By Sarah E. Needleman
Tim Sweeney, chief executive of the company behind the popular
videogame "Fortnite," is now spearheading a battle that app
developers have waged for years against two of the world's biggest
technology companies.
And he is uniquely positioned to lead that fight against Apple
Inc. and Alphabet Inc.'s Google. Mr. Sweeney and his company Epic
Games Inc. have deep pockets. He is worth more than $8.5 billion,
according to Bloomberg's Billionaires Index, and his company is
valued at $17.3 billion, landing investments from companies
including Walt Disney Co., Tencent Holdings Ltd. and Sony Corp.
Unlike others who have challenged Apple and Google, Epic is
closely held, meaning it faces less pressure from shareholders. And
"Fortnite" boasts a massive and loyal user base -- with more than
350 million registered users world-wide -- that has been nudged to
show their dismay about the situation on social media.
"Tim is altruistic and wants this to be a fight for the little
guy," said Mike Salmon, an executive at Magid Consulting, a
videogame advisory firm in Los Angeles. He thinks Mr. Sweeney and
Epic are going down this path now because of the stiff antitrust
scrutiny Apple and Google are facing and because Epic is looking to
build out its own digital game store beyond the strictly computer
games it sells now. "Epic is making a retail play," he said.
Apple and Google pulled "Fortnite" from their app stores
Thursday after Mr. Sweeney's Epic rolled out a new way of making
in-game purchases that circumvents the 30% cut the tech giants take
from digital transactions within apps -- a percentage established
in Apple's case more than a decade ago and some developers have
called to reduce for years.
Epic was spoiling for the fight, as it filed separate federal
lawsuits, more than 60 pages each, against Apple and Google within
hours of the app's removal. The game developer hired Cravath Swaine
& Moore LLP, the same law firm chip maker Qualcomm Inc.
employed to defend itself against antitrust allegations brought by
the Federal Trade Commission, to bring the lawsuits.
Apple and Google separately declined to comment on the
litigation, but both have successfully defended their business
models from a host of challengers over the years. They are cash
rich and operate app marketplaces that appear on nearly every
smartphone in the U.S., giving them power over which mobile
software people can and can't obtain and unique access to myriad
consumer data.
"The App Store guidelines ensure a high-quality, reliable and
secure user experience," Apple CEO Tim Cook said last month at a
congressional hearing. "The only apps that are subject to a
commission are those where the developer acquires a customer on an
Apple device and where the features or services would be
experienced and consumed on an Apple device."
A number of other app developers, including video-streaming
company Netflix Inc., dating app provider Match Group Inc. and
music-streaming service Spotify Technology SA, have challenged or
publicly complained about the 30% commission.
Social-media giant Facebook Inc. on Friday joined those
protesting the fee, when during a launch of a new virtual-events
business the company said it asked for but didn't get an exemption
from Apple. Facebook said the 30% cut makes it harder on small
businesses that are having to shift certain operations online. "For
small businesses struggling through a pandemic, every dollar
matters," said Fidji Simo, head of the Facebook app.
"We have worked closely and collaboratively with many developers
over the years adding helpful ways for them to get support and
assistance, and even appeal our reviews and guidelines," Apple said
in a statement.
Mr. Sweeney, who learned to program on an Apple II Plus home
computer, also is something of an iconoclast, running his company
thousands of miles from Silicon Valley -- in Cary, N.C. -- and
having antipathy toward tech giants dictating the fate of the
industry's smaller players. Running Epic, which he founded in 1991
from his parents' basement with $4,000 in personal savings, is the
only real job the 49-year-old says he has ever had.
And this isn't the first time Mr. Sweeney has stared down tech
giants. He successfully pushed for longtime rivals Sony Corp.,
Microsoft Corp. and Nintendo Co. in 2018 to make the unprecedented
move of enabling players on their respective consoles to play with
one another, calling the monthslong negotiations "an effort in
international diplomacy."
The app market is massive, with global consumer spend on apps
totaling $120 billion last year, according to App Annie Inc.
Epic's lawsuits could have serious consequences for Apple and
Google, said Damien Geradin, a competition lawyer in Brussels
focused on technology markets and an adviser to app developers. For
one, Apple could be forced to change a lucrative business model
important to its overall success, he said. And both Apple and
Google might need to disclose confidential emails and other
information as part of the discovery process, he added.
With iPhone sales slowing, Apple has increasingly focused on the
App Store as a revenue driver. Last month, Apple said its services
business helped the company set a new June quarter sales record,
demonstrating the value of that move.
Services revenue -- which includes the App Store, plus Apple
Music and AppleCare, among other businesses -- jumped 15% to $13.16
billion last quarter.
Apple lost a battle over its App Store policies last year when
the Supreme Court ruled that consumers can sue the company for
forcing them to buy apps exclusively from Apple. The decision was
handed down in response to an antitrust suit alleging consumers pay
inflated prices because Apple requires that all software on the
iPhone and iPad be sold and purchased through its App Store.
For Epic, the decision by Apple and Google to boot "Fortnite"
isn't a major short-term setback. The game is available on consoles
and computers, where the most dedicated of players tend to invest
the bulk of their time and money. "Fortnite" generated about $46.5
million of in-app spending through the App Store and Google Play
combined over the past 30 days, estimates research firm Sensor
Tower Inc.
Epic opened its own digital computer-game store in late 2018,
and it collects 12% of sales from external developers. Mr. Sweeney
has said the revenue-sharing arrangement leaves his company with a
decent profit margin.
Game development also isn't Epic's only source of revenue. The
company developed the Unreal Engine, a software program for
developing games, and it owns the popular video-chat app
Houseparty, among other assets.
Other developers rely largely on the major app stores to
generate revenue, making it more of a risk for them to speak out
publicly against Apple's and Google's fees, said Mr. Geradin.
Some small app makers have pushed back against demands from app
marketplaces. Chicago-based Basecamp LLC butted heads with the tech
giant in June after it submitted an update for its email app called
Hey. Apple rejected the app update because it didn't enable
payments for its subscription service through Apple's system, said
Basecamp CEO Jason Fried.
To resolve the matter, Basecamp agreed to build a free version
of Hey that doesn't mention that it offers a subscription service.
"We don't pay Apple 30% and never will," Mr. Fried said. "The whole
thing is ridiculous. It's very anticompetitive."
Apple didn't respond to a request for comment on the Basecamp
matter.
It is possible Apple or Google might agree to adjust their 30%
take on in-app purchases or allow some flexibility on how payments
are processed, said Cowen & Co. analyst Paul Gallant. But Epic,
in its lawsuits, asked the court to bar the companies from engaging
in what it described as anticompetitive conduct.
"At the most basic level, we're fighting for the freedom of
people who bought smartphones to install apps from sources of their
choosing, the freedom for creators of apps to distribute them as
they choose, and the freedom of both groups to do business
directly," Mr. Sweeney said in a tweet Friday.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
(END) Dow Jones Newswires
August 14, 2020 20:50 ET (00:50 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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