Apple and Google shaken by Epic Games and South Korea

Criticized for abuse of dominant position and anti-competitive practices, Apple and Google are being heavily challenged by Epic Games.

📅 Context

🎯 Under threat for some time

Criticized for abuse of dominant position and anti-competitive practices, Apple and Google have long been in the crosshairs of companies and international organizations.

August 13, 2020: the start of a legal battle in which Apple and Google must defend themselves against accusations of anti-competitive and monopolistic practices. The entire mobile app industry could be reshaped.

On that same day, Epic Games prepared for the removal of its flagship game, Fortnite, from the App Store and Google Play. The video game publisher knowingly violated the terms of service, which require app developers to use the native payment system. At the time, every transaction made within the two stores or within apps was subject to a 30% fee.

Google and Apple strictly prohibit the use of alternative payment solutions. And yet, that is exactly what Fortnite did on August 13, 2020. A war erupted, one that had been masterfully prepared from both a legal and communications standpoint.

That same day, Epic Games parodied a 1984 video released by Apple during the Super Bowl, which was designed to challenge the vision of large corporations controlling the future—a reference to George Orwell's book 1984. This was followed by a communication campaign using the hashtag #FreeFortnite to engage its entire community.

We invite you to enjoy the Nineteen Eighty-Fortnite parody.

In the wake of this, last September, Spotify, Deezer, Fortnite, and Match Group (Tinder, Meetic) joined forces to form the Coalition for App Fairness with the goal of pressuring the two giants.

The accusations cover several areas, but we will focus specifically on the fees related to IAPs (In-App Purchases).

🤓 Some minor resolutions

Under this heavy pressure, Apple and Google reacted quickly to avoid being in the spotlight and overly exposed to accusations of anti-competitive behavior or monopolistic practices.

On November 18, 2020, Apple announced that a new program (App Store Small Business Program) dedicated to small businesses would take effect in 2021. Those generating less than one million in revenue across all their apps will benefit from a 50% reduction on IAPs, bringing the fee down to 15%. Any company that exceeds this threshold is no longer eligible for the program.

In turn, Google announced in March 2021 that it would impose a 15% fee on the first million generated.

As they do so well, Google and Apple—via their respective press releases—portray themselves as benevolent companies that contribute to innovation, competition, and value creation in the market.

👁 App Tracking Transparency: fed up.

On Monday, April 26, 2021, the media and advertising markets were shaken by the implementation of App Tracking Transparency—a feature that requires app developers to obtain user consent in order to track them.

While this isn't necessarily a bad thing from a user perspective, we tend to forget all too quickly that:

The monetization of app audiences is the primary reason most of them are free.
Apple's business model is in no way driven by advertising, and therefore not indirectly by the collection of these advertising IDs. Their public statements look a lot like what we might call "privacy washing."
At first glance, it seems difficult to accuse the company of wanting to strengthen data security. However, it is worth noting that:

The group does not seem to apply the same rules to itself as it does to others in this regard.
The desire to force developers to make their apps paid would allow the firm to collect a 30% commission on every transaction. Quite profitable.
The question of whether or not Apple acts as a "guardian" of its users' privacy is therefore a legitimate one.

🥅 Apple and Google's defense

Following these accusations of anti-competitive practices and even monopoly, the tech giants have begun building a case to face the judgment.

Security and personal data protection

Apple and Google argue that their terms and conditions—and thus the prohibition of third-party payment systems—are necessary to ensure security and better protect their users' personal data.

The 30% fees also supposedly help fund constant improvements to security.

Fees in exchange for free tools

The fees collected are said to fund developer access to billions of potential users, as well as a suite of tools for developing projects—payment system included.

Unjustified monopoly

Apple also refutes the monopoly accusations by pointing out that Fortnite players can play the game and purchase virtual currency ("V-Bucks") elsewhere than on iPhone, specifically on Android phones, Xbox, PlayStation, or PC.

Tim Cook adds that PlayStation and Xbox do not allow alternative payment systems either, and that their fees are at similar levels... which adds weight to his case.

Hypocrisy: a planned rebellion

When Epic Games decided to break the rules of both App Stores in August 2020, the company knew full well it would be banned.

This is precisely what Apple is calling out. A file called "Project Liberty" was reportedly prepared well in advance to quickly trigger the lawsuit and build an entire communication strategy against the two giants—even going so far as to rally the entire community around #FreeFortnite.

👩‍⚖️ Court rulings and legislation in South Korea

The Epic Games case

The trial, which began on May 3, 2021, lasted several months before reaching an initial verdict. It is bittersweet news for Epic Games, but a major win for the mobile app industry.

Apple must now allow alternative payment solutions. In other words, app users will have the choice between paying a 30% commission via the native App Store solution—potentially benefiting from a better user experience—or using a third-party solution and likely paying lower fees. This decision will likely push Apple to lower its commission rate.
It is bittersweet for Epic Games, as the group will have to pay Apple $12 million in damages for the savings made between the time of its update and the app's removal from the App Store.
It should be noted that Apple is still not required to welcome Fortnite back onto its App Store.
Stay tuned!

Legislation in South Korea

Earlier, on August 31, 2021, South Korea passed a new bill prohibiting Google and Apple from forcing their payment systems on app developers.

While the scope of this project is smaller than the Epic Games case, it is symbolically significant on an international scale. We can expect others to follow suit.

Klox is an Agency-as-a-Service that helps brands innovate in their media activations and adapt to new consumer habits.

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