Apple’s tight control over its ecosystem led Fortnite maker Epic Games, Microsoft and Facebook to argue the iPhone maker is stymieing innovation for games.
Apple ranks as the No. 3 gaming company in the world, even though it doesn’t make any games. And that enviable position could be its downfall.
As Congress and regulators increasingly move to rein in big tech companies, Apple’s power over the online gaming market is putting a target on the iPhone maker — particularly the steep commissions and restrictive contracts it requires from developers.
The pandemic is, in part, to blame. Coronavirus lockdowns have more people than ever playing online games, often on smartphones and tablets, as a way to connect with friends and family.
As more money flows in, other big tech companies are making moves to challenge Apple’s position. Google, Microsoft and Amazon have debuted cloud gaming services to let users play popular titles without downloading them. Facebook and Snap also have beefed up their “instant game” offerings, casual games that users play with friends inside the social networks.
But Apple, they say, is still putting a stranglehold on them, limiting the functionality of such apps on the iPhone, which accounts for nearly half of the U.S. mobile phone market.
“The net effect is we have a broken platform,” Vivek Sharma, the vice president of Facebook Gaming, said in an interview. “The players themselves end up not benefiting from the cool things we could do if we were able to create a social play environment.”
One developer — Epic Games — has become the poster child of the effort. The maker of Fortnite — a game where users battle each other, kill zombies or build worlds — sued Apple for antitrust violations, alleging that it illegally requires developers to funnel payments through Apple where it takes a percentage cut. Epic then introduced a way to let users buy virtual currency directly from its website at a discount, saying it is not required to abide by illegal requirements.
Epic “is ceasing to comply with anticompetitive provisions in Apple’s contracts,” Katherine Forrest, a lawyer for Epic, said at a Sept. 28 court hearing. “A monopolist cannot choose a business model and stick by it” with unlawful contracts, she explained.
The money at stake is far from small change. Apple requires gaming apps to give it a 30 percent cut of all revenue, regardless of whether that is for the app download, in-app purchases or subscriptions.
Apple banned Fortnite from its app store and countersued Epic for breach of contract. On Tuesday, Epic will ask a judge to dismiss some of Apple’s claims. The overall suit is expected to go to trial in May.
But Epic is far from Apple’s only worry. Microsoft and Facebook have filed antitrust complaints with both Congress and EU regulators over the company’s gaming business. They allege that Apple is stymieing innovation in the games market, particularly for those that operate at least partly in the cloud.
And the House Judiciary Committee’s antitrust panel rebuked Apple for its gaming business model last month in a report following its 16-month investigation into Big Tech’s market dominance.
“Apple’s ban on rival app stores and alternative payment processing locks out competition, boosting Apple’s profits from a captured ecosystem of developers and consumers,” the Oct. 6 report said. “Developers have no other option than to play by Apple’s rules to reach customers who own iOS devices.”
House Democrats say they now intend to introduce legislation in the next Congress that could make it easier to challenge Apple’s restrictions.
The European Union is also increasing scrutiny. It is considering bright-line rules for “gatekeepers” like Apple who control access to important platforms. The EU’s executive body expects to introduce legislation in December with a list of do's and don'ts for gatekeepers, including a ban on preventing business users from promoting offers available outside the platform, which could allow developers to offer alternative payment methods that don’t require commissions to Apple. The European Commission also launched an antitrust investigation into Apple in June, though it likely won’t be resolved for at least another year.
Any of these challenges could be a major threat to one of the fastest-growing parts of Apple’s business. Last year, Apple recorded about $50 billion in revenue from services — games, subscriptions and other App Store sales. One of the largest contributors to Apple’s App Store revenue is games.
And that’s as the market for gaming is only getting larger.
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Today, about 2.6 billion people play games online, a number that is expected to grow to more than 3 billion by 2023, according to game and e-sports analytics company NewZoo. Consumers will spend about $159.3 billion on games this year, about $77.2 billion of that on mobile devices, NewZoo estimates.
So it isn’t surprising that the biggest tech companies in the world are looking to crack open Apple’s gaming universe — and taking on the unfamiliar role of the underdog as they do so.
Facebook’s Sharma said the company has been essentially blocked from offering the best version of its gaming app on iPhones.
The social network introduced Facebook Gaming — a stand-alone app where users can play games together or watch streams of other players — in April and it was immediately available on Google’s Android phones. But Apple repeatedly rejected the Facebook Gaming app for six months until Facebook removed the ability to play games.
“The mobile phone is the de facto device everyone has,” Sharma said. By blocking gaming apps that use the cloud or other platforms, he said, Apple is blocking an opportunity to “open up the market from people who can afford consoles to people who can’t.”
Apple has maintained that the original version of Facebook Gaming violated the App Store’s rules that prohibit apps whose primary purpose is to offer a competing store of web-based games. Facebook argues that the primary purpose of Facebook Gaming is not to play games but to socialize and stream gaming video, Sharma said.
Facebook filed a formal challenge to the Apple rule in August through a method Apple introduced to do so that month, but the company hasn’t yet heard back, he said.
“We were stymied from enabling this dedicated experience,” Sharma said.
Users can play some of the games within the Facebook app, but even there Apple has placed some restrictions. The company won’t let developers use in-app purchases for virtual currencies for games within the Facebook app. Apple also limited the functionality, requiring Facebook to list the games rather than offering the more interactive interface used on the Android app.
Microsoft, which owns xBox and makes the popular building game Minecraft, has lodged similar complaints, and lobbied lawmakers to take action.
In September, the company launched a cloud gaming service called xCloud — where users pay a monthly fee to play more than 150 games including popular titles like Doom and Halo across platforms — on Android, but disputes with Apple led it to pull the project off the iPhone and iPad.
This summer, Microsoft President Brad Smith spoke to members of the House Judiciary antitrust subcommittee, who were in the final stages of their antitrust investigation. Smith pressed lawmakers to take a hard look at Apple’s App Store during that meeting, according to a person who attended the meeting but wasn’t authorized to speak publicly about confidential discussions. The Information first reported Smith’s interview with the panel.
On Sept. 11, Apple updated its guidelines to allow for streaming game services. But the changes require that each game is available for individual download within the App Store and that users subscribe to the service through Apple — which would ensure Apple can take its same 30 percent commission.
Microsoft blasted the guidelines change, saying in a statement that they created “a bad experience for customers.”
Apple said developers who don't like the company's App Store guidelines should use the browser, where they are free to present their offerings however they'd like.
Other big entrants to the gaming business have abandoned the idea of working with Apple altogether. Google and Amazon both introduced new gaming services this year, neither of which are available on the Apple App store.
https://www.politico.com/news/2020/11/10/online-gaming-flourished-during-pandemic-apple-antitrust-435818