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THOUGHTS FROM INSIDE TRAGIC MINDS

The Backstory

The original Apple iPhone went on sale in June 2007. One year later, in the summer of 2008, the iPhone 3G launched with a novel feature: the App Store with 500 initial apps. But the roots of the App Store stem back even further. If you do not know the story between Salesforce CEO Marc Benioff and Apple CEO Steve Jobs, we recommend checking it out.

From the beginning, the App Store was designed to be a way that connected developers and consumers. Consumers got a single interface and mechanism to download, try, and use mobile apps. Developers got a single set of rules to follow in order to reach these consumers.

As time went on, the iPhone and App Store ballooned. In 2018, Apple sold 218 million iPhone devices and their App Store facilitated $519 billion of physical and digital commerce in 2019 alone. Apple is no longer a luxury player with a small market share. With the rise of the iPhone, iPad, and Bring Your Own Device (BYOD), Apple has also entered the enterprise market. In a big way.

When and Where Things Get Messy

To facilitate the App Store, Apple charges a 30% fee to revenue generated from their platform. This is true for both paid apps and free apps that have upgrades via in-app purchase (IAP).

You can argue about that metric of the 30% fee compared to, say, the 3% credit card payment processing fee. Apple facilitates payment yes – but they also build the phone, operating system, developer tools, pay for hosting, and staff the App Store with reviewers. On the other hand, the App Store has ballooned into something that nobody could have expected on stage back in 2008. We can understand charging a fee for an app that was designed for the App Store.

For instance, a sleep tracking or fitness app that lets you upgrade to get extra features. That seems to be a well defined box where the developer is benefiting from the platform and you are getting extra benefits that are only accessible on your iPhone.

However, what about purchasing movies, music, or books? What about accessing video games or other media that you purchased on another platform? What about apps and services that are not reliant on Apple or the App Store except to serve a portion of its user base? How should you provide customer support if 80% of your users purchase from you directly and 20% purchase through Apple – thus not allowing you to handle refunds or discounts yourself?

Enter Epic Games and Fortnite

Enter Epic Games and their flagship game Fortnite. Fortnite is a massive franchise, with 350 million users worldwide and revenues of $1.8 billion in 2019.

The success of Fortnite comes from several areas – including making the game free-to-play, its social hub, and having low hardware requirements. These decisions are deliberate and attract a wide audience, with people playing on smartphones, tablets, laptops, consoles, and purpose built gaming PCs.

As mentioned, the game is free to download and play. So how does Epic Games make nearly $2 billion with Fortnite? Through their digital currency V-Bucks. Players exchange dollars and euros for V-Bucks, and spend their V-Bucks buying new outfits, items, and other ways to personalize their in-game experience.

Now the question arises: should Apple earn a percentage on Fortnite in-app purchases? Fortnite runs on basically every single platform – Sony PlayStation, Microsoft Xbox, Nintendo Switch, Microsoft Windows, Apple macOS, Apple iOS, Google Android, and even unofficially on Linux. They have also implemented their own payment system and it's clearly working well.

Recently, Epic came to the conclusion that they should no longer have to pay the 30% fee to Apple or Google and released an update to their app implementing their own payment system over the default in-app purchase methods. Apple and Google both immediately removed Fortnite for violating their terms of service. Fortnite then responded by filing an antitrust lawsuit against Apple.

So what, exactly, is this fight all about? And why isn't Google a target?

The core issue is that there is only one way of distributing software to Mac users, through the Apple Mac Store where Apple takes 30% of all transactions. We think the 30% fee is outrageous in today's app ecosystem – but the bigger problem is the lack of choice for Mac users.

What About Google and Microsoft?

During this war that has erupted between Apple and Epic, you might find yourself asking what about Google? Or Microsoft? Aren't their app stores equally oppressive?

It may surprise you to know that Microsoft has been the most progressive and developer-friendly of the tech giants. Developers releasing an app to the Windows 10 or Xbox marketplace can get up to 95% of revenue from their application.

Microsoft even stood up to back Epic's restraining order against Apple.

Google, on the other hand, does match Apple's fee structure, and also booted Fortnight from its Play Store. However, there is one important difference between Google and Apple. Google has not built a "walled garden". Android is an open platform, allowing for multiple payment options. Developers can choose to use Google's in-app payment system, where there is a 30% fee, but are also free to choose an alternate distribution model.

Android developers are free to have their apps be installed from other marketplaces or even directly from their own websites. So while Android users can no longer find Fortnite in the Play Store, they can still install the app through the Epic Games website or from 3rd party App Stores.

Apple's Fight with Everyone Else

Epic Games are far from the only developers that are complaining. Basecamp, the developers of the HEY email app, are embroiled in another battle as well. They do not offer any in-app purchases in their app but do offer a way to pay for the service through their website. Apple said if they did not introduce in-app purchases and pay the 30% fee, their app would be removed from the App Store. After weeks of public outcry and talks with Apple, the HEY app was finally allowed to be on the App Store.

Automattic, the company behind WordPress, had a similar experience. The company had a free app and Apple's response was that they need to add in-app purchases for the WordPress app to be allowed in the store. Again, after public outcry and communication with the developer, the WordPress was allowed to stay. Here is Apple's official message:

"We believe the issue with the WordPress app has been resolved. Since the developer removed the display of their service payment options from the app, it is now a free stand-alone app and does not have to offer in-app purchases. We have informed the developer and apologize for any confusion that we have caused."

Even Microsoft suspended their xCloud cloud gaming service on iOS. xCloud is a single service that allows you to play games that are running on servers in the cloud and accessible through your client (e.g., your phone or TV). Apple currently does not allow applications that use a remote host and, of course, they want their in-app purchases present.

Our Take On It

Tragic has had a long history of backing the open source movement.

We prefer working with Google over Apple or Amazon because of their open platforms and development-focused approach. Microsoft has even changed their tune a few years back and doubled down on open source. And, for that, we applaud them.

We are adamantly against Apple's closed wall approach to all of their tools, tech, and platform. We also feel that Apple is on the wrong side of history with their App Store. Their stubborn approach to maximize their profits is doing nothing but hold back developers, which, in turns, hurts Apple users. Apple profits off the hardware, the operating system, and a larger number of developer tools. For example, to build an iOS app, you must use an Apple device running macOS and pay $99/year to access their developer program.

As mentioned above, the App Store has evolved and grown into something unforeseeable. Rules and fees need to be updated to reflect the new state of the internet. Companies, like SD Tech's own Koji, are democratizing apps and building a new landscape of creators. The rules from 2008 no longer apply in 2020.

Having cross-platform capabilities is the future for all companies, but how can you build a sustainable cross-platform model when a single platform takes 30% of your revenue for hosting your application?

Also, Apple customers are evolving. I know more cross-operating system users than ever before. Many friends have iPhones or iPads, but use a PC for computing.

In our opinion, if Apple wants to keep their fees, they need to take an approach closer to Google and allow multiple distribution options for developers. Or if they want to keep a walled garden, they need to take an approach closer to Xbox and provide pricing structures that work for indie developers and small businesses.

Every other platform offers multiple mechanisms to purchase. Computers running macOS and Windows have official stores (e.g., Mac App Store and Microsoft Store, respectively) but also allow you download and purchase software directly from any website. Game consoles have digital stores, but also allow you to buy from retailers or buy used physical discs from friends. The core of the issue is not whether the App Store is good. We believe that Apple deserves to profit from the App Store.

But, like we see on every other platform, there needs to be alternative methods to download an application outside of the App Store. So our message is simple: Apple, tear down your wall!

Apple, tear down your wall!

 

Don't let your project turn into a tragedy.