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