The battle for the best game retailer is heating up

The battle for the best game retailer is heating up

These additional costs aren’t typically present in digital distribution. So paying 30% to access vast payment infrastructures, content distribution networks, digital rights management, and anti-fraud processes seems fair, right? Not according to game developers, only 6% of whom feel the 30% cut is fair. Developers wanting to keep a greater share of the profits from their work is no surprise, but this figure is stark nevertheless. And as competition for content hots up due to the emergence of new regions, audiences, platforms, and technologies, creators of content hold greater sway.

Until the Epic Games Store announced in late 2018 that it would take a 12% cut of game revenue, the industry seemed locked-in to a store cut of 30% for PC, mobile, and console. It was a largely non-negotiable fee paid to list our apps and games. They didn’t pull this figure out of thin air — it’s a throwback to the era of the discs — CDs, DVDs and game discs — when 30% was the going rate of physical retailers. In those days, publishers would also have to shoulder the cost of printing and shipping masses of physical copies of their album, movie, or game.

The upshot of all this is, potentially, meaningful challenge to the balance of power between the Apple App Store and Google Play and the hegemony of PC superpower Steam. These giant ecosystems have been content with the status quo and, in the case of Apple and Google, coexisted in something akin to a cold war, wanting it all but conscious that a duopoly is better than mutually assured destruction. While it’s clear that the strength of previously unapproachable walls is being tested, it’s yet to be seen whether this will manifest as a phony war that the incumbents use to entrench their positions or whether we’re on the cusp of total war.

The fees domino effect

The market has undeniably reacted to that 12% incursion by Epic Games in 2018 (with a further incentive of the waiver of the Unreal Engine’s 5% fee for games that use the Epic Store). Microsoft has matched 12% for games, while letting other types of apps keep 100% of their revenue. Even Steam has reacted, in a fashion, by taking a slightly lesser cut from games that have already successfully sold lots of units at the 30% rate.

Similar conflict is playing out in the mobile sphere. While the App Store and Google Play have incentivized longevity when it comes to subscriptions, halving their cut to 15% after 12 months, they’ve had to go further. Apple has enshrined a 15% fee for apps that make less than $1 million per year. Google has recently undercut this by agreeing to take 15% of the first $1 million in revenue from all apps instead of 30%, regardless of the app’s total annual revenue. It claims this means a 50% reduction in fees for 99% of developers who use the platform.

It’s tempting to frame these developments simply as Epic vs. Steam or Apple vs. Google. The reality is that external forces are bringing pressure to bear too. Take Huawei’s AppGallery, which last year tempted developers with the promise of keeping anything from 85% to 100% of their revenue. Why do the incumbent stores care? Because Huawei now has over 530 million active monthly users and 384 billion app installs per year on its network of devices. With vast ready-made audiences that have increasing spending power, it’s top-shelf content that stores like AppGallery are after to boost their own platform offers, and they’re increasingly able to compete with the likes of Google and Apple for it.

The legal theater

The app store war is playing out in the global legal theater, both in direct conflict with each other as in the case of Epic and Apple, and with national and supranational agencies that are homing in on potential areas of non-competition. Epic Games’ metaverse mega-hit Fortnite was removed from the App Store almost a year ago (in August) after Epic tried to circumvent Apple’s payment processes and therefore the 30% revenue share. While most global markets had seemed content to wait for the judgment of U.S. federal court — both companies’ home market — Australia recently overturned a verdict that paused Epic’s legal action in that country. This could be the catalyst for more actions to proceed, particularly in the U.K. and European Union (which has pursued a number of antitrust cases in recent years).

Google’s parent company, Alphabet, was given an astronomical $5.15 billion fine by the European Commission in 2018 for using the Android operating system to shut rivals out (Alphabet plans to appeal). It’s also being pursued by 37 U.S. attorneys general who argue, amongst many other points, that it induced mobile device manufacturers such as Samsung and mobile network operators to adopt Android and thus not compete with Google Play. With U.S. President Joe Biden issuing an Executive Order this month instructing the Department of Justice and Federal Trade Commission to clamp down on anticompetitive practices in the U.S. economy, app stores and marketplaces will come under greater scrutiny alongside the rest of Big Tech.

The payments question Money talks, and games are a golden goose, particularly as the in-app purchases and advertising that are ubiquitous in mobile spread into the PC and console arena. Much of the conflict between regulators, stores, developers and publishers boils down to payments infrastructure.

Epic vs. Google escalated quickly when Epic tried to implement direct payments in Fortnite iOS. The U.S. case against Google notes that the Play Store effectively forces app publishers to use Google Billing as an intermediary. Why? Because having app developers and publishers use proprietary payments infrastructure is the only effective way to enforce app store fees. Microsoft, then, is making an unprecedented play by allowing apps to run their payments through third-party ecommerce platforms, essentially making its cut 0%. Because of the rich monetization around games, Microsoft will still charge them 12% as noted, though this is still a competitive levy in today’s market.

Glasnost, or walled gardens? Apple’s App Store is often referred to as a “walled garden” because it doesn’t permit third-party apps such as Amazon’s App Store, arguing that this would compromise security and UX. Google Play is a little more nuanced. The open source roots of Android mean you can sideload third-party apps, although Amazon itself is heavily referenced in the upcoming antitrust case by the U.S. attorneys general for being unfairly kept out of the Android ecosystem. With signs that Android 12 could be locking down parts of its UX that were previously customizable, it almost looks as though walls are being fortified rather than torn down.

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