Speaker 1: Welcome to Tech Stuff, 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 how the tech are you. I am currently on vacation,
Speaker 1: so hopefully right now I'm doing great. I hope you
Speaker 1: are too. But obviously I don't want to leave you
Speaker 1: without an episode, so we are going to have a rerun.
Speaker 1: This episode is called the Epic Epic versus Apple Battle.
Speaker 1: It originally published in twenty twenty, and I think this
Speaker 1: one is an important episode because if you have been
Speaker 1: paying attention, you know that Apple is facing pressure around
Speaker 1: the world due to its policy of making developers use
Speaker 1: the in Apple payment processing system, where Apple gets a
Speaker 1: thirty chunk in most cases of every transaction. And Epic
Speaker 1: found kind of a work around on that and then
Speaker 1: got into hot water with Apple, and then Apple got
Speaker 1: into hot water all around the world. So really, while
Speaker 1: I wouldn't say this is the very beginning of the
Speaker 1: world pushing back on Apple, UH, for those policies, UH,
Speaker 1: this is probably the highest profile case. So let's sit
Speaker 1: back and listen to this episode. 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 escalating?
Speaker 1: As I research and write this, the fight is just
Speaker 1: gearing up, but it promises to get much nastier over time.
Speaker 1: Today we're going to learn about the conflict between these companies,
Speaker 1: as well as get a deeper understanding of the way
Speaker 1: that apps, services and Apple make money, because really that's
Speaker 1: what this all boils down to, the method that companies
Speaker 1: follow to make money and how they can make more
Speaker 1: money and keep more of the money they make. So,
Speaker 1: you know, spoiler alert, that's really what this is all
Speaker 1: about when you get down to it. But first some background. Now,
Speaker 1: I've done an episode about Fortnite that published back in
Speaker 1: February of two thousand nineteen, so I'm not going to
Speaker 1: go over the entire history of Fortnite. But let's do
Speaker 1: a quick rundown of Epic Games so we understand where
Speaker 1: they're coming from. Way back in, a guy named Tim
Speaker 1: Sweeney was programming video games and saying them onto floppy
Speaker 1: disks and then sending those disks out over the mail.
Speaker 1: And he was using the company name Potomac Computer Systems.
Speaker 1: He hired on a couple of important people as well,
Speaker 1: Mark Rhyan and Cliff Blazynski. In Sweeney would rename this
Speaker 1: company and it became Epic Mega Games, and the founders
Speaker 1: started creating lots of games that got a pretty good reception.
Speaker 1: A few years later, as computers got more powerful and
Speaker 1: graphics cards began to be a thing, Epic evolved into
Speaker 1: Epic Games and the company released a computer engine, a
Speaker 1: game engine called the Unreal Engine. So computer engines or
Speaker 1: video game engines are sort of a block of code
Speaker 1: that provide tools to game developers, like physics engines and
Speaker 1: graphics engines, and a game engine saves game developers a
Speaker 1: lot of time and a lot of effort. It provides
Speaker 1: some basic functionality that the game developers can then build upon.
Speaker 1: It's like the framework, and it keeps developers from having
Speaker 1: to reinvent the wheel every time they want to build
Speaker 1: a game. The Unreal Engine would become a really popular
Speaker 1: game engine, and that will play an important part in
Speaker 1: our story. Around two thousand and six, Epic Games began
Speaker 1: to saunter casually over to the world of console video games,
Speaker 1: developing titles or adapting existing PC games for the Xbox
Speaker 1: three sixty. The company was branching out beyond PC and
Speaker 1: Mac titles. Some of their earliest games that you know
Speaker 1: Epic produced were available on the Mac computer. That will
Speaker 1: also play an important part of our story. The company
Speaker 1: announced Fortnite in two thousand eleven, it would take a
Speaker 1: few years before it actually would debut, and in a
Speaker 1: Chinese company called ten Cent Holdings ended up buying a
Speaker 1: forty percent stake in Epic Games for a three hundred
Speaker 1: 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 different ways.
Speaker 1: Some games allow players to purchase upgrades 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. If 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 behavior as akin
Speaker 1: to addiction. And it's set the core of why games
Speaker 1: that have these sorts of transactions often come under scrutiny
Speaker 1: by various advocacy groups and governments around the world. Now
Speaker 1: that's another kettle of fish, but the micro transactions get
Speaker 1: to the very heart of the matter we're looking at
Speaker 1: in this episode. In two thousand nineteen, Epic Games made
Speaker 1: another big move. They launched the Epic Games Store. Now,
Speaker 1: over its relatively short history, the PC games industry has
Speaker 1: seen some pretty massive changes in how companies sell and
Speaker 1: distribute games. So in the old old days, you had
Speaker 1: game programmers like Sweeney who would build a game and
Speaker 1: then make copies of it on discs floppy discs, and
Speaker 1: then sell them either by mail order or sometimes going
Speaker 1: through like a local computer hobby store. And that evolved
Speaker 1: into game developers and publishers selling games through brick and
Speaker 1: mortar retail shops like game Stop or best Buy or
Speaker 1: Walmart or whatever. But over the last decade, the model
Speaker 1: has shifted dramatically over toward digital distribution. The vast majority
Speaker 1: of games are now sold through digital downloads, more than
Speaker 1: eighty percent since two thousand eighteen. This changes the model
Speaker 1: a lot, and it's one of the reasons why companies
Speaker 1: like game Stop are really in trouble these days. But
Speaker 1: you still need a place to sell your games. You
Speaker 1: need a shopping portal or something. Now you could try
Speaker 1: and do this through your own company's web page, but
Speaker 1: the problem with that is that you're asking gamers to
Speaker 1: go to a lot of different websites when they're in
Speaker 1: the mood to buy a game. Most gamers like to
Speaker 1: play a variety of titles from a variety of companies.
Speaker 1: There are very few gamers who are like, I'm only
Speaker 1: going to buy games from this one company, and smaller
Speaker 1: independent developers have a hard time standing out with so
Speaker 1: many big companies that are in the industry. So having
Speaker 1: a centralized digital store where you can look at titles
Speaker 1: from big or small companies that ended up being a
Speaker 1: really great idea, And that was an idea that a
Speaker 1: company called Valve, famous for video game series like Half
Speaker 1: Life in Portal had the Valve Digital store gave PC
Speaker 1: gamers a centralized location where they could shop for games,
Speaker 1: and Valve would end up making truckloads of cash off
Speaker 1: of this, because the company would take a cut out
Speaker 1: of every transaction made through the Valve Steam Store. If
Speaker 1: you bought a title on Steam, whether it came from
Speaker 1: Valve or not, Valve would get some of that cash,
Speaker 1: and for a while, it was effectively the only game
Speaker 1: in town, so to speak, unless you were to go
Speaker 1: directly to each publisher. In two thousand nineteen, that changed.
Speaker 1: Epic announced the Epic Game Store and also announced that
Speaker 1: it was going to take a smaller cut than what
Speaker 1: Valve was taking in their Steam Store. That would mean
Speaker 1: that video game companies would get to keep more of
Speaker 1: the money from those sales, and it would also mean
Speaker 1: that if a company were to hold a sale, like
Speaker 1: if they were to discount a title, they wouldn't take
Speaker 1: as big a hit on revenue as a result, and
Speaker 1: it introduced competition in the digital marketplace. Some of epics
Speaker 1: moves upset gamers, particularly when they heard about specific titles
Speaker 1: that would be exclusively sold through the Epics Store. Gamers
Speaker 1: are not crazy about the idea of having to manage
Speaker 1: to store accounts, I guess, but you could make a
Speaker 1: strong argument that competition would ultimately be a good thing,
Speaker 1: even if it meant you had to go to two
Speaker 1: stops when you were shopping for games instead of just one,
Speaker 1: And that really sets the stage for the show down
Speaker 1: with Apple. Epic Games has done something really smart with Fortnite. Actually,
Speaker 1: they've done a lot of smart things, including lifting the
Speaker 1: battle Royal concept that was working so well for video
Speaker 1: games like Player Unknowns Battlegrounds and then applying it to Fortnite.
Speaker 1: That transformed that game and made it into the juggernaut
Speaker 1: it is. But Epic has followed what I think of
Speaker 1: as the Netflix strategy. One of the things that Netflix
Speaker 1: really got right early on when it started making movies
Speaker 1: available to stream online is that the company worked hard
Speaker 1: to make sure that this service would be available across
Speaker 1: a ton of different platforms. Netflix wanted to make sure
Speaker 1: that users would be able to access the service no
Speaker 1: matter how they watch video, So that meant that Netflix
Speaker 1: had its web based interface, and then it also had
Speaker 1: an interface for smart TVs and one for smartphones and
Speaker 1: one for video game consoles. Essentially, the idea was, if
Speaker 1: this thing can play video, Netflix wants an interface to
Speaker 1: go on it, and the strategy paid off big time.
Speaker 1: It meant Netflix could cast a truly wide, you know,
Speaker 1: net to capture as much audience as possible. Epic has
Speaker 1: done something similar with Fortnite. Game developers often have to
Speaker 1: weigh some pretty tough decisions when it comes to making games.
Speaker 1: One strategy is to build games for a specific platform
Speaker 1: and just to focus on that exclusively. And that gives
Speaker 1: you the ability to really refine the game for that
Speaker 1: specific platform and and and make sure that everything is
Speaker 1: working well, and you end up with the most polished,
Speaker 1: well designed game you can create. So if you want
Speaker 1: the game to be available on more than one platform,
Speaker 1: such as let's say that you want the game to
Speaker 1: be playable on PC as well as on a PlayStation console,
Speaker 1: well then you have to devote time to adapting the
Speaker 1: game to work on the other platform. Because games are
Speaker 1: not just something you can copy and paste over on
Speaker 1: to one thing from the other. You can't just pull
Speaker 1: the code from a PC game and PLoP it into
Speaker 1: the PlayStation store. It doesn't work that way. So you
Speaker 1: really have two choices, one of which doesn't make much sense.
Speaker 1: That choice is to essentially recreate the game entirely for
Speaker 1: the new platform. This would mean building the same game
Speaker 1: two times, at least only the second time you're doing
Speaker 1: it for a different system. That's not really efficient. That's
Speaker 1: not a great way to go about it. It's certainly
Speaker 1: not a cost effective way to go about it. So
Speaker 1: the other way is to port the game over, which
Speaker 1: means you're really trying to keep as much of the
Speaker 1: basic code you built for the original game whatever platform
Speaker 1: moves on, like for PC, and only focus on making
Speaker 1: changes where it's necessary in order to run on a
Speaker 1: different platform like the PlayStation or whatever other platform you're
Speaker 1: developing for. Either way, it's a process that takes more
Speaker 1: time and resources to complete. Some companies will farm this
Speaker 1: sort of work out to other game developers, and this
Speaker 1: gives the original company the freedom to do other stuff
Speaker 1: like developed downloadable content or otherwise known as DLC for
Speaker 1: that original title, or to work on a brand new
Speaker 1: game with Fortnite, Epic developed versions for pretty much every
Speaker 1: conceivable platform. There are versions of Fortnite that you can
Speaker 1: play on PC, on Mac, on the Xbox One, the
Speaker 1: PlayStation four, the Nintendo Switch, on Android, phones and iOS
Speaker 1: devices like iPhone and iPads. So epics approach is again,
Speaker 1: if this thing can play games, we want to be there. Now.
Speaker 1: I say that knowing there are other gaming platforms out there,
Speaker 1: like you know, handhelds and stuff like that, So don't
Speaker 1: yell at me, you know what I mean. What's more,
Speaker 1: as an added value to the game, Epic has included
Speaker 1: the ability to have a lot of cross platform play. Now,
Speaker 1: this means that people playing the game on totally different
Speaker 1: systems can 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 happen 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 CE, but they could
Speaker 1: not play with both at the same time. However, over time,
Speaker 1: Epic would roll out more a cross platform support. In
Speaker 1: two thousand nineteen, they tweaked this a bit so that
Speaker 1: players who were on Nintendo Switch would by default get
Speaker 1: grouped into games with mobile players, you know, people on
Speaker 1: Android phones or iOS devices, whereas Xbox and PS four
Speaker 1: players were by default grouped together. The company still allowed
Speaker 1: people to create parties to form across these technological divides
Speaker 1: if they really wanted to. It's just the differences and
Speaker 1: system 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 call back later in this episode. Then co
Speaker 1: founder Steve Jobs 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,
Speaker 1: rest control of the company, first as an interim CEO
Speaker 1: and then ultimately as the permanent CEO. Apple was in
Speaker 1: bad shape and Jobs was determined to fix it and
Speaker 1: then make sure the company would never be in such
Speaker 1: a precarious position again. I think it's fair to say
Speaker 1: he had a bit of a ruthless edge to him.
Speaker 1: He was also a remarkable salesman and always had been.
Speaker 1: While the course corrections helped improve Apple standing, what really
Speaker 1: turned things around for the company was the introduction of
Speaker 1: a little device that could play music files. This was
Speaker 1: called the iPod, and Jobs unveiled it on October twenty
Speaker 1: three one. Two years later, Apple would launch the iTunes store,
Speaker 1: and that 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 the iPhone and, to a lesser extent, the
Speaker 1: iPad and the eye Watch. But the iPod and iPhone
Speaker 1: were slam dunks or touchdowns or Grand Slam home runs
Speaker 1: 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 an 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 ourist, 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. Now,
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: guarantee quality and safety to things that were not a
Speaker 1: guarantee if you were, you know, using piracy, Apple could
Speaker 1: convince people to buy music rather than just share it illegally.
Speaker 1: If a song costs less than a dollar and you
Speaker 1: knew it was going to be really good audio quality,
Speaker 1: plus it wasn't going to infect your computer with a virus,
Speaker 1: you might just go and purchase it. In fact, a
Speaker 1: lot of research shows that piracy doesn't always come about
Speaker 1: because people just don't want to pay for stuff. It
Speaker 1: usually grows because people don't have options when it comes
Speaker 1: to buying the stuff they like. So if you provide options,
Speaker 1: you remove some of the motivation for piracy. Now, this
Speaker 1: gave the iTunes store a nice healthy amount of support
Speaker 1: early on, and in return, because iTunes was acting as
Speaker 1: a sort of retail store for this music, Apple would
Speaker 1: take a cut of the transaction. The music label would
Speaker 1: get most of the money, but Apple would pocket air
Speaker 1: percentage as well. And for music labels this wasn't that
Speaker 1: big of a roadblock. Producing music on physical media is expensive.
Speaker 1: You're dealing with actual materials like c d s or
Speaker 1: cassettes or vinyl or whatever. It is. You want to
Speaker 1: produce enough of that to meet consumer demand, but you
Speaker 1: also don't want to go overboard and make more copies
Speaker 1: than you can sell, because that's just a waste of
Speaker 1: money in space. You also have to store that stuff,
Speaker 1: and you have to ship it. In other words, there's
Speaker 1: a cost associated with actually producing and selling music on
Speaker 1: physical media. Going digital helped reduce or even remove a
Speaker 1: lot of those costs, lowering the overhead, and so even
Speaker 1: with Apple taking a cut, this looked like a pretty
Speaker 1: good deal. That deal would send a precedent, one that
Speaker 1: Apple would extend when it debuted the App Store for
Speaker 1: the iPhone in the summer of two thousand eight. The
Speaker 1: iPhone had come out the year before, and its launch
Speaker 1: had been an enormous hit. The media went bonkers over
Speaker 1: the introduction of the attractive, sleek, exciting smartphone called the iPhone. Now,
Speaker 1: Apple was introducing the world to a marketplace where you
Speaker 1: could download apps to enhance your phone experience. You might
Speaker 1: download games, or productivity apps, or lifestyle apps or whatever
Speaker 1: I mean you you know what apps are. Some of
Speaker 1: those apps were free, some of them cost money. Some
Speaker 1: 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 across the board cut for
Speaker 1: certain transactions. Now, if an app is subscription based, Apple
Speaker 1: would reduce that to upon the second year of a subscription,
Speaker 1: 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 of affair
Speaker 1: with Apple. Nor does a food delivery service have to
Speaker 1: give Apple a cut for every order made through the
Speaker 1: iPhone app on that food delivery service. But in many cases,
Speaker 1: for every dollar spent within an iPhone app, Apple gets
Speaker 1: thirty cents and the other seventy cents go to the
Speaker 1: app developer or you know, whatever entity owns the rights
Speaker 1: to that app. Apple services make up a pretty sizeable
Speaker 1: chunk of Apple's revenue. Now, it's not the biggest chunk.
Speaker 1: iPhone sales are still the king there. They can make
Speaker 1: up to around of all revenue for the company. That's impressive. However,
Speaker 1: revenue and profit are two different things. Revenue is how
Speaker 1: much money you bring in by selling stuff. Profit is
Speaker 1: how much money you have left over once you deduct
Speaker 1: the costs of producing and selling things, essentially the costs
Speaker 1: of business from the money that you brought in. So yeah,
Speaker 1: iPhone sales make up the lions share of revenue, but
Speaker 1: it still costs money to produce each iPhone, though not
Speaker 1: that much money compared to how much Apple sales them for.
Speaker 1: But that's another matter. Now. While I haven't seen the
Speaker 1: figures and I can't make any definitive statements, I feel
Speaker 1: fairly confident that the profit margin on Apple's App store
Speaker 1: is much better than its iPhone sales. The more apps
Speaker 1: that join with in app transactions, the more money Apple
Speaker 1: collects as a result. Oh and there's one other important
Speaker 1: element to this. Apple only allows users to get iPhone
Speaker 1: apps through the Apple Store. That means, if you want
Speaker 1: to run an app on your iPhone and you don't
Speaker 1: want to go through the trouble figuring out how to
Speaker 1: hack your phone. So you can sideload apps, you have
Speaker 1: to go through the official app store. There is no
Speaker 1: other game in town. So any company that wants to
Speaker 1: make apps for iPhones, and there are a lot of
Speaker 1: 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 outnumber them in the world by a huge amount.
Speaker 1: Way more people have an Android phone than an iPhone.
Speaker 1: But we're seeing more people spend money through the iOS
Speaker 1: ecosystem than through the Android ecosystem. So while we've got
Speaker 1: way more Android apps out there in the wild, we
Speaker 1: don't have a lot of people spending money on apps
Speaker 1: through Android, not compared to Apple. So this means if
Speaker 1: you're a developer and if you want to make money
Speaker 1: off of the app you're developing, chances are you're going
Speaker 1: to want to make something specifically for Apple. It just
Speaker 1: makes business sense anyway. Developers have to submit apps to
Speaker 1: Apple for approval before it will be featured in the store.
Speaker 1: And note from Jonathan in the past, that was a
Speaker 1: lot of app noises all at once. I hope future
Speaker 1: Jonathan can say them without stumbling. I like it when
Speaker 1: I leave notes to myself. Developers also agree to keep
Speaker 1: in app transactions within the Apple ecosystem as well, meaning
Speaker 1: you can't sneakly do an out of app d le
Speaker 1: or a direct payment option and change things within the
Speaker 1: app that is running on iOS. You can't do that.
Speaker 1: You're not allowed to. You have to do it through Apple.
Speaker 1: So we've got Fortnite, a game that makes its money
Speaker 1: primarily through in game purchases, and we've got Apple, a
Speaker 1: game that generates revenue largely by taking a cut from
Speaker 1: an app purchases. I bet you can see where I'm
Speaker 1: going here. Epic Games decided to pick a fight with Apple,
Speaker 1: and this fight also extended to Google, but we'll cover
Speaker 1: that as well. And this is not an opinion. This
Speaker 1: is based on the timing of events that the company
Speaker 1: had clearly anticipated what was going to unfold. And I
Speaker 1: think Epic is counting on other companies to join in
Speaker 1: the fight at some point to protest apples cut. But
Speaker 1: here's how it played out. On August, Epic announced a
Speaker 1: change in the price of v bucks v as in Victory.
Speaker 1: That's the in game current and see for Fortnite, so
Speaker 1: you can give 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 drop,
Speaker 1: and announced that in game purchases would now cost twenty
Speaker 1: percent less than they had previously, So if you played
Speaker 1: Fortnite on PC or on a game console, you would
Speaker 1: see those prices reflected within the game itself. Whenever you
Speaker 1: went to make a purchase, you would see it at
Speaker 1: seven dollars nine cents for a thousand V bucks instead
Speaker 1: of nine dollars and cents. But for mobile it was
Speaker 1: a different story. Playing the game on either an iOS
Speaker 1: or Android device would mean that when you went to
Speaker 1: 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 to players end quote. Epic also argued
Speaker 1: that Apple isn't consistent when it comes to applying that fee,
Speaker 1: and pointed out the exceptions like the right hailing companies
Speaker 1: I mentioned earlier, or food delivery services or Amazon purchases.
Speaker 1: So Epic was saying, hey, if these apps can use
Speaker 1: direct payments and not go through the Apple payment process,
Speaker 1: why can't games? Why are you holding us to a
Speaker 1: different standard than these companies? So Apple booted Fortnite from
Speaker 1: the App store, and then Epic filed a lawsuit against
Speaker 1: Apple and launched a media campaign to inspire support for
Speaker 1: its argument among the public and probably among other companies. Now,
Speaker 1: the fact that it was ready to go with all
Speaker 1: of this pretty much proves that Epic knew exactly what
Speaker 1: the consequences were going to be for their actions, and
Speaker 1: in fact, we're counting on it. The lawsuit argues that
Speaker 1: Apple has a monopoly over all iPhone apps because the
Speaker 1: company doesn't allow users to load apps from any source
Speaker 1: other than the Apple Store. Because Apple has this cut
Speaker 1: requirement on some but not all app transactions, Epic argues
Speaker 1: that Apple is engaging in unfair business practices. As for
Speaker 1: the marketing side, Epic got pretty darn cheeky with that.
Speaker 1: They created a parody of an iconic Apple ad. So
Speaker 1: let's do a quick story about that. Back when Apple
Speaker 1: was getting ready to unveil the new Macintosh computer in
Speaker 1: the early eighties, the company was determined to make a
Speaker 1: really big splash and cut through the dominant position that
Speaker 1: was then held by IBM. Apple had done well in
Speaker 1: the personal computer market with the Apple two series, but
Speaker 1: IBM absolutely dominated when it came to office computers. If
Speaker 1: you wanted a machine for productivity and doing you know,
Speaker 1: business e type stuff, you wanted an IBM computer. Plus,
Speaker 1: IBM had been getting into the personal computer market as well,
Speaker 1: and appley to tell the world that the Macintosh was
Speaker 1: a fundamentally different type of computer, one with a graphic
Speaker 1: user interface or gooey and features that the button down
Speaker 1: IBM computers just didn't support. Apple hired on a marketing campaign,
Speaker 1: and that campaign got hold of Ridley Scott, the film
Speaker 1: director who directed the commercial. In the commercial, dozens of
Speaker 1: people in sort of gray colorless outfits shamble into a
Speaker 1: room and are seated in a dark theater to watch
Speaker 1: a big Brother like figure spelled propaganda at them on
Speaker 1: an enormous screen. And then an athletic woman runs into
Speaker 1: the room and she hurls an enormous hammer that flies
Speaker 1: at the screen and destroys it, just as the Big
Speaker 1: Brother figure is, you know, ranting about tyrannical ideologies. And
Speaker 1: the implication was there that Apple was on a mission
Speaker 1: to offer a real alternative, to prove that the IBM
Speaker 1: way of doing things wasn't the only way to do it.
Speaker 1: And it was a really effective commercial, one of the
Speaker 1: most famous commercials of all time. Epic Games produced a
Speaker 1: parody of this. They actually showed it within the game itself,
Speaker 1: but they also released it to other video platforms, and
Speaker 1: they used computer generated Fortnite characters to replicate the whole sequence,
Speaker 1: except this time, the Big Brother figure wasn't IBM, the
Speaker 1: Big Brother figure was Apple, and the woman throwing the
Speaker 1: hammer would represent Plucky Little Fortnite. The video game that
Speaker 1: could plucky little global phenomenon billion dollar game Fortnite, And
Speaker 1: now the message was that Apple was being the tyrannical
Speaker 1: one by demanding this cut. If not for Apple, Epic
Speaker 1: Games was saying companies would be able to price things
Speaker 1: at a more affordable level for users because they wouldn't
Speaker 1: have to build in and a mark up to deal
Speaker 1: with Apple's cut. Big bad Apple's cut meant companies had
Speaker 1: to charge more for stuff in order to make money. Now,
Speaker 1: I admit I'm being a little snarky, you know, I'm
Speaker 1: definitely editorializing 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 tacitly
Speaker 1: agreed that this is the way to do it, but
Speaker 1: effectively it means there's no real competition here. Plus with Apple,
Speaker 1: you could argue that from a pure ecosystem, there's no
Speaker 1: way to compete at all. You have to go through
Speaker 1: the Apple Store to have your game work on iOS,
Speaker 1: so there is no other option. If you take a
Speaker 1: step back, you can say, yeah, but you could just
Speaker 1: develop games for other platforms and leave iPhone alone. And
Speaker 1: that is true. So I guess it really just depends
Speaker 1: on your point of view. You 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 iOS. Hardware,
Speaker 1: optimize Unreal Engine on the Mac for creative workflows, virtual
Speaker 1: sets and their c I slash build systems, and adoption
Speaker 1: and support of art Kit features and future or 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 license 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 going to have to wait
Speaker 1: a while for that to play out because you know,
Speaker 1: we know, the legal system moves at a let's call
Speaker 1: it a leisurely pace compared to the worlds of technology
Speaker 1: and business, so it might be a while before the
Speaker 1: law is able to really wade in into this now.
Speaker 1: My bet is that Epic is hoping that the more
Speaker 1: recent focus on companies like Apple and Google when it
Speaker 1: comes to antitrust issues will provide political pressure so that
Speaker 1: the companies can negotiate that cut, or somehow Epic can
Speaker 1: force Apple to allow for more direct pay options. Honestly,
Speaker 1: don't know how that's going to go for Epic. Apple
Speaker 1: is a huge and incredibly wealthy company, and it didn't
Speaker 1: get wealthy by capitulating to other companies. I don't think
Speaker 1: there's necessarily a hero in this story, because it really
Speaker 1: just comes down to money. I think Apple has behaved
Speaker 1: in ways that are anti competitive, but when it comes
Speaker 1: to cut that has become fairly standard and digital stores
Speaker 1: across the board, So it's not like Apple is being
Speaker 1: you know, greedier than anybody else's. And granted it is
Speaker 1: not always the case. Epic itself has set itself apart
Speaker 1: by taking smaller cuts of transactions in the Epic Game Store,
Speaker 1: but I don't know that you can argue that Apple
Speaker 1: stands out as being particularly evil because of this policy.
Speaker 1: Lots of digital stores have the exact same policy. Now,
Speaker 1: the fact that you can only get apps on an
Speaker 1: iPhone through the App Store without hacking your phone, that is,
Speaker 1: does make it a little more tricky because there's nowhere
Speaker 1: else to go when it comes to the iPhone, So
Speaker 1: I guess that does set it apart. In fact, this
Speaker 1: is one of the ways that things branch between Apple
Speaker 1: and Google. You can only get apps for the iPhone
Speaker 1: through the Apple App Store, but Android devices support a
Speaker 1: couple of different ways you can get stuff you can
Speaker 1: sideload stuff that's not from the Google Play Store. It
Speaker 1: requires you to change some settings on your phone, but
Speaker 1: you can totally do it, and Android users can download
Speaker 1: Fortnite onto an Android device directly from Epics app launcher.
Speaker 1: Google removed Fortnite from the Play Store itself, so you
Speaker 1: can't just download the app directly through Google Play. But
Speaker 1: you can still get Fortnite on an Android device, and
Speaker 1: you can still run it without a problem, you just
Speaker 1: can't go through the Play Store to do it. Google,
Speaker 1: like Apple, said that they removed the game because epics
Speaker 1: decision to offer direct pay violated store policy. But unlike Apple,
Speaker 1: Google hasn't gone all angry crime lord boss with threats
Speaker 1: about Epics tools set and saying like I want the
Speaker 1: app dead, I want the unreal engine dead, I want
Speaker 1: those s d gys in the ground. They haven't done
Speaker 1: that recently. Apples EO. Tim Cook appeared before Congress and
Speaker 1: he was asked by Representative Hank Johnson, who coincidently represents
Speaker 1: my state of Georgia if the company had ever quote
Speaker 1: retaliated against or disadvantaged a developer who went public with
Speaker 1: their frustrations with the app store end quote Cook's response was,
Speaker 1: quote sir, we do not retaliate or bully people. It's
Speaker 1: strongly against our company culture. End quote. I'm not certain
Speaker 1: how well that would go over today as the Epic
Speaker 1: versus Apple saga has been unfolding again. Not to say
Speaker 1: that Epic is without blame here, but the decision to
Speaker 1: remove Epics access to developer tools for iOS and mac
Speaker 1: os seems like retaliation and bullying to me. Removing Fortnite
Speaker 1: makes perfect sense. I mean, that was the the app
Speaker 1: that violated the policy. That makes sense to me. Removing
Speaker 1: Epics ability to develop for iOS and mac os entirely,
Speaker 1: thus impacting Epic and numerous other companies economically, that one,
Speaker 1: I think is harder to support. As I record this,
Speaker 1: we're in the very early stages of this particular fight
Speaker 1: at the moment, I think it's safe to say that
Speaker 1: the US government has a few irons in the fire
Speaker 1: right now that need tending to plus an election coming up,
Speaker 1: so I wouldn't be surprised if it takes a little
Speaker 1: bit of time to get around to taking another really
Speaker 1: hard look at allegations of you know, monopoly practices or
Speaker 1: anti competitive behaviors in the tech space. But it's clearly
Speaker 1: something that has become a growing concern and government as
Speaker 1: more practices in the tech space are held up to scrutiny.
Speaker 1: Now this gets complicated by the fact that Silicon Valley
Speaker 1: pours a lot of money. I almost used a different
Speaker 1: phrase that is not you know, family friendly, but a
Speaker 1: lot of money into lobbyists and campaign contributions. And thus
Speaker 1: Silicon Valley has a large amount of influence when it
Speaker 1: comes to US politics. But I expect we're going to
Speaker 1: see more shifting as governments feel pressure to regulate or
Speaker 1: break up or otherwise intervene in business practices in the
Speaker 1: tech space. Meanwhile, Fortnite players who play on iPhone or
Speaker 1: Mac are likely watching all of this with a little
Speaker 1: bit of stress and probably makes doing that flossing dance
Speaker 1: a lot harder. But to be less flippant, it really
Speaker 1: is a shame that they are caught in the middle
Speaker 1: of all this, That those players are stuck as these
Speaker 1: two giant companies battle it out. They just want to
Speaker 1: play a game that they enjoy, and they don't really
Speaker 1: have any options as far as having an impact on this.
Speaker 1: They can perhaps shift to playing it on a different platform,
Speaker 1: but not everyone has that, you know, luxury. So I
Speaker 1: really do feel for Fortnite players, even though I personally
Speaker 1: don't like playing Fortnite because I'm old and I don't
Speaker 1: do well at it and it confuses me. But I
Speaker 1: hope that things get resolved, that the players are able
Speaker 1: to play the games they want, and that we're able
Speaker 1: to take a good hard look at how these companies
Speaker 1: generate revenue, how they price things, and really come to
Speaker 1: a good conclusion that works out best for all parties involved,
Speaker 1: including us the consumers. I am skeptical that that will happen,
Speaker 1: but I'm hopeful. I hope you enjoyed that rerun of
Speaker 1: an episode from just a couple of years ago. And
Speaker 1: obviously in those two years that have followed, we've seen
Speaker 1: more pushback against Apple. We've seen Apple resist those regulations
Speaker 1: that have been placed around the world, and the story
Speaker 1: is far from over, so I'm sure we'll do a
Speaker 1: follow up in the future. If you have suggestions for
Speaker 1: topics I should cover on tech Stuff, please reach out
Speaker 1: to me. You can do so on Twitter the handle
Speaker 1: for the show is tech Stuff h s W, or
Speaker 1: you can leave me a talkback message on the I
Speaker 1: Heart radio app. Just go to the text Stuff entry
Speaker 1: in the I heart Radio app. There's a little microphone
Speaker 1: icon in there. You click on that you can leave
Speaker 1: a voice message up to thirty seconds. Remember let me
Speaker 1: know if you want me to use the voice message
Speaker 1: in a future episode, and I'll talk to you again
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