The true cost of mobile app development and how Epic Games decided to challenge Apple over it

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Notice: The author is the spouse of an Epic Games employee, and the contents represent her opinions, and not necessarily those of DesignHammer.

Raleigh-Durham is often listed as one of the fastest-growing tech hubs in the U.S. From cloud technology to biotech, fintech, software, and video game development, etc. the Triangle tech scene is diverse. We’re considered an epicenter for tech startups, but there are several tech companies that are considered Raleigh’s “flagship” enterprises, and Cary-based video game development company Epic Games is one of them. Epic Games is a common name-drop you’ll hear from people in the tech industry. I am, however, personally subjected to those conversations more often than others because my spouse works for Epic. One of the upsides to his employment is that I am now clued in on Epic Games’ daily operations, culture, and general “happenings”.

That being said, you don’t have to be an Epic Games insider or married to one in order to be clued-in on Epic’s most recent “happening” — the Epic Games v. Apple lawsuit. The Cary-based creator of Fortnite and the Unreal Engine, has been in a legal face off against Apple in resistance to the 30% cut Apple seizes from all app purchases developers receive through the iOS store. I am writing this article not to play favorites (because I also love Apple); but to detail a crusade that I find very unique between the two tech companies, summarize what’s happened so far, and speculate on what the eventual outcome could mean for smaller players in the industry.

As a web development company, customers often approach us with questions about what it takes to develop a mobile app for the iOS and/or Google Play Store without having a true understanding of the development and unseen costs associated with the project. For starters, both Apple and Google keep a large chunk (30%) of all revenue made through in-app purchases. In addition to this, Apple and Google also force developers to follow very stringent rules when publishing on their platforms, including but not limited to performance expectations, privacy requirements, UI design, content standards, as well as the frequency as to which apps must be updated to keep up with OS updates.

Development costs and fees aside, there are all kinds of factors that need to be considered before releasing your content into app store ecosystems, and one of them is that you need to play by Apple and Google’s rules; something that Epic Games deliberately attempted to defy this past fall. Although we do not currently develop mobile apps that take in-app purchases (purchases of virtual goods – like microtransactions in a game – or paying for subscription services within the app, i.e. non-physical goods purchased by consumers), it’s worth talking to curious customers about why they feel like an app is the best approach for their organization and educating them on what to it really takes to develop apps for mobile devices.

Since it was launched in 2017, Fortnite has been recognized as the highest-grossing video game for the 2018 and 2019 years. The game is free-to-play on any device so it’s not the cost of the game that’s making millions, instead Fortnite’s billion-dollar revenue comes from their success with in-app microtransactions. With just $5 to $25 here and there, a player can buy different skins and accessories to use in the game. Considering 70% of Fortnite players spend money on digital items, and ⅓ of all Fortnite players play on iOS (116 million in total), it’s worth noting that a decent chunk of microtransaction revenue goes through the iOS and Google Play Stores.

Part of what makes the Epic Games v. Apple case so... for lack of a better word, epic, is how Epic Games chose to initiate this battle. Back in August, Epic Games deliberately decided to violate the terms of their contract with Apple by launching a new in-app payment system within Fortnite to bypass Apple (and Google’s) 30% in-app revenue cut they have always taken from developers. Apple quickly retaliated by taking Fortnite off of the iOS store, and Google soon followed suit, removing the game from their Google Play Store. The thing was, Epic Games’ knew this was going to happen, and their marketing team took their retaliation further than you’d expect.

Because my partner does work for Epic, I caught word of Fortnite being taken off of the iOS store the second that it happened. We also heard that in light of recent developments, Epic had slashed the prices for many of the cosmetic purchases in their item shop. Since we both do enjoy playing Fortnite from time-to-time, we logged in to see what all the commotion was about. It became clear that the discount announcement had doubled as a maneuver to draw users into logging on so they could showcase a very creative advertisement that their marketing team had put together.

The video advertisement was a parody of Apple’s infamous “1984” commercial (originally a nod to George Orwell’s dystopian novel “Nineteen Eighty-Four”). Epic’s version, however, was now animated and featured a common female Fortnite character carrying the classic Fortnite pickaxe (something all characters carry in the game), rather than the blonde female sporting a track-and-field outfit carrying a sledgehammer in Apple’s original commercial. Instead of the “Big Brother” talking head on the big screen, the face of the propaganda machine in Epic’s video was a Fortnite villain known as “Tart Tycoon”. For context, Tart Tycoon is a shady businessman who dons a black suit and has a conveniently apple-shaped head. Considering I wasn’t alive in 1984, I didn’t exactly get the reference, but after watching the original I became even more intrigued. For those who haven’t seen it, it’s definitely worth watching the side-by-side comparison of both advertisements!

At the end of Fortnite’s parody video, which they cleverly titled “Nineteen Eighty-Fortnite”, a similar text scroll appears, this time stating (quote)

“Epic Games has defied the App Store Monopoly. In retaliation, Apple is blocking Fortnite from a billion devices. Join the fight to stop 2020 from becoming '1984.'”

Apple’s award-winning advertisement, that Epic Games parodied, was ingenious back when Apple was only a small player in the industry, but could never represent the Apple we know today. Over the past few decades, Apple has quickly risen through the ranks to become a dominator in the tech industry. I use the term “dominator” for a reason as they have total control over their iOS app store. 45% of smartphone holders use Apple products and therefore Apple’s App Store is one of the very few ways developers can actually bring mobile games and tools to the public. As a result, Apple’s stringent standards for who and what kind of content they allow onto the App Store can sometimes feel overbearing to developers.

Epic strategically timed their attack to coincide with recent investigations into Apple, Google, Facebook, and Amazon’s business operations, who many feel (especially app developers) verge on monopolistic. Several antitrust hearings occurred this fall, during which both Democrats and Republicans in Congress have confronted the executives over their ability to wield their market power to crush competitors and amass data, customers, and sky-high profits. Soon after their initial chess move, Epic Games announced they had co-organized a nonprofit along with Spotify, and Match Group (conglomerate who owns all major dating services) called "The Coalition for App Fairness" to fight Apple’s iOS Store app fee. 45 member tech companies have joined the movement since it was announced two months ago.

Shortly after Fortnite was removed from the Apple iOS and Google Play store, Epic issued legal action against Apple and Google, citing that they had a monopoly over the mobile app ecosystem. Before legal action was taken, however, not only had Apple removed Fortnite from their store, but the trillion-dollar tech conglomerate threatened to remove all apps built-in Epic’s Unreal Engine. This incredible strongarm attempt would have revoked Epic’s access to Apple developer tools, meaning that the hundreds of games built by developers who license the Unreal Engine, including simulations and training services used by the U.S. government and military, would eventually break. In late August, Apple did proceed with terminating Epic’s App Store Developer account, which meant Epic could no longer make updates to existing apps or submit new ones. Epic then submitted, and won, a restraining order which denied Apple the right to remove Unreal Engine-based games from the App Store. They later filed an injunction to prohibit Apple from taking “any adverse action against Apple”. Then, in September, Apple issued a counter-suit and asked for compensation and damages claiming Epic’s actions were “a little more than theft”. Most recently, Judge Gonzales Rogers actually dismissed two of Apple’s claims at a hearing that took place on November 10th. In response to Apple’s failed theft-claim attempt, Judge Gonzales Rogers responded with:

“This is a high-stakes breach of contract case and an antitrust case and that’s all in my view.... You can’t just say it’s independently wrongful. You actually have to have facts.”

Eight days after that court hearing, Apple announced that they will reduce it’s take of App store fees from 30% to 15% for small app developers who make less than $1 million a year from App Store proceeds. Apple positioned this as a move towards helping small businesses grow during difficult economic times, but it would be naive to assume that Apple’s decision was not influenced by Epic’s movement, the Coalition for App Fairness, and the recent antitrust hearings. Tim Sweeney (Epic Games CEO) called this a “calculated move by Apple to divide app creators and preserve their monopoly on stores and payments, again breaking the promise of treating all developers equally”. However, despite the criticism from larger developers, Apple shared a press release showcasing how pleased small developers were with the novel App Store Small Business Program, signaling goodwill from thousands of small businesses who make up 97.5% of App Store developers overall.

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