I'm only
going to buy games from this one company, and smaller
independent developers have a hard time standing out with so
many big companies that are in the industry. So having
a centralized digital store where you can look at titles
from big or small companies that ended up being a
(10:01):
really great idea, And that was an idea that a
company called Valve, famous for video game series like Half
Life in Portal had the Valve Digital store gave PC
gamers a centralized location where they could shop for games,
and Valve would end up making truckloads of cash off
of this, because the company would take a cut out
(10:22):
of every transaction made through the Valve Steam Store. If
you bought a title on Steam, whether it came from
Valve or not, Valve would get some of that cash,
and for a while, it was effectively the only game
in town, so to speak, unless you were to go
directly to each publisher. In two thousand nineteen, that changed.
(10:45):
Epic announced the Epic Game Store and also announced that
it was going to take a smaller cut than what
Valve was taking in their Steam Store. That would mean
that video game companies would get to keep more of
the money from those sales, and it would also mean
that if a company were to hold a sale, like
if they were to discount a title, they wouldn't take
(11:05):
as big a hit on revenue as a result, and
it introduced competition in the digital marketplace. Some of epics
moves upset gamers, particularly when they heard about specific titles
that would be exclusively sold through the Epics Store. Gamers
are not crazy about the idea of having to manage
to store accounts, I guess, but you could make a
(11:27):
strong argument that competition would ultimately be a good thing,
even if it meant you had to go to two
stops when you were shopping for games instead of just one,
And that really sets the stage for the show down
with Apple. Epic Games has done something really smart with Fortnite. Actually,
they've done a lot of smart things, including lifting the
(11:47):
battle Royal concept that was working so well for video
games like Player Unknowns Battlegrounds and then applying it to Fortnite.
That transformed that game and made it into the juggernaut
it is. But Epic has followed what I think of
as the Netflix strategy. One of the things that Netflix
really got right early on when it started making movies
(12:07):
available to stream online is that the company worked hard
to make sure that this service would be available across
a ton of different platforms. Netflix wanted to make sure
that users would be able to access the service no
matter how they watch video, So that meant that Netflix
had its web based interface, and then it also had
(12:28):
an interface for smart TVs and one for smartphones and
one for video game consoles. Essentially, the idea was, if
this thing can play video, Netflix wants an interface to
go on it, and the strategy paid off big time.
It meant Netflix could cast a truly wide, you know,
net to capture as much audience as possible. Epic has
(12:52):
done something similar with Fortnite. Game developers often have to
weigh some pretty tough decisions when it comes to making games.
One strategy is to build games for a specific platform
and just to focus on that exclusively. And that gives
you the ability to really refine the game for that
specific platform and and and make sure that everything is
(13:14):
working well, and you end up with the most polished,
well designed game you can create. So if you want
the game to be available on more than one platform,
such as let's say that you want the game to
be playable on PC as well as on a PlayStation console,
well then you have to devote time to adapting the
game to work on the other platform. Because games are
(13:37):
not just something you can copy and paste over on
to one thing from the other. You can't just pull
the code from a PC game and PLoP it into
the PlayStation store. It doesn't work that way. So you
really have two choices, one of which doesn't make much sense.
That choice is to essentially recreate the game entirely for
the new platform. This would mean building the same game
(14:00):
two times, at least only the second time you're doing
it for a different system. That's not really efficient. That's
not a great way to go about it. It's certainly
not a cost effective way to go about it. So
the other way is to port the game over, which
means you're really trying to keep as much of the
basic code you built for the original game whatever platform
(14:24):
moves on, like for PC, and only focus on making
changes where it's necessary in order to run on a
different platform like the PlayStation or whatever other platform you're
developing for. Either way, it's a process that takes more
time and resources to complete. Some companies will farm this
sort of work out to other game developers, and this
(14:46):
gives the original company the freedom to do other stuff
like developed downloadable content or otherwise known as DLC for
that original title, or to work on a brand new
game with Fortnite, Epic developed versions for pretty much every
conceivable platform. There are versions of Fortnite that you can
play on PC, on Mac, on the Xbox One, the
(15:09):
PlayStation four, the Nintendo Switch, on Android, phones and iOS
devices like iPhone and iPads. So epics approach is again,
if this thing can play games, we want to be there. Now.
I say that knowing there are other gaming platforms out there,
like you know, handhelds and stuff like that, So don't
yell at me, you know what I mean. What's more,
(15:32):
as an added value to the game, Epic has included
the ability to have a lot of cross platform play. Now,
this means that people playing the game on totally different
systems can potentially play together in the same game or match. This,
by the way, helps illustrate the fact that all these
systems are ultimately computers when you really get down to it,
(15:55):
and that would mean that you could play on PC,
your friend could be on a PlayStation, and the two
of you could actually play in the same game. Now,
typically that doesn't really happen that much. At first, this
cross platform ability wasn't quite universal. You would run into
weird situations where player A could play with player B,
but they couldn't play with players C, and player B
(16:17):
could play with either A or CE, but they could
not play with both at the same time. However, over time,
Epic would roll out more a cross platform support. In
two thousand nineteen, they tweaked this a bit so that
players who were on Nintendo Switch would by default get
grouped into games with mobile players, you know, people on
Android phones or iOS devices, whereas Xbox and PS four
(16:41):
players were by default grouped together. The company still allowed
people to create parties to form across these technological divides
if they really wanted to. It's just the differences and
system power and controls really make a big impact on gameplay.
It could be very difficult for someone on mobile to
compete head to head against someone on PC, for example.
(17:04):
But anyway, that's epics set up. When we come back,
we'll do a brief rundown on Apple and then we'll
talk about why these companies are waging war. But first
let's take a quick break. So Apple, I've done a
(17:27):
series of episodes about Apple, and it was one of
the early personal computer companies to emerge out of the
hobbyist scene of the nineteen seventies. The original Apple computer,
the Apple one, was really a hobbyist computer. It wasn't
until the introduction of the Apple two line that you
started seeing machines that could appeal to people who were
(17:48):
you know, they were geeks, but they weren't you know,
like hardcore computer hobbyists geeks. Then you had the introduction
of the Macintosh computer in four that's going to have
an interesting call back later in this episode. Then co
founder Steve Jobs either quit or was fired from the company.
He was definitely pushed aside, And so even if he quit,
(18:12):
that was because he had essentially been neutralized by company
management at that time. Now, after the ousting of Steve Jobs,
Apple executives would make a series of really bad decisions
that ultimately put the computer in jeopardy. Now I'm not
going to go into detail because they aren't really relevant
for this episode, except to say I'm sure that the
(18:34):
brushes with bankruptcy shaped the company as a result and
created a sort of steely resolve to reverse course. So
Steve Jobs, who had left the company in nineteen five,
would end up being called back to Apple a little
more than a decade later in to act as something
of a like a counselor or advisor, And before long
(18:57):
he was able to regain control or if you prefer,
rest control of the company, first as an interim CEO
and then ultimately as the permanent CEO. Apple was in
bad shape and Jobs was determined to fix it and
then make sure the company would never be in such
a precarious position again. I think it's fair to say
(19:19):
he had a bit of a ruthless edge to him.
He was also a remarkable salesman and always had been.
While the course corrections helped improve Apple standing, what really
turned things around for the company was the introduction of
a little device that could play music files. This was
called the iPod, and Jobs unveiled it on October twenty
(19:42):
three one. Two years later, Apple would launch the iTunes store,
and that would really be a transformative moment for the company. Now,
the iPod helped Apple get a new foothold in the
consumer market. The company would strengthen that over time with
the introduction the iPhone and, to a lesser extent, the
(20:02):
iPad and the eye Watch. But the iPod and iPhone
were slam dunks or touchdowns or Grand Slam home runs
or whatever impressive sports analogy you would like to use.
That's what they were. They weren't just popular, they became iconic. Heck,
the iPod didn't invent the MP three player, but it
(20:23):
certainly defined the MP three player. We usually call shows
like mine like tech stuff podcasts for a reason, and
that reason is the Apple iPod. But I want to
tell you guys an important fact. The iPod helped turn
Apple around. The iPhone secured Apple's place as the company
that makes status symbols that are esthetically appealing technology. Though
(20:48):
I should also admit that the company was on that
path already with the redesign of Mac computers and the
evolution of the iPod. But one thing that would truly
set Apple apart was the introduction of the iTunes store
back in two thousand three. So the company had first
made an iTunes program in two thousand one, but at
that time, iTunes was really just about letting users rip
(21:10):
music from their c d s and then load the
files onto their iPods. In two thousand three, the company
began to act as a sort of music retailer, offering
up downloads of individual songs. And this was the start
of a massive change in how the music industry had
been working. And it would presage you like that word,
(21:31):
the change in the video game industry by you know,
like a decade. So since the introduction of the long
playing album or LP record, companies have been marketing full
albums as sort of the preferred product. Now you could
go and buy a single, typically with a B side
song attached to it, but that was less common and
(21:53):
for those of you who have never dealt with music
on a physical medium, an album is a collection of
songs by a band or ourist, and a single is
a particular song off an album. Usually it's one that
the artist and the music label feels has a particularly
catchy vibe to it. The goal of picking a single
is to pick out the standout hit or hits from
(22:13):
an album. In other words, but now Apple was allowing
people to purchase not just albums, but individual songs. Sometimes
your favorite song off an album might not be a single,
which means you normally wouldn't be able to buy just
that song. You would have to buy the whole album,
And if it's the only one you like off that album,
(22:35):
you might deliberate about whether or not it's worth it
to purchase the whole thing or not. Why would you
spend your money if you really just want one song. Now,
at the time Apple was introducing the iTunes store, music
piracy was running wild. People were using all sorts of
different services to share music and download specific songs. For
(22:55):
the music industry, Apple was helping solve a problem by
guarantee quality and safety to things that were not a
guarantee if you were, you know, using piracy, Apple could
convince people to buy music rather than just share it illegally.
If a song costs less than a dollar and you
knew it was going to be really good audio quality,
(23:17):
plus it wasn't going to infect your computer with a virus,
you might just go and purchase it. In fact, a
lot of research shows that piracy doesn't always come about
because people just don't want to pay for stuff. It
usually grows because people don't have options when it comes
to buying the stuff they like. So if you provide options,
you remove some of the motivation for piracy. Now, this
(23:41):
gave the iTunes store a nice healthy amount of support
early on, and in return, because iTunes was acting as
a sort of retail store for this music, Apple would
take a cut of the transaction. The music label would
get most of the money, but Apple would pocket air
percentage as well. And for music labels this wasn't that
(24:04):
big of a roadblock. Producing music on physical media is expensive.
You're dealing with actual materials like c d s or
cassettes or vinyl or whatever. It is. You want to
produce enough of that to meet consumer demand, but you
also don't want to go overboard and make more copies
than you can sell, because that's just a waste of
money in space. You also have to store that stuff,
(24:27):
and you have to ship it. In other words, there's
a cost associated with actually producing and selling music on
physical media. Going digital helped reduce or even remove a
lot of those costs, lowering the overhead, and so even
with Apple taking a cut, this looked like a pretty
good deal. That deal would send a precedent, one that
(24:50):
Apple would extend when it debuted the App Store for
the iPhone in the summer of two thousand eight. The
iPhone had come out the year before, and its launch
had been an enormous hit. The media went bonkers over
the introduction of the attractive, sleek, exciting smartphone called the iPhone. Now,
Apple was introducing the world to a marketplace where you
(25:12):
could download apps to enhance your phone experience. You might
download games, or productivity apps, or lifestyle apps or whatever
I mean you you know what apps are. Some of
those apps were free, some of them cost money. Some
included ways to make a purchase within the app. Itself.
(25:33):
So for most apps that involved any sort of transaction,
whether that was the purchase of the app itself or
a transaction that happened within the app, Apple would take
a cut because it was the facilitator, it was the
retail space, the marketer, the support system, it was how
people could get access to that software in the first place.
(25:56):
So it took a thirty across the board cut for
certain transactions. Now, if an app is subscription based, Apple
would reduce that to upon the second year of a subscription,
but that covers a much smaller percentage of apps. Also,
I should point out that for some transactions, Apple does
(26:18):
not take a cut. For example, a ride hailing app
like Lift or Uber doesn't have to share of affair
with Apple. Nor does a food delivery service have to
give Apple a cut for every order made through the
iPhone app on that food delivery service. But in many cases,
for every dollar spent within an iPhone app, Apple gets
(26:40):
thirty cents and the other seventy cents go to the
app developer or you know, whatever entity owns the rights
to that app. Apple services make up a pretty sizeable
chunk of Apple's revenue. Now, it's not the biggest chunk.
iPhone sales are still the king there. They can make
up to around of all revenue for the company. That's impressive. However,
(27:03):
revenue and profit are two different things. Revenue is how
much money you bring in by selling stuff. Profit is
how much money you have left over once you deduct
the costs of producing and selling things, essentially the costs
of business from the money that you brought in. So yeah,
iPhone sales make up the lions share of revenue, but
(27:24):
it still costs money to produce each iPhone, though not
that much money compared to how much Apple sales them for.
But that's another matter. Now. While I haven't seen the
figures and I can't make any definitive statements, I feel
fairly confident that the profit margin on Apple's App store
is much better than its iPhone sales. The more apps
(27:48):
that join with in app transactions, the more money Apple
collects as a result. Oh and there's one other important
element to this. Apple only allows users to get iPhone
apps through the Apple Store. That means, if you want
to run an app on your iPhone and you don't
want to go through the trouble figuring out how to
(28:08):
hack your phone. So you can sideload apps, you have
to go through the official app store. There is no
other game in town. So any company that wants to
make apps for iPhones, and there are a lot of
companies that do, they have to play ball with Apple.
Most companies just deal with this, partly because iPhone users
(28:29):
tend to spend more money on apps than other smartphone
users do. Numerous analysts have estimated that when it comes
to consumers spending money on or within an app, more
than six of the dollars spent on apps are going
to io S app transactions, in other words, Apple transactions.
(28:51):
Now that's particularly amazing because while the iPhone is popular,
Android phones outnumber them in the world by a huge amount.
Way more people have an Android phone than an iPhone.
But we're seeing more people spend money through the iOS
ecosystem than through the Android ecosystem. So while we've got
(29:11):
way more Android apps out there in the wild, we
don't have a lot of people spending money on apps
through Android, not compared to Apple. So this means if
you're a developer and if you want to make money
off of the app you're developing, chances are you're going
to want to make something specifically for Apple. It just
makes business sense anyway. Developers have to submit apps to
(29:36):
Apple for approval before it will be featured in the store.
And note from Jonathan in the past, that was a
lot of app noises all at once. I hope future
Jonathan can say them without stumbling. I like it when
I leave notes to myself. Developers also agree to keep
in app transactions within the Apple ecosystem as well, meaning
(29:56):
you can't sneakly do an out of app d le
or a direct payment option and change things within the
app that is running on iOS. You can't do that.
You're not allowed to. You have to do it through Apple.
So we've got Fortnite, a game that makes its money
primarily through in game purchases, and we've got Apple, a
(30:17):
game that generates revenue largely by taking a cut from
an app purchases. I bet you can see where I'm
going here. Epic Games decided to pick a fight with Apple,
and this fight also extended to Google, but we'll cover
that as well. And this is not an opinion. This
is based on the timing of events that the company
(30:39):
had clearly anticipated what was going to unfold. And I
think Epic is counting on other companies to join in
the fight at some point to protest apples cut. But
here's how it played out. On August, Epic announced a
change in the price of v bucks v as in Victory.
That's the in game current and see for Fortnite, so
(31:01):
you can give it as a virtual currency, so players
will purchase v bucks with real cash, then they can
spend the v bucks in the game itself on whatever
they want. Epic called the change of price a mega drop,
and announced that in game purchases would now cost twenty
percent less than they had previously, So if you played
(31:24):
Fortnite on PC or on a game console, you would
see those prices reflected within the game itself. Whenever you
went to make a purchase, you would see it at
seven dollars nine cents for a thousand V bucks instead
of nine dollars and cents. But for mobile it was
a different story. Playing the game on either an iOS
(31:45):
or Android device would mean that when you went to
purchase v bucks, you would be presented with a choice.
One choice was to purchase the virtual currency through the
official Approved App Store or Google Play Store route, and
that would also mean having to pay the older higher
price of nine dollars and cents to get that tent
(32:07):
marked down. You could make a direct purchase from the
Epic Games Store by passing the app Store transaction in
the process, so gamers would get that reduced price. But
while the gamers might save some money on a transaction,
there was a much bigger price to be paid. More
on that in a second, but first let's take another
(32:30):
quick break. Epic sidestepping the in app purchase part of
having Fortnite run on iOS and on Android was a
big no no, because that deal is codified. If you
(32:51):
submit an app to iOS or Android, you're doing so
with the understanding and the express agreement that you are
on board with the conditions of that deal. And one
of those conditions is that cut going to Apple or Google.
I'll just keep talking about Apple because that's really what
(33:13):
most of the attention is on, but just know that
a lot of this applies to Google as well. Apple
responded by removing Fortnite from their app store. Google did
the same. Apple's official response was that Epic had flagrantly
broken the rules that everyone had agreed to play by,
and that they didn't even do it by accident, and
(33:34):
Epic definitely did do it on purpose. The company released
a statement that said, currently there are no savings if
players use Apple and Google payment options, where Apple and
Google collect an exorbitant fee on all payments. If Apple
and Google lower their fees on payments, Epic will pass
along the savings to players end quote. Epic also argued
(33:57):
that Apple isn't consistent when it comes to applying that fee,
and pointed out the exceptions like the right hailing companies
I mentioned earlier, or food delivery services or Amazon purchases.
So Epic was saying, hey, if these apps can use
direct payments and not go through the Apple payment process,
why can't games? Why are you holding us to a
(34:21):
different standard than these companies? So Apple booted Fortnite from
the App store, and then Epic filed a lawsuit against
Apple and launched a media campaign to inspire support for
its argument among the public and probably among other companies. Now,
the fact that it was ready to go with all
of this pretty much proves that Epic knew exactly what
(34:43):
the consequences were going to be for their actions, and
in fact, we're counting on it. The lawsuit argues that
Apple has a monopoly over all iPhone apps because the
company doesn't allow users to load apps from any source
other than the Apple Store. Because Apple has this cut
requirement on some but not all app transactions, Epic argues
(35:07):
that Apple is engaging in unfair business practices. As for
the marketing side, Epic got pretty darn cheeky with that.
They created a parody of an iconic Apple ad. So
let's do a quick story about that. Back when Apple
was getting ready to unveil the new Macintosh computer in
(35:27):
the early eighties, the company was determined to make a
really big splash and cut through the dominant position that
was then held by IBM. Apple had done well in
the personal computer market with the Apple two series, but
IBM absolutely dominated when it came to office computers. If
(35:47):
you wanted a machine for productivity and doing you know,
business e type stuff, you wanted an IBM computer. Plus,
IBM had been getting into the personal computer market as well,
and appley to tell the world that the Macintosh was
a fundamentally different type of computer, one with a graphic
user interface or gooey and features that the button down
(36:09):
IBM computers just didn't support. Apple hired on a marketing campaign,
and that campaign got hold of Ridley Scott, the film
director who directed the commercial. In the commercial, dozens of
people in sort of gray colorless outfits shamble into a
room and are seated in a dark theater to watch
(36:30):
a big Brother like figure spelled propaganda at them on
an enormous screen. And then an athletic woman runs into
the room and she hurls an enormous hammer that flies
at the screen and destroys it, just as the Big
Brother figure is, you know, ranting about tyrannical ideologies. And
the implication was there that Apple was on a mission
(36:51):
to offer a real alternative, to prove that the IBM
way of doing things wasn't the only way to do it.
And it was a really effective commercial, one of the
most famous commercials of all time. Epic Games produced a
parody of this. They actually showed it within the game itself,
but they also released it to other video platforms, and
(37:12):
they used computer generated Fortnite characters to replicate the whole sequence,
except this time, the Big Brother figure wasn't IBM, the
Big Brother figure was Apple, and the woman throwing the
hammer would represent Plucky Little Fortnite. The video game that
could plucky little global phenomenon billion dollar game Fortnite, And
(37:36):
now the message was that Apple was being the tyrannical
one by demanding this cut. If not for Apple, Epic
Games was saying companies would be able to price things
at a more affordable level for users because they wouldn't
have to build in and a mark up to deal
with Apple's cut. Big bad Apple's cut meant companies had
to charge more for stuff in order to make money. Now,
(37:59):
I admit I'm being a little snarky, you know, I'm
definitely editorializing a little here, But mostly I want to
state that from my perspective, nobody is looking particularly rosy
in this situation, and it's about to get a lot worse.
I think the industry's general approach to charging off the
top is flirting with collusion, because it's not that just
(38:23):
Apple that's doing it. Lots of companies are doing this
sort of thing. Not that companies have necessarily all tacitly
agreed that this is the way to do it, but
effectively it means there's no real competition here. Plus with Apple,
you could argue that from a pure ecosystem, there's no
way to compete at all. You have to go through
the Apple Store to have your game work on iOS,
(38:47):
so there is no other option. If you take a
step back, you can say, yeah, but you could just
develop games for other platforms and leave iPhone alone. And
that is true. So I guess it really just depends
on your point of view. You thank you, Obi Wan Kenobi.
But things escalated beyond Apple pulling Fortnite from the App Store.
(39:08):
The company subsequently said that unless Epic Games reverse the
move to offer direct payments, Apple would remove all support
for Epic Tools in the App Store for developers, not
just for iOS. That would mean that Epic would no
longer be able to update anything that was running on
iOS or the Mac operating system, and that includes the
(39:32):
Unreal Game Engine. Now this is where things get really nasty.
I'll quote the statement from Apple which says Epic wouldn't
be able to perform any quote engineering efforts to improve
hardware and software performance of Unreal Engine on Mac and iOS. Hardware,
optimize Unreal Engine on the Mac for creative workflows, virtual
(39:53):
sets and their c I slash build systems, and adoption
and support of art Kit features and future or VR
features into Unreal Engine by their XR teams end quote. Now,
as I mentioned earlier, hundreds of games rely on the
Unreal Game Engine, not just those from Epic but from
other companies as well. So if a company developed a
(40:16):
game that relied upon the Unreal Engine and they wanted
to market it on iOS or on the Mac operating system,
that game would no longer receive any engine updates because
Apple would have cut off that capability, and that would
cause an enormous disruption among game companies and could force
developers who are working on new games to choose a
(40:38):
totally different game engine when they're building out their games
in the future, because it would mean that a large
market for their game would be cut off automatically if
they used the Unreal Engine. That would be an enormous
blow to Epic Games as revenue as well, because the
company makes a lot of money off of other developers
(40:59):
licensing the Unreal game Engine. I think Apple making that
move is kind of stupid, you know what. No, No,
not kind of I think that move is monumentally stupid. Now,
the reason I think it's stupid is because it appears
to prove the point that Epic Games claims it is
making that Apple can and does act like a monopoly,
(41:23):
because it's very hard to not interpret Apple's move as
extortion or retaliation, applying brutal leverage against Epic Games to
force it to comply with Apple's standards. Now, yes, Epic
Games agreed to those standards just through the process of
submitting Fortnite to the iOS store in the first place,
(41:44):
So Epic is not innocent here. They did violate that agreement. However,
the retaliation and the impact of that retaliation, and the
implication that Apple could do serious harm to Epic Games
as business, as well as the business of unrelated companies,
all that seems to lend credence to Epics argument that
Apple is imposing its will on other companies. Now, it's
(42:08):
one thing to remove an app that's in violation of
the agreed upon policy. To me, that seems like it's
pretty clearly on the up and up. But then to
go further and remove all support for Epics products feels
extreme to me, particularly since this has a cascading effect
on other companies that did nothing wrong. All those other
(42:28):
companies did was license a game engine that powers their games.
So is it fair to make this kind of change
one that's going to have a negative impact on third
parties that had nothing to do with the dispute in
the first place. I think epics experience in launching the
game Store, which itself was a response to valves Steam
store policies, gave the company the courage to try and
(42:51):
launch this battle against Apple and to a lesser extent, Google.
Seeing the escalation is more than a little bit worrying.
And while the matter is going to the court system
thanks to the lawsuits, we're going to have to wait
a while for that to play out because you know,
we know, the legal system moves at a let's call
(43:12):
it a leisurely pace compared to the worlds of technology
and business, so it might be a while before the
law is able to really wade in into this now.
My bet is that Epic is hoping that the more
recent focus on companies like Apple and Google when it
comes to antitrust issues will provide political pressure so that
(43:35):
the companies can negotiate that cut, or somehow Epic can
force Apple to allow for more direct pay options. Honestly,
don't know how that's going to go for Epic. Apple
is a huge and incredibly wealthy company, and it didn't
get wealthy by capitulating to other companies. I don't think
(43:57):
there's necessarily a hero in this story, because it really
just comes down to money. I think Apple has behaved
in ways that are anti competitive, but when it comes
to cut that has become fairly standard and digital stores
across the board, So it's not like Apple is being
you know, greedier than anybody else's. And granted it is
(44:21):
not always the case. Epic itself has set itself apart
by taking smaller cuts of transactions in the Epic Game Store,
but I don't know that you can argue that Apple
stands out as being particularly evil because of this policy.
Lots of digital stores have the exact same policy. Now,
the fact that you can only get apps on an
(44:41):
iPhone through the App Store without hacking your phone, that is,
does make it a little more tricky because there's nowhere
else to go when it comes to the iPhone, So
I guess that does set it apart. In fact, this
is one of the ways that things branch between Apple
and Google. You can only get apps for the iPhone
through the Apple App Store, but Android devices support a
(45:04):
couple of different ways you can get stuff you can
sideload stuff that's not from the Google Play Store. It
requires you to change some settings on your phone, but
you can totally do it, and Android users can download
Fortnite onto an Android device directly from Epics app launcher.
Google removed Fortnite from the Play Store itself, so you
can't just download the app directly through Google Play. But
(45:26):
you can still get Fortnite on an Android device, and
you can still run it without a problem, you just
can't go through the Play Store to do it. Google,
like Apple, said that they removed the game because epics
decision to offer direct pay violated store policy. But unlike Apple,
Google hasn't gone all angry crime lord boss with threats
(45:47):
about Epics tools set and saying like I want the
app dead, I want the unreal engine dead, I want
those s d gys in the ground. They haven't done
that recently. Apples EO. Tim Cook appeared before Congress and
he was asked by Representative Hank Johnson, who coincidently represents
my state of Georgia if the company had ever quote
(46:10):
retaliated against or disadvantaged a developer who went public with
their frustrations with the app store end quote Cook's response was,
quote sir, we do not retaliate or bully people. It's
strongly against our company culture. End quote. I'm not certain
how well that would go over today as the Epic
(46:33):
versus Apple saga has been unfolding again. Not to say
that Epic is without blame here, but the decision to
remove Epics access to developer tools for iOS and mac
os seems like retaliation and bullying to me. Removing Fortnite
makes perfect sense. I mean, that was the the app
(46:53):
that violated the policy. That makes sense to me. Removing
Epics ability to develop for iOS and mac os entirely,
thus impacting Epic and numerous other companies economically, that one,
I think is harder to support. As I record this,
we're in the very early stages of this particular fight
at the moment, I think it's safe to say that
(47:14):
the US government has a few irons in the fire
right now that need tending to plus an election coming up,
so I wouldn't be surprised if it takes a little
bit of time to get around to taking another really
hard look at allegations of you know, monopoly practices or
anti competitive behaviors in the tech space. But it's clearly
something that has become a growing concern and government as
(47:37):
more practices in the tech space are held up to scrutiny.
Now this gets complicated by the fact that Silicon Valley
pours a lot of money. I almost used a different
phrase that is not you know, family friendly, but a
lot of money into lobbyists and campaign contributions. And thus
Silicon Valley has a large amount of influence when it
(48:00):
comes to US politics. But I expect we're going to
see more shifting as governments feel pressure to regulate or
break up or otherwise intervene in business practices in the
tech space. Meanwhile, Fortnite players who play on iPhone or
Mac are likely watching all of this with a little
bit of stress and probably makes doing that flossing dance
(48:22):
a lot harder. But to be less flippant, it really
is a shame that they are caught in the middle
of all this, That those players are stuck as these
two giant companies battle it out. They just want to
play a game that they enjoy, and they don't really
have any options as far as having an impact on this.
(48:46):
They can perhaps shift to playing it on a different platform,
but not everyone has that, you know, luxury. So I
really do feel for Fortnite players, even though I personally
don't like playing Fortnite because I'm old and I don't
do well at it and it confuses me. But I
hope that things get resolved, that the players are able
(49:08):
to play the games they want, and that we're able
to take a good hard look at how these companies
generate revenue, how they price things, and really come to
a good conclusion that works out best for all parties involved,
including us the consumers. I am skeptical that that will happen,
(49:29):
but I'm hopeful. I hope you enjoyed that rerun of
an episode from just a couple of years ago. And
obviously in those two years that have followed, we've seen
more pushback against Apple. We've seen Apple resist those regulations
that have been placed around the world, and the story
is far from over, so I'm sure we'll do a
(49:51):
follow up in the future. If you have suggestions for
topics I should cover on tech Stuff, please reach out
to me. You can do so on Twitter the handle
for the show is tech Stuff h s W, or
you can leave me a talkback message on the I
Heart radio app. Just go to the text Stuff entry
in the I heart Radio app. There's a little microphone
(50:11):
icon in there. You click on that you can leave
a voice message up to thirty seconds. Remember let me
know if you want me to use the voice message
in a future episode, and I'll talk to you again
really soon. Y text Stuff is an I heart Radio production.
For more podcasts from I Heart Radio, visit the i
(50:33):
heart Radio app, Apple Podcasts, or wherever you listen to
your favorite shows.
Welcome to Tech Stuff, a production from I Heart Radio.
Hey there, and welcome to tech Stuff. I'm your host,
Jonathan Strickland. I'm an executive producer with I Heart Radio.
And how the tech are you. I am currently on vacation,
so hopefully right now I'm doing great. I hope you
are too. But obviously I don't want to leave you
(00:26):
without an episode, so we are going to have a rerun.
This episode is called the Epic Epic versus Apple Battle.
It originally published in twenty twenty, and I think this
one is an important episode because if you have been
paying attention, you know that Apple is facing pressure around
the world due to its policy of making developers use
(00:50):
the in Apple payment processing system, where Apple gets a
thirty chunk in most cases of every transaction. And Epic
found kind of a work around on that and then
got into hot water with Apple, and then Apple got
into hot water all around the world. So really, while
I wouldn't say this is the very beginning of the
(01:13):
world pushing back on Apple, UH, for those policies, UH,
this is probably the highest profile case. So let's sit
back and listen to this episode. As I record this,
it is August twenty twenty, and there is an epic
showdown going on between two tech companies, an epic epic showdown,
(01:37):
or or maybe an epic epic showdown. What I mean
to say is that the company Epic or Epic Games,
known for video games in general and the juggernaut game
Fortnite in particular, is facing off against the sometimes trillion
dollar monolithic company Apple, and things are getting spicy. But
(01:59):
why are these two companies feuding and how are things escalating?
As I research and write this, the fight is just
gearing up, but it promises to get much nastier over time.
Today we're going to learn about the conflict between these companies,
as well as get a deeper understanding of the way
that apps, services and Apple make money, because really that's
(02:22):
what this all boils down to, the method that companies
follow to make money and how they can make more
money and keep more of the money they make. So,
you know, spoiler alert, that's really what this is all
about when you get down to it. But first some background. Now,
I've done an episode about Fortnite that published back in
(02:43):
February of two thousand nineteen, so I'm not going to
go over the entire history of Fortnite. But let's do
a quick rundown of Epic Games so we understand where
they're coming from. Way back in, a guy named Tim
Sweeney was programming video games and saying them onto floppy
disks and then sending those disks out over the mail.
(03:05):
And he was using the company name Potomac Computer Systems.
He hired on a couple of important people as well,
Mark Rhyan and Cliff Blazynski. In Sweeney would rename this
company and it became Epic Mega Games, and the founders
started creating lots of games that got a pretty good reception.
(03:26):
A few years later, as computers got more powerful and
graphics cards began to be a thing, Epic evolved into
Epic Games and the company released a computer engine, a
game engine called the Unreal Engine. So computer engines or
video game engines are sort of a block of code
that provide tools to game developers, like physics engines and
(03:49):
graphics engines, and a game engine saves game developers a
lot of time and a lot of effort. It provides
some basic functionality that the game developers can then build upon.
It's like the framework, and it keeps developers from having
to reinvent the wheel every time they want to build
a game. The Unreal Engine would become a really popular
(04:10):
game engine, and that will play an important part in
our story. Around two thousand and six, Epic Games began
to saunter casually over to the world of console video games,
developing titles or adapting existing PC games for the Xbox
three sixty. The company was branching out beyond PC and
(04:30):
Mac titles. Some of their earliest games that you know
Epic produced were available on the Mac computer. That will
also play an important part of our story. The company
announced Fortnite in two thousand eleven, it would take a
few years before it actually would debut, and in a
Chinese company called ten Cent Holdings ended up buying a
(04:53):
forty percent stake in Epic Games for a three hundred
thirty million dollars, a princely sum. This, by the way,
makes Epic another potential target in the ongoing political and
trade battle between the United States and China for much
the same reason that TikTok is under scrutiny. But that's
(05:15):
a different topic that will probably not come back into
this episode. I think I don't know. I'm just at
the beginning of writing this, I'm reading my old notes, okay,
so I can say definitively no, that's not going to
come back in. In two thousand and fourteen, Epic announced
that when Fortnite would launch, it was going to be
a free to play game. Now, this is also a
(05:37):
big part of our story. So a free to play
game is a little bit deceptive. It is free to
download and install and play one of these games, but
it typically has in game transactions, and these are transactions
where players can spend real world money and enhance their
(05:57):
game play in some way. Games do this different ways.
Some games allow players to purchase upgrades that give them
an advantage in the game. The derogatory name for this
style of game is called pay to win, the implication
being that a mediocre player can dominate people who have
spent more time and developed more skill in the game
(06:19):
just by dishing out more cash for upgrades, and a
lot of gamers view this as being inherently unfair. Other
games only allow for cosmetic transactions, so it's stuff that
changes the appearance of different elements in the game, like
a player's outfit or their weapons, skins or whatever. And
some games incorporate are element of randomness in the transactions
(06:43):
with loot boxes. With these games, you don't buy specific
upgrades or cosmetic changes. Instead, you buy a crate or
a loot box which you then open within the game,
and only then do you find out what you've got
from inside the crate or box. It's a classic mystery
bag idea. If you ever went into a store where
(07:06):
the country stores used to do this all the time
where I was growing up, where you would have bags
that would just be a a mystery bag. There'd be
a toy inside, but there'll be no way of knowing
what toy was in there until you bought the bag
and then you could open it, So you have no
clue what's inside, and you have to take a gamble
if you purchase it, maybe it will be something cool
or maybe it'll be something lame. And on a side note,
(07:28):
there's a definite art to designing these style of loot boxes.
You want there to be just enough payout to keep
players engaged and buying the crates, So you need to
keep those payouts just rare enough so that it feels
like an accomplishment to get, you know, a rare skin
or something like that, but not so rare that people
(07:49):
feel they're getting nothing but garbage every time they buy
a lootbox. So this is not easy to do, and
it's also something that can encourage unhealthy behavior as akin
to addiction. And it's set the core of why games
that have these sorts of transactions often come under scrutiny
by various advocacy groups and governments around the world. Now
that's another kettle of fish, but the micro transactions get
(08:12):
to the very heart of the matter we're looking at
in this episode. In two thousand nineteen, Epic Games made
another big move. They launched the Epic Games Store. Now,
over its relatively short history, the PC games industry has
seen some pretty massive changes in how companies sell and
distribute games. So in the old old days, you had
(08:34):
game programmers like Sweeney who would build a game and
then make copies of it on discs floppy discs, and
then sell them either by mail order or sometimes going
through like a local computer hobby store. And that evolved
into game developers and publishers selling games through brick and
mortar retail shops like game Stop or best Buy or
(08:56):
Walmart or whatever. But over the last decade, the model
has shifted dramatically over toward digital distribution. The vast majority
of games are now sold through digital downloads, more than
eighty percent since two thousand eighteen. This changes the model
a lot, and it's one of the reasons why companies
(09:17):
like game Stop are really in trouble these days. But
you still need a place to sell your games. You
need a shopping portal or something. Now you could try
and do this through your own company's web page, but
the problem with that is that you're asking gamers to
go to a lot of different websites when they're in
the mood to buy a game. Most gamers like to
(09:38):
play a variety of titles from a variety of companies.
There are very few gamers who are like, I'm only
going to buy games from this one company, and smaller
independent developers have a hard time standing out with so
many big companies that are in the industry. So having
a centralized digital store where you can look at titles
from big or small companies that ended up being a
(10:01):
really great idea, And that was an idea that a
company called Valve, famous for video game series like Half
Life in Portal had the Valve Digital store gave PC
gamers a centralized location where they could shop for games,
and Valve would end up making truckloads of cash off
of this, because the company would take a cut out
(10:22):
of every transaction made through the Valve Steam Store. If
you bought a title on Steam, whether it came from
Valve or not, Valve would get some of that cash,
and for a while, it was effectively the only game
in town, so to speak, unless you were to go
directly to each publisher. In two thousand nineteen, that changed.
(10:45):
Epic announced the Epic Game Store and also announced that
it was going to take a smaller cut than what
Valve was taking in their Steam Store. That would mean
that video game companies would get to keep more of
the money from those sales, and it would also mean
that if a company were to hold a sale, like
if they were to discount a title, they wouldn't take
(11:05):
as big a hit on revenue as a result, and
it introduced competition in the digital marketplace. Some of epics
moves upset gamers, particularly when they heard about specific titles
that would be exclusively sold through the Epics Store. Gamers
are not crazy about the idea of having to manage
to store accounts, I guess, but you could make a
(11:27):
strong argument that competition would ultimately be a good thing,
even if it meant you had to go to two
stops when you were shopping for games instead of just one,
And that really sets the stage for the show down
with Apple. Epic Games has done something really smart with Fortnite. Actually,
they've done a lot of smart things, including lifting the
(11:47):
battle Royal concept that was working so well for video
games like Player Unknowns Battlegrounds and then applying it to Fortnite.
That transformed that game and made it into the juggernaut
it is. But Epic has followed what I think of
as the Netflix strategy. One of the things that Netflix
really got right early on when it started making movies
(12:07):
available to stream online is that the company worked hard
to make sure that this service would be available across
a ton of different platforms. Netflix wanted to make sure
that users would be able to access the service no
matter how they watch video, So that meant that Netflix
had its web based interface, and then it also had
(12:28):
an interface for smart TVs and one for smartphones and
one for video game consoles. Essentially, the idea was, if
this thing can play video, Netflix wants an interface to
go on it, and the strategy paid off big time.
It meant Netflix could cast a truly wide, you know,
net to capture as much audience as possible. Epic has
(12:52):
done something similar with Fortnite. Game developers often have to
weigh some pretty tough decisions when it comes to making games.
One strategy is to build games for a specific platform
and just to focus on that exclusively. And that gives
you the ability to really refine the game for that
specific platform and and and make sure that everything is
(13:14):
working well, and you end up with the most polished,
well designed game you can create. So if you want
the game to be available on more than one platform,
such as let's say that you want the game to
be playable on PC as well as on a PlayStation console,
well then you have to devote time to adapting the
game to work on the other platform. Because games are
(13:37):
not just something you can copy and paste over on
to one thing from the other. You can't just pull
the code from a PC game and PLoP it into
the PlayStation store. It doesn't work that way. So you
really have two choices, one of which doesn't make much sense.
That choice is to essentially recreate the game entirely for
the new platform. This would mean building the same game
(14:00):
two times, at least only the second time you're doing
it for a different system. That's not really efficient. That's
not a great way to go about it. It's certainly
not a cost effective way to go about it. So
the other way is to port the game over, which
means you're really trying to keep as much of the
basic code you built for the original game whatever platform
(14:24):
moves on, like for PC, and only focus on making
changes where it's necessary in order to run on a
different platform like the PlayStation or whatever other platform you're
developing for. Either way, it's a process that takes more
time and resources to complete. Some companies will farm this
sort of work out to other game developers, and this
(14:46):
gives the original company the freedom to do other stuff
like developed downloadable content or otherwise known as DLC for
that original title, or to work on a brand new
game with Fortnite, Epic developed versions for pretty much every
conceivable platform. There are versions of Fortnite that you can
play on PC, on Mac, on the Xbox One, the
(15:09):
PlayStation four, the Nintendo Switch, on Android, phones and iOS
devices like iPhone and iPads. So epics approach is again,
if this thing can play games, we want to be there. Now.
I say that knowing there are other gaming platforms out there,
like you know, handhelds and stuff like that, So don't
yell at me, you know what I mean. What's more,
(15:32):
as an added value to the game, Epic has included
the ability to have a lot of cross platform play. Now,
this means that people playing the game on totally different
systems can potentially play together in the same game or match. This,
by the way, helps illustrate the fact that all these
systems are ultimately computers when you really get down to it,
(15:55):
and that would mean that you could play on PC,
your friend could be on a PlayStation, and the two
of you could actually play in the same game. Now,
typically that doesn't really happen that much. At first, this
cross platform ability wasn't quite universal. You would run into
weird situations where player A could play with player B,
but they couldn't play with players C, and player B
(16:17):
could play with either A or CE, but they could
not play with both at the same time. However, over time,
Epic would roll out more a cross platform support. In
two thousand nineteen, they tweaked this a bit so that
players who were on Nintendo Switch would by default get
grouped into games with mobile players, you know, people on
Android phones or iOS devices, whereas Xbox and PS four
(16:41):
players were by default grouped together. The company still allowed
people to create parties to form across these technological divides
if they really wanted to. It's just the differences and
system power and controls really make a big impact on gameplay.
It could be very difficult for someone on mobile to
compete head to head against someone on PC, for example.
(17:04):
But anyway, that's epics set up. When we come back,
we'll do a brief rundown on Apple and then we'll
talk about why these companies are waging war. But first
let's take a quick break. So Apple, I've done a
(17:27):
series of episodes about Apple, and it was one of
the early personal computer companies to emerge out of the
hobbyist scene of the nineteen seventies. The original Apple computer,
the Apple one, was really a hobbyist computer. It wasn't
until the introduction of the Apple two line that you
started seeing machines that could appeal to people who were
(17:48):
you know, they were geeks, but they weren't you know,
like hardcore computer hobbyists geeks. Then you had the introduction
of the Macintosh computer in four that's going to have
an interesting call back later in this episode. Then co
founder Steve Jobs either quit or was fired from the company.
He was definitely pushed aside, And so even if he quit,
(18:12):
that was because he had essentially been neutralized by company
management at that time. Now, after the ousting of Steve Jobs,
Apple executives would make a series of really bad decisions
that ultimately put the computer in jeopardy. Now I'm not
going to go into detail because they aren't really relevant
for this episode, except to say I'm sure that the
(18:34):
brushes with bankruptcy shaped the company as a result and
created a sort of steely resolve to reverse course. So
Steve Jobs, who had left the company in nineteen five,
would end up being called back to Apple a little
more than a decade later in to act as something
of a like a counselor or advisor, And before long
(18:57):
he was able to regain control or if you prefer,
rest control of the company, first as an interim CEO
and then ultimately as the permanent CEO. Apple was in
bad shape and Jobs was determined to fix it and
then make sure the company would never be in such
a precarious position again. I think it's fair to say
(19:19):
he had a bit of a ruthless edge to him.
He was also a remarkable salesman and always had been.
While the course corrections helped improve Apple standing, what really
turned things around for the company was the introduction of
a little device that could play music files. This was
called the iPod, and Jobs unveiled it on October twenty
(19:42):
three one. Two years later, Apple would launch the iTunes store,
and that would really be a transformative moment for the company. Now,
the iPod helped Apple get a new foothold in the
consumer market. The company would strengthen that over time with
the introduction the iPhone and, to a lesser extent, the
(20:02):
iPad and the eye Watch. But the iPod and iPhone
were slam dunks or touchdowns or Grand Slam home runs
or whatever impressive sports analogy you would like to use.
That's what they were. They weren't just popular, they became iconic. Heck,
the iPod didn't invent the MP three player, but it
(20:23):
certainly defined the MP three player. We usually call shows
like mine like tech stuff podcasts for a reason, and
that reason is the Apple iPod. But I want to
tell you guys an important fact. The iPod helped turn
Apple around. The iPhone secured Apple's place as the company
that makes status symbols that are esthetically appealing technology. Though
(20:48):
I should also admit that the company was on that
path already with the redesign of Mac computers and the
evolution of the iPod. But one thing that would truly
set Apple apart was the introduction of the iTunes store
back in two thousand three. So the company had first
made an iTunes program in two thousand one, but at
that time, iTunes was really just about letting users rip
(21:10):
music from their c d s and then load the
files onto their iPods. In two thousand three, the company
began to act as a sort of music retailer, offering
up downloads of individual songs. And this was the start
of a massive change in how the music industry had
been working. And it would presage you like that word,
(21:31):
the change in the video game industry by you know,
like a decade. So since the introduction of the long
playing album or LP record, companies have been marketing full
albums as sort of the preferred product. Now you could
go and buy a single, typically with a B side
song attached to it, but that was less common and
(21:53):
for those of you who have never dealt with music
on a physical medium, an album is a collection of
songs by a band or ourist, and a single is
a particular song off an album. Usually it's one that
the artist and the music label feels has a particularly
catchy vibe to it. The goal of picking a single
is to pick out the standout hit or hits from
(22:13):
an album. In other words, but now Apple was allowing
people to purchase not just albums, but individual songs. Sometimes
your favorite song off an album might not be a single,
which means you normally wouldn't be able to buy just
that song. You would have to buy the whole album,
And if it's the only one you like off that album,
(22:35):
you might deliberate about whether or not it's worth it
to purchase the whole thing or not. Why would you
spend your money if you really just want one song. Now,
at the time Apple was introducing the iTunes store, music
piracy was running wild. People were using all sorts of
different services to share music and download specific songs. For
(22:55):
the music industry, Apple was helping solve a problem by
guarantee quality and safety to things that were not a
guarantee if you were, you know, using piracy, Apple could
convince people to buy music rather than just share it illegally.
If a song costs less than a dollar and you
knew it was going to be really good audio quality,
(23:17):
plus it wasn't going to infect your computer with a virus,
you might just go and purchase it. In fact, a
lot of research shows that piracy doesn't always come about
because people just don't want to pay for stuff. It
usually grows because people don't have options when it comes
to buying the stuff they like. So if you provide options,
you remove some of the motivation for piracy. Now, this
(23:41):
gave the iTunes store a nice healthy amount of support
early on, and in return, because iTunes was acting as
a sort of retail store for this music, Apple would
take a cut of the transaction. The music label would
get most of the money, but Apple would pocket air
percentage as well. And for music labels this wasn't that
(24:04):
big of a roadblock. Producing music on physical media is expensive.
You're dealing with actual materials like c d s or
cassettes or vinyl or whatever. It is. You want to
produce enough of that to meet consumer demand, but you
also don't want to go overboard and make more copies
than you can sell, because that's just a waste of
money in space. You also have to store that stuff,
(24:27):
and you have to ship it. In other words, there's
a cost associated with actually producing and selling music on
physical media. Going digital helped reduce or even remove a
lot of those costs, lowering the overhead, and so even
with Apple taking a cut, this looked like a pretty
good deal. That deal would send a precedent, one that
(24:50):
Apple would extend when it debuted the App Store for
the iPhone in the summer of two thousand eight. The
iPhone had come out the year before, and its launch
had been an enormous hit. The media went bonkers over
the introduction of the attractive, sleek, exciting smartphone called the iPhone. Now,
Apple was introducing the world to a marketplace where you
(25:12):
could download apps to enhance your phone experience. You might
download games, or productivity apps, or lifestyle apps or whatever
I mean you you know what apps are. Some of
those apps were free, some of them cost money. Some
included ways to make a purchase within the app. Itself.
(25:33):
So for most apps that involved any sort of transaction,
whether that was the purchase of the app itself or
a transaction that happened within the app, Apple would take
a cut because it was the facilitator, it was the
retail space, the marketer, the support system, it was how
people could get access to that software in the first place.
(25:56):
So it took a thirty across the board cut for
certain transactions. Now, if an app is subscription based, Apple
would reduce that to upon the second year of a subscription,
but that covers a much smaller percentage of apps. Also,
I should point out that for some transactions, Apple does
(26:18):
not take a cut. For example, a ride hailing app
like Lift or Uber doesn't have to share of affair
with Apple. Nor does a food delivery service have to
give Apple a cut for every order made through the
iPhone app on that food delivery service. But in many cases,
for every dollar spent within an iPhone app, Apple gets
(26:40):
thirty cents and the other seventy cents go to the
app developer or you know, whatever entity owns the rights
to that app. Apple services make up a pretty sizeable
chunk of Apple's revenue. Now, it's not the biggest chunk.
iPhone sales are still the king there. They can make
up to around of all revenue for the company. That's impressive. However,
(27:03):
revenue and profit are two different things. Revenue is how
much money you bring in by selling stuff. Profit is
how much money you have left over once you deduct
the costs of producing and selling things, essentially the costs
of business from the money that you brought in. So yeah,
iPhone sales make up the lions share of revenue, but
(27:24):
it still costs money to produce each iPhone, though not
that much money compared to how much Apple sales them for.
But that's another matter. Now. While I haven't seen the
figures and I can't make any definitive statements, I feel
fairly confident that the profit margin on Apple's App store
is much better than its iPhone sales. The more apps
(27:48):
that join with in app transactions, the more money Apple
collects as a result. Oh and there's one other important
element to this. Apple only allows users to get iPhone
apps through the Apple Store. That means, if you want
to run an app on your iPhone and you don't
want to go through the trouble figuring out how to
(28:08):
hack your phone. So you can sideload apps, you have
to go through the official app store. There is no
other game in town. So any company that wants to
make apps for iPhones, and there are a lot of
companies that do, they have to play ball with Apple.
Most companies just deal with this, partly because iPhone users
(28:29):
tend to spend more money on apps than other smartphone
users do. Numerous analysts have estimated that when it comes
to consumers spending money on or within an app, more
than six of the dollars spent on apps are going
to io S app transactions, in other words, Apple transactions.
(28:51):
Now that's particularly amazing because while the iPhone is popular,
Android phones outnumber them in the world by a huge amount.
Way more people have an Android phone than an iPhone.
But we're seeing more people spend money through the iOS
ecosystem than through the Android ecosystem. So while we've got
(29:11):
way more Android apps out there in the wild, we
don't have a lot of people spending money on apps
through Android, not compared to Apple. So this means if
you're a developer and if you want to make money
off of the app you're developing, chances are you're going
to want to make something specifically for Apple. It just
makes business sense anyway. Developers have to submit apps to
(29:36):
Apple for approval before it will be featured in the store.
And note from Jonathan in the past, that was a
lot of app noises all at once. I hope future
Jonathan can say them without stumbling. I like it when
I leave notes to myself. Developers also agree to keep
in app transactions within the Apple ecosystem as well, meaning
(29:56):
you can't sneakly do an out of app d le
or a direct payment option and change things within the
app that is running on iOS. You can't do that.
You're not allowed to. You have to do it through Apple.
So we've got Fortnite, a game that makes its money
primarily through in game purchases, and we've got Apple, a
(30:17):
game that generates revenue largely by taking a cut from
an app purchases. I bet you can see where I'm
going here. Epic Games decided to pick a fight with Apple,
and this fight also extended to Google, but we'll cover
that as well. And this is not an opinion. This
is based on the timing of events that the company
(30:39):
had clearly anticipated what was going to unfold. And I
think Epic is counting on other companies to join in
the fight at some point to protest apples cut. But
here's how it played out. On August, Epic announced a
change in the price of v bucks v as in Victory.
That's the in game current and see for Fortnite, so
(31:01):
you can give it as a virtual currency, so players
will purchase v bucks with real cash, then they can
spend the v bucks in the game itself on whatever
they want. Epic called the change of price a mega drop,
and announced that in game purchases would now cost twenty
percent less than they had previously, So if you played
(31:24):
Fortnite on PC or on a game console, you would
see those prices reflected within the game itself. Whenever you
went to make a purchase, you would see it at
seven dollars nine cents for a thousand V bucks instead
of nine dollars and cents. But for mobile it was
a different story. Playing the game on either an iOS
(31:45):
or Android device would mean that when you went to
purchase v bucks, you would be presented with a choice.
One choice was to purchase the virtual currency through the
official Approved App Store or Google Play Store route, and
that would also mean having to pay the older higher
price of nine dollars and cents to get that tent
(32:07):
marked down. You could make a direct purchase from the
Epic Games Store by passing the app Store transaction in
the process, so gamers would get that reduced price. But
while the gamers might save some money on a transaction,
there was a much bigger price to be paid. More
on that in a second, but first let's take another
(32:30):
quick break. Epic sidestepping the in app purchase part of
having Fortnite run on iOS and on Android was a
big no no, because that deal is codified. If you
(32:51):
submit an app to iOS or Android, you're doing so
with the understanding and the express agreement that you are
on board with the conditions of that deal. And one
of those conditions is that cut going to Apple or Google.
I'll just keep talking about Apple because that's really what
(33:13):
most of the attention is on, but just know that
a lot of this applies to Google as well. Apple
responded by removing Fortnite from their app store. Google did
the same. Apple's official response was that Epic had flagrantly
broken the rules that everyone had agreed to play by,
and that they didn't even do it by accident, and
(33:34):
Epic definitely did do it on purpose. The company released
a statement that said, currently there are no savings if
players use Apple and Google payment options, where Apple and
Google collect an exorbitant fee on all payments. If Apple
and Google lower their fees on payments, Epic will pass
along the savings to players end quote. Epic also argued
(33:57):
that Apple isn't consistent when it comes to applying that fee,
and pointed out the exceptions like the right hailing companies
I mentioned earlier, or food delivery services or Amazon purchases.
So Epic was saying, hey, if these apps can use
direct payments and not go through the Apple payment process,
why can't games? Why are you holding us to a
(34:21):
different standard than these companies? So Apple booted Fortnite from
the App store, and then Epic filed a lawsuit against
Apple and launched a media campaign to inspire support for
its argument among the public and probably among other companies. Now,
the fact that it was ready to go with all
of this pretty much proves that Epic knew exactly what
(34:43):
the consequences were going to be for their actions, and
in fact, we're counting on it. The lawsuit argues that
Apple has a monopoly over all iPhone apps because the
company doesn't allow users to load apps from any source
other than the Apple Store. Because Apple has this cut
requirement on some but not all app transactions, Epic argues
(35:07):
that Apple is engaging in unfair business practices. As for
the marketing side, Epic got pretty darn cheeky with that.
They created a parody of an iconic Apple ad. So
let's do a quick story about that. Back when Apple
was getting ready to unveil the new Macintosh computer in
(35:27):
the early eighties, the company was determined to make a
really big splash and cut through the dominant position that
was then held by IBM. Apple had done well in
the personal computer market with the Apple two series, but
IBM absolutely dominated when it came to office computers. If
(35:47):
you wanted a machine for productivity and doing you know,
business e type stuff, you wanted an IBM computer. Plus,
IBM had been getting into the personal computer market as well,
and appley to tell the world that the Macintosh was
a fundamentally different type of computer, one with a graphic
user interface or gooey and features that the button down
(36:09):
IBM computers just didn't support. Apple hired on a marketing campaign,
and that campaign got hold of Ridley Scott, the film
director who directed the commercial. In the commercial, dozens of
people in sort of gray colorless outfits shamble into a
room and are seated in a dark theater to watch
(36:30):
a big Brother like figure spelled propaganda at them on
an enormous screen. And then an athletic woman runs into
the room and she hurls an enormous hammer that flies
at the screen and destroys it, just as the Big
Brother figure is, you know, ranting about tyrannical ideologies. And
the implication was there that Apple was on a mission
(36:51):
to offer a real alternative, to prove that the IBM
way of doing things wasn't the only way to do it.
And it was a really effective commercial, one of the
most famous commercials of all time. Epic Games produced a
parody of this. They actually showed it within the game itself,
but they also released it to other video platforms, and
(37:12):
they used computer generated Fortnite characters to replicate the whole sequence,
except this time, the Big Brother figure wasn't IBM, the
Big Brother figure was Apple, and the woman throwing the
hammer would represent Plucky Little Fortnite. The video game that
could plucky little global phenomenon billion dollar game Fortnite, And
(37:36):
now the message was that Apple was being the tyrannical
one by demanding this cut. If not for Apple, Epic
Games was saying companies would be able to price things
at a more affordable level for users because they wouldn't
have to build in and a mark up to deal
with Apple's cut. Big bad Apple's cut meant companies had
to charge more for stuff in order to make money. Now,
(37:59):
I admit I'm being a little snarky, you know, I'm
definitely editorializing a little here, But mostly I want to
state that from my perspective, nobody is looking particularly rosy
in this situation, and it's about to get a lot worse.
I think the industry's general approach to charging off the
top is flirting with collusion, because it's not that just
(38:23):
Apple that's doing it. Lots of companies are doing this
sort of thing. Not that companies have necessarily all tacitly
agreed that this is the way to do it, but
effectively it means there's no real competition here. Plus with Apple,
you could argue that from a pure ecosystem, there's no
way to compete at all. You have to go through
the Apple Store to have your game work on iOS,
(38:47):
so there is no other option. If you take a
step back, you can say, yeah, but you could just
develop games for other platforms and leave iPhone alone. And
that is true. So I guess it really just depends
on your point of view. You thank you, Obi Wan Kenobi.
But things escalated beyond Apple pulling Fortnite from the App Store.
(39:08):
The company subsequently said that unless Epic Games reverse the
move to offer direct payments, Apple would remove all support
for Epic Tools in the App Store for developers, not
just for iOS. That would mean that Epic would no
longer be able to update anything that was running on
iOS or the Mac operating system, and that includes the
(39:32):
Unreal Game Engine. Now this is where things get really nasty.
I'll quote the statement from Apple which says Epic wouldn't
be able to perform any quote engineering efforts to improve
hardware and software performance of Unreal Engine on Mac and iOS. Hardware,
optimize Unreal Engine on the Mac for creative workflows, virtual
(39:53):
sets and their c I slash build systems, and adoption
and support of art Kit features and future or VR
features into Unreal Engine by their XR teams end quote. Now,
as I mentioned earlier, hundreds of games rely on the
Unreal Game Engine, not just those from Epic but from
other companies as well. So if a company developed a
(40:16):
game that relied upon the Unreal Engine and they wanted
to market it on iOS or on the Mac operating system,
that game would no longer receive any engine updates because
Apple would have cut off that capability, and that would
cause an enormous disruption among game companies and could force
developers who are working on new games to choose a
(40:38):
totally different game engine when they're building out their games
in the future, because it would mean that a large
market for their game would be cut off automatically if
they used the Unreal Engine. That would be an enormous
blow to Epic Games as revenue as well, because the
company makes a lot of money off of other developers
(40:59):
licensing the Unreal game Engine. I think Apple making that
move is kind of stupid, you know what. No, No,
not kind of I think that move is monumentally stupid. Now,
the reason I think it's stupid is because it appears
to prove the point that Epic Games claims it is
making that Apple can and does act like a monopoly,
(41:23):
because it's very hard to not interpret Apple's move as
extortion or retaliation, applying brutal leverage against Epic Games to
force it to comply with Apple's standards. Now, yes, Epic
Games agreed to those standards just through the process of
submitting Fortnite to the iOS store in the first place,
(41:44):
So Epic is not innocent here. They did violate that agreement. However,
the retaliation and the impact of that retaliation, and the
implication that Apple could do serious harm to Epic Games
as business, as well as the business of unrelated companies,
all that seems to lend credence to Epics argument that
Apple is imposing its will on other companies. Now, it's
(42:08):
one thing to remove an app that's in violation of
the agreed upon policy. To me, that seems like it's
pretty clearly on the up and up. But then to
go further and remove all support for Epics products feels
extreme to me, particularly since this has a cascading effect
on other companies that did nothing wrong. All those other
(42:28):
companies did was license a game engine that powers their games.
So is it fair to make this kind of change
one that's going to have a negative impact on third
parties that had nothing to do with the dispute in
the first place. I think epics experience in launching the
game Store, which itself was a response to valves Steam
store policies, gave the company the courage to try and
(42:51):
launch this battle against Apple and to a lesser extent, Google.
Seeing the escalation is more than a little bit worrying.
And while the matter is going to the court system
thanks to the lawsuits, we're going to have to wait
a while for that to play out because you know,
we know, the legal system moves at a let's call
(43:12):
it a leisurely pace compared to the worlds of technology
and business, so it might be a while before the
law is able to really wade in into this now.
My bet is that Epic is hoping that the more
recent focus on companies like Apple and Google when it
comes to antitrust issues will provide political pressure so that
(43:35):
the companies can negotiate that cut, or somehow Epic can
force Apple to allow for more direct pay options. Honestly,
don't know how that's going to go for Epic. Apple
is a huge and incredibly wealthy company, and it didn't
get wealthy by capitulating to other companies. I don't think
(43:57):
there's necessarily a hero in this story, because it really
just comes down to money. I think Apple has behaved
in ways that are anti competitive, but when it comes
to cut that has become fairly standard and digital stores
across the board, So it's not like Apple is being
you know, greedier than anybody else's. And granted it is
(44:21):
not always the case. Epic itself has set itself apart
by taking smaller cuts of transactions in the Epic Game Store,
but I don't know that you can argue that Apple
stands out as being particularly evil because of this policy.
Lots of digital stores have the exact same policy. Now,
the fact that you can only get apps on an
(44:41):
iPhone through the App Store without hacking your phone, that is,
does make it a little more tricky because there's nowhere
else to go when it comes to the iPhone, So
I guess that does set it apart. In fact, this
is one of the ways that things branch between Apple
and Google. You can only get apps for the iPhone
through the Apple App Store, but Android devices support a
(45:04):
couple of different ways you can get stuff you can
sideload stuff that's not from the Google Play Store. It
requires you to change some settings on your phone, but
you can totally do it, and Android users can download
Fortnite onto an Android device directly from Epics app launcher.
Google removed Fortnite from the Play Store itself, so you
can't just download the app directly through Google Play. But
(45:26):
you can still get Fortnite on an Android device, and
you can still run it without a problem, you just
can't go through the Play Store to do it. Google,
like Apple, said that they removed the game because epics
decision to offer direct pay violated store policy. But unlike Apple,
Google hasn't gone all angry crime lord boss with threats
(45:47):
about Epics tools set and saying like I want the
app dead, I want the unreal engine dead, I want
those s d gys in the ground. They haven't done
that recently. Apples EO. Tim Cook appeared before Congress and
he was asked by Representative Hank Johnson, who coincidently represents
my state of Georgia if the company had ever quote
(46:10):
retaliated against or disadvantaged a developer who went public with
their frustrations with the app store end quote Cook's response was,
quote sir, we do not retaliate or bully people. It's
strongly against our company culture. End quote. I'm not certain
how well that would go over today as the Epic
(46:33):
versus Apple saga has been unfolding again. Not to say
that Epic is without blame here, but the decision to
remove Epics access to developer tools for iOS and mac
os seems like retaliation and bullying to me. Removing Fortnite
makes perfect sense. I mean, that was the the app
(46:53):
that violated the policy. That makes sense to me. Removing
Epics ability to develop for iOS and mac os entirely,
thus impacting Epic and numerous other companies economically, that one,
I think is harder to support. As I record this,
we're in the very early stages of this particular fight
at the moment, I think it's safe to say that
(47:14):
the US government has a few irons in the fire
right now that need tending to plus an election coming up,
so I wouldn't be surprised if it takes a little
bit of time to get around to taking another really
hard look at allegations of you know, monopoly practices or
anti competitive behaviors in the tech space. But it's clearly
something that has become a growing concern and government as
(47:37):
more practices in the tech space are held up to scrutiny.
Now this gets complicated by the fact that Silicon Valley
pours a lot of money. I almost used a different
phrase that is not you know, family friendly, but a
lot of money into lobbyists and campaign contributions. And thus
Silicon Valley has a large amount of influence when it
(48:00):
comes to US politics. But I expect we're going to
see more shifting as governments feel pressure to regulate or
break up or otherwise intervene in business practices in the
tech space. Meanwhile, Fortnite players who play on iPhone or
Mac are likely watching all of this with a little
bit of stress and probably makes doing that flossing dance
(48:22):
a lot harder. But to be less flippant, it really
is a shame that they are caught in the middle
of all this, That those players are stuck as these
two giant companies battle it out. They just want to
play a game that they enjoy, and they don't really
have any options as far as having an impact on this.
(48:46):
They can perhaps shift to playing it on a different platform,
but not everyone has that, you know, luxury. So I
really do feel for Fortnite players, even though I personally
don't like playing Fortnite because I'm old and I don't
do well at it and it confuses me. But I
hope that things get resolved, that the players are able
(49:08):
to play the games they want, and that we're able
to take a good hard look at how these companies
generate revenue, how they price things, and really come to
a good conclusion that works out best for all parties involved,
including us the consumers. I am skeptical that that will happen,
(49:29):
but I'm hopeful. I hope you enjoyed that rerun of
an episode from just a couple of years ago. And
obviously in those two years that have followed, we've seen
more pushback against Apple. We've seen Apple resist those regulations
that have been placed around the world, and the story
is far from over, so I'm sure we'll do a
(49:51):
follow up in the future. If you have suggestions for
topics I should cover on tech Stuff, please reach out
to me. You can do so on Twitter the handle
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Oz Woloshyn
Karah Preiss
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