Last August, the video-game developer Epic Games released a new version of the iPhone app for its popular online game Fortnite, with an arcane but significant update. The game’s menu now offered two options for purchasing its in-game currency, V-Bucks: buying through the Apple App Store at the regular price of $9.99, or via a new “Epic direct payment” at a discount, for $7.99. In introducing this change, Epic was deliberately running afoul of Apple’s App Store regulations. The company mandates that all so-called in-app purchases be made through Apple, which usually takes a thirty-per-cent flat fee.
But Epic’s provocation worked. Apple, registering the infringement, promptly removed the Fortnite app from its marketplace, giving the game developer an opening to sue for antitrust and anticompetitive behavior. (Epic did the same with Google, which removed Fortnite from its Google Play marketplace for the same reason.) Last week, this act of strategic legal trolling paid off when the lawsuit concluded and Judge Yvonne Gonzalez Rogers made a surprising and rare decision against Apple. The company would no longer be able to ban developers from using their own payment systems through iPhone apps; other “purchasing mechanisms” would be allowed, she wrote. In other words, when the ruling takes effect, in three months, Apple will no longer be fully in control of how users pay for things through iPhone apps.
This might sound like a matter of administrative quibbling, but it has major implications for users and developers alike. Since Apple introduced its App Store, in 2008, any money spent on or through apps, whether, say, a subscription to Tinder or extra lives in Candy Crush, were subject to the thirty-per-cent fee. To avoid giving Apple this cut, some companies made subscriptions unavailable through their apps altogether—you can access the Netflix app, for instance, only after signing up through a separate Web browser. Once the court order goes into effect, and developers can employ their own payment systems from inside apps, Apple’s tightly sealed ecosystem will look a little less impervious. The digital economy will see some more energetic competition, the lack of which is becoming a global concern—the Epic suit in the United States case took place amid similar App Store fights Apple is facing in Japan, India, and the European Union. (At the beginning of the year, Apple lowered the App Store fee to fifteen per cent for developers earning less than a million dollars per year, but those accounts make up the minority of over-all App Store revenue.)
This regulation is particularly important because many technology companies are acting more like App Store-style marketplaces as they race to create “the metaverse,” a kind of interactive cross-platform virtual realm. Any version of the metaverse is also by definition an economy, in which users can buy various digital products and access them on whichever digital platforms they choose. It may be that Apple’s App Store is the closest thing to a metaverse that we have thus far—you can already use it to buy all sorts of digital experiences, which follow you from phone to phone. But a centralized payment system like Apple’s, which benefits the platform more than the creator or the user, disincentivizes the kind of openness and portability upon which the metaverse concept is built. Prior to the Epic lawsuit, Tim Sweeney, the company’s founder, had already been agitating against the App Store’s restrictions. By impeding third-party transactions, he tweeted last August, “Apple has outlawed the metaverse.”
The App Store fee acts something like a digital import tax. The companies agitating against it may simply want to create tariffs of their own. Epic itself already runs a marketplace called the Epic Games Store, for instance, and charges a flat rate of twelve per cent for developers selling there. The video-game platform Roblox takes as much as seventy-five per cent of revenue and pays its developers (many of whom are children) using its in-game currency, Robux. Some of the biggest cryptocurrency-driven companies, like the non-fungible-token Web site OpenSea, are marketplaces as well. In the anticipated metaverse era, each of these companies would look a bit like a virtual version of Amazon, providing not just its own products but entire ecosystems in which other businesses could sell theirs as well. The ruling in Epic Games v. Apple provides the beginnings of a legal framework for that future.
The judge’s decision moves in the direction of openness—but not too far. Epic would have preferred to pay Apple no fee whatsoever, but Gonzalez Rogers held that Apple was justified in charging for the use of its App Store. Otherwise, it would suffer from “the uncompensated use of its intellectual property,” she wrote: Apple invested in the store infrastructure, so it should get paid for it. On the other hand, Apple’s “anti-steering” policy, which prohibited developers from informing their users of Apple’s fee, let alone avoiding it, was found to be illegal. Running a marketplace is fine, as is kicking out those who don’t comply with the rules, but clients of the marketplace can’t be trapped into only using Apple’s tools instead of their own.
Yet Epic lost as much in the ruling as it won. (The video-game company is now appealing the case.) Gonzalez Rogers determined that Apple’s App Store did not, as Epic had charged, constitute a monopoly—at least not at the moment. According to the decision, Apple controls fifty-five per cent of transactions in mobile gaming, and is “near the precipice of substantial market power.” What prevents it from monopolizing the industry is the significant competition posed by the likes of Nintendo and the cloud-gaming service Steam. While Apple and Google certainly have a duopoly on phone hardware in the United States, they are contending with a growing number of alternative digital marketplaces. Gonzalez Rogers estimated that the mobile-gaming market is worth a hundred billion dollars annually; Apple will now have a little bit less of a chokehold on it.
From a user-experience perspective, the ruling could have immediate benefits. Netflix, for instance, will be able to introduce a direct Subscribe button within its app, and offer a discount to encourage its use, as Epic did with V-Bucks. The changes may not be entirely convenient. App interfaces could become messier or less secure as developers introduce their own payment methods, sending users to Web-site pop-ups instead of frictionlessly applying the payment information saved within the App Store. Nevertheless, digital business models will be more sustainable as a result. If Gonzalez Rogers’s decision is any indication, the metaverse will not be monopolized.
