iMonopoly
I worked for a year for Trip Hawkins, the founder of EA. I really enjoyed playing many of their early titles during my formative years and I believe that playing some of the early EA games like Seven Cities of Gold, Archon, Ultima IV, and Pinball Construction Set were the foundation for my career as a game developer.
One of the things that made EA successful early on was their decision to eliminate the middleman in going to retail. There is a lot of documentation on the business innovation and technology innovation that EA did in order to generate outsized returns compared to their competitors.
I first made BREW and J2ME games in 2002 for feature phones. More recently I have worked on iPhone and Android games for smart phones. Throughout both of those eras, there are large incumbent platforms who have similar properties to the middlemen that EA circumvented.
This brings us to today and the Epic Games lawsuit against Apple. Oh yes they are probably suing Google too and everything or whatever. But let’s talk about the Epic Games vs Apple lawsuit.
I think this is going to be the games industry lawsuit of the decade.
It goes without saying that I am often an indie or startup developer, and so as a “temporarily embarrassed billionaire” my sympathies lie with the content creators and my own person-of-the-year: Tim Sweeney. If you think that prejudices my opinion, I can accept that. I-yam-what-I-yam. I also think that the games industry is still formative and we are still figuring many things out. Every penny that we can keep inside of a game company is a penny that gets reinvested in better games.
Accordingly, I want to talk about thirty percent and why I am rooting for an independent games store (like the Epic Games Store) on Apple as an eventual outcome from this case.
Let’s start by asking an interesting question: What does it really cost to make a game?
The answer varies. It is like asking “what does it cost to make a wheeled vehicle?” A bicycle is cheaper than a car is cheaper than a semi-truck. They all have different material requirements, different sizes, and different assembly processes. You have teams of various size comprising varying specialties. There are games that are made by one person, and there are games that have high profile actors, hundreds of software developers, and special effects production teams similar to those of the movie industry.
It is hard to say what it truly costs to make a game because of this range. There are so many different ways for people to make games that it the best time ever to be a game developer. I am also fond of saying that because it is the best time to be a game developer, that makes it the worst time to be a game developer too. Everyone and their sibling has a studio opening up and we are blessed as players with a lot of different choices available when we sit down and want to play something.
So what does this have to do with the thirty percent cut of the platform store?
Almost nothing, unfortunately, but I wanted to break down All-Of-The-Costs that people think about so we can focus on the ones that matter: Transaction costs, security costs, and marketing costs.
I think that we can all agree that there is an intrinsic cost for doing a credit card transaction. Tim Sweeney over at Epic Games said repeatedly that fifteen percent is a good number for that, and that is what the Epic Game Store charges. I like that number. It is reasonable. Fifteen Percent is also less than Thirty Percent.
So let’s ask about that other fifteen percent.
Apple has said they provide a secure platform for players and for game developers. They have a closed ecosystem for content and safeguards to keep people in their garden. I can respect that security is worth something—when it actually works.
You can make a case that they are investing time and money from their app store profits in protecting users. You can also make a case that they are fighting a losing battle. They have created a low moat to content developers to get into the store, and also have created an attack vector potential that exposes them to bad actors like the dubious app described above.
I certainly hope, as a result of asking for 30% of app store revenue, that they will provide some recourse for the individual above who lost their life savings to an Apple Approved™ product, right? Does this work like FDIC deposits in a bank? For a trillion dollar company, it should.
I am also skeptical that this is the case.
Setting aside that one specific piece of weak empirical evidence, I want to talk about marketing costs. This is where the pain for most developers truly begins. Because we are blessed with such a golden era of game creation capabilities, we are flooded with an assault of content on a daily basis. Never have we had more choice for what to play on every platform. On mobile you are even luckier than on other platforms because you can download the vast majority of games for free. Free-to-play game developers make their revenues through repeated digital purchases on the back-end. There is such a voracious appetite for buying in-app items and currencies that the one percent of customers who do pay, pay so much that it supports the cost of the development and marketing for just about every game genre out there.
As companies get successful and as brands start to get built or enter into this space, suddenly there is a need to promote and market content to players. Of course, this is what some of that thirty percent is for, isn’t it?
Incorrect. If you asked the average top 500 mobile game developer what their budget was for marketing and user acquisition, it is not going to include any of the money that gets taken by the platform and it will generally be half or more of the developer’s margin because they are racing to outspend their competitors on acquiring eyeballs. Welcome to the red ocean, everyone!
And this is why I think that Tim Sweeney from Epic Games is talking some sense when he says fifteen percent is reasonable. If you are not getting marketing built into that thirty percent, then that is a pain point and a place to improve if you want to help developers have more money to build and promote their games.
I worked at hi5 Networks way back in the day and we tried to encourage people to come to our platform off of Facebook Canvas. We included a promotional package as a part of coming to our platform and aggressively marketed games within a framework based on expected Daily Active Users/Monthly Active Users (DAU/MAU) ratios. If you had a very good game that was retaining users at a high DAU/MAU ratio, we would promote you as a platinum-level partner. If you had acceptable numbers, you were gold or silver. If you didn’t have good DAU/MAU numbers, we would put you into an experimental rotation and sit you down in the corner while you figured out what you did wrong.
Our long term goal was to find a minimum transaction cost for people, say in that fifteen percent range where we say “we will be a transaction partner for you” that would include zero marketing for zero percent revenue. We wanted to build a slider for game partners where you could ratchet that up as high as you wanted in exchange for preferred promotion.
When you launch your game you want to have the marketing percentage low while you figure out your game’s success rate. When you have figured it out, then you probably want to give a larger percentage of revenue to the platform in exchange for marketing or promotion to attract users. Once you have established a healthy audience you could drive that sliding revenue share back to “just the transactions” for new users.
In the current era everyone has to install one or more ad networks or ad network aggregators. All of this has to be done outside of existing platform fees and the developers are forced to pay extra tariffs to extra companies in order to get players into their game.
I often wonder why other platforms are not doing this. I think it makes a great deal of sense for everyone. I think if we had this today in all of the platforms, then we probably would all be better off as a game industry.
So let’s get back to the lawsuit.
I want to ask four more questions.
- What would I do if I was Apple?
- What would I do if I was Google?
- What would I do if I was Epic Games?
- What would I do if I was me?
What would I do if I was Apple?
First of all, my answer would be “What was that question? I can’t hear from atop this trillion dollar pile of money.” Oh wait—that is what they are doing. They have agreed to create a special small business program for companies that are not making any money to have fifteen percent until they are actually making money. This solves the problem for ninety-five percent of the developers out there. It is pretty clear that they understand what small percent of companies are making serious money. It is good to have thirty percent of all of the big revenue games and they do not really care about that extra fifteen percent of zero million dollars. I think that making this concession was a shrewd move and took some of the sting away from the younglings in the game developer ecosystem. The suggestion I would have for Apple is my idea from hi5 that I outline above. If you want to retain a larger percentage of revenue from developers, start giving them larger marketing value. Absorb or obsolete the inefficient third-party markets that developers are using after paying thirty percent. Heck, even make the sliding window of revenues that I suggested above. If it was effective, you would make more than thirty percent from some developers!
What would I do if I was Google?
If I was Google, I would focus on what Google does best. If you don’t know what that is, look it up on Google. Google is not a credible competitor in In-App Purchases for a variety of reasons. First, they did not train their users with years of habit-forming 99 cent purchases for music (hello there iTunes). Second, they are an ads business, and that is their core competency. Finally they have a less affluent audience, pound for pound globally, compared to their higher-priced-prestige-branded competitor.
So embrace that. Rather than do an also-ran strategy of matching fifteen percent for small app developers, go all in. Partner aggressively with your content people and make it fifteen percent for everyone. Accept that you are not winning this battle. And you already let your brand partners like carriers and handset makers offer their own store fronts. You may as well say “Yes we support this lawsuit and we support our content creators and we are going to move to fifteen percent for everyone and embrace our content partners’ success and want them to reinvest their winnings in content our users love!” What do you get out of this? For starters you are suffering some pain at the expense of creating deeper pain for a competitor. That has to count for something. You might also find that people will suddenly care more about merchandising on your platform and want to aggressively work to get you better content as a launch partner. You could also find that the halo effect of providing service to your content partners will be reciprocated by people trying to find ways to incentivize their VIPs to play on your platform. After all, some of the biggest VIP payers in these games would probably recoup the cost of a free high-end Android device over a small window of time.
I think there is a window of opportunity here for Google to outsmart a competitor and win the love of the developer community and put a “best foot forward” for becoming the platform of choice for developers. I think the long term rewards for Google would be worth it.
What would I do if I was Epic Games?
I think they are already doing many of the right things. They have a storefront created. They are giving away games that players love. They have a handful of brands and great experiences they are leveraging to break down the monopoly on content stores. They are providing tools and technology to developers to get behind their push towards greatness. They even had a contest to give away “Free Fortnite” hats as merch! Yes, I own one. Yes, I love it.
So if they already have a pretty good story, what else could they do?
I think they could probably invest some more time finding examples of Apple behaving like a monopoly. I am going to tell a story here to give an example of things to look for.
When I am talking with Apple developers I am constantly inundated with stories about how painful the process is to submit an app. There is an interesting subset of these stories that has an extra wrinkle.
Apple itself has its own content guidelines and they often reject submissions for technical reasons as a way of enforcing rejection for subjective reasons. Years ago, I had a number of friends who were working on applications that were reviewed by Apple and rejected. Sometimes they add a message to the rejection to the effect that “this might not be a suitable application for Apple for its store and you should consider maybe just sharing it with your friends using ad-hoc provisioning.
This is a curious position to take for a store. This is only half of it. Let’s talk about how insidious the process really is.
Apple has a set of submission guidelines, and generally they have a feedback system and a reasonable turnaround time for processing your application.
The majority of times that someone runs afoul of this process they will find themselves getting a single rejection reason, and it will come at a painfully slow rate.
Apple will use their technical submission process as a weapon to apply a death-of-a-thousand-cuts to an unwanted title with the hope that you finally give up and stop submitting your application over and over again.
You can generally expect that they will continue this process up to a year. For the people who had goofy apps, or stuff that was not really exciting to Apple, every one of them who persisted in submitting over and over eventually got through. This is a subset of people who attempted. Apple has done a very good job of using technical reasons to keep stuff out of their store that they do not like.
If you ask me, that sounds like a monopolistic practice. It is also one that can be means tested, or discovered, to add more fuel to the fire.
For example, what if you made a game called “Rotten Apple Smasher” and tried to submit it to the store? Or made a game called “Idle App Store Submission Process Rejector Tycoon” where you were a process reviewer for games?
You could create a technically viable application that takes cheap shots at Apple. I would wager it would not pass the subjective content smell-test and they would do their best to tell you not to submit it back to their approval process.
If your application was developed with ten “violations”, and submitted independently with a similar game with the same issues, would you find that there was subjectively different treatment for two different experiences?
I would bet money that you would.
So what would I do if I were me?
First, I would start experimenting with Progressive Web Apps. Second, I would write some articles leading towards discussing ecosystem issues as it got closer to Apple’s day in court. Third, I don’t really know. I am currently still on the second thing.
Long term, I would love to help turn my part-time efforts to make web content outside of the app store into something bigger. This is the same elimination of the middle man strategy that EA did which helped them attain dizzying heights as a game publishing juggernaut. I believe strongly that we will see interesting innovations and iterations in mobile content in the coming five years to tackle the problem that Epic is tackling.
Thanks again for reading. I hope you enjoyed tagging along as I just crossed “Work at Apple” off of my list of potential things I could do with my life, for all the world to see. Is it a bad idea to alienate a company this way? I don’t know. I do not buy their products as a consumer and I do not believe they have my best interests at heart as a creator. Does being self interested in the advancement of content creators make me a bad person? I sure hope not.
Stay tuned for next week’s article. I doubt it will be as bombastic as this one, but it certainly cannot be worse than last week’s “John Szeder gives himself a report card and thinks he mostly did a good job last year with his writing” article.
