This Apple-Epic battle is interesting.

Apple charges 30% of in-game purchases for games played on its phones, and charges 15% for subscriptions (think newspapers or Spotify). /1

The "30%" came from the fees charged by cable companies for pay-per-view movies in the 90s. Apple worked with record labels to take 30% for song sales, pointing to the cable example, and the record labels (under pressure of piracy) went along /2

Of course, based on Apple's lead with music, the game console makers started charging 30% when full game downloads were made possible. Game downloads were never a big business until the current generation, because hard drives were so small /3

And also of course, as movie rental shifted from PPV to VOD, the cable companies and OTT streaming services also charged 30%. Apple didn't "invent" the 30% toll charge, but it grew to be the biggest collector of fees because of the explosive growth of mobile games /4

Google followed suit, and by the late 2000s, everyone was charging 30%. It "was" the industry standard.

Apple had some pushback from subscription services like newspapers and spotify, and agreed to lower the ongoing toll charge to 15% /5

Some enterprising services worked to shift the act of signing up away from Apple, and so you will see that Disney+ and Netflix encourage new users to go to their website to start subscribing. Probably due to their size, Apple relented /6

There are some apps that have "in-app" purchases (like GrubHub, McDonalds, Starbucks) that apparently don't pay any toll charge. Am not sure why Apple relented here, but probably because of the margins involved /7

Epic has a different view altogether. Company founder Tim Sweeney appears to believe that 30% is an egregious charge, and decided to compete with Valve's Steam PC download service (which not coincidentally charges 30%) and launched the Epic store with a toll charge of 12% /8

Epic has done a phenomenal job with its store, selling an increasing share of PC games and collecting its 12% while Steam continues to charge its 30%. The world continues to turn. /9

Today, Epic decided to demonstrate its market clout by allowing players of Fortnite (Epic is the owner/publisher) to buy in-game currency at a discount if the purchase is made in the Epic store, or at full price if made in the App store /10

This is a big deal. Epic is challenging Apple's (and Google's) pricing within their stores and offering an alternative for users to get the same thing at a lower price.

That's the definition of competition. /11

It's also a big deal because Epic is passing through "all" of the lower toll charge to consumers.

Epic can afford to do this, because Fortnite is one of the most popular (and profitable) free-to-play games in history /12

Interestingly (at least to me), Epic is doing what Netflix, Spotify and Disney+ have done by offering its Fortnite customers the opportunity to pay outside of the App store. As far as I know, Apple hasn't done anything about those other services (all are subscription) /13

Apple's response to Epic's move? Boot Fortnite off its App store.

IM(not so humble)O, this will go down as one of the dumbest tech moves ever, right up there with banning TikTok /14

Epic's response? A lawsuit.

My view: Good for them.

Apple is under scrutiny by Congress and by regulators for anticompetitive behavior.

Epic's lawsuit is based on antitrust law, which has as its foundation rooting out anticompetitive behavior /15

There are, of course, two sides to this dispute.

Apple spends money to operate the App store and helps game publishers to get their games downloaded via promotion, listing, search results, etc. The company also manages collection. There is value to that /16

Epic doesn't dispute the value, but thinks it's closer to 12% than to 30%

That's what competition is all about. New entrants exploit the existence of high economic rent charged for a service by lowering price. If the market will support them at that lower price, they thrive /17

If the market doesn't support them, they go out of business.

Anyone remember MoviePass? They sold dollars for nickels and went out of business. If Epic is wrong about 12% being the right amount, it will backfire.

I'm betting they do just fine at 12% /18

In the meantime, Congress can watch this unfold, and its next round of hearings will likely address the dispute.

I will probably watch that one in real time.

A "normal" Republican administration would be "friendly" to business and would not interfere /19

A "normal" Democratic administration would be pro-consumer and more anti-business, and would likely favor Epic as the "little guy" battling big bad Apple.

This will be an interesting one, and the outcome of the election may determine who wins. /20

I don't think this will be resolved in court very quickly, but the user outcry might force Apple to the table. My understanding is that only around 20% of Fortnite revenues come from mobile, and perhaps 12% from iPhones. That's enough whiny customers to make Apple blink /21

but probably not enough lost revenue to make Epic blink.

Epic believes it is right here.

Apple believes its market position (2000 pound gorilla) lets it do whatever it wants, and thinks precedent protects it /22

Ultimately, the outcome will hinge on the courts, but if other publishers try something similar, it may force Apple's hand.

I could envision a settlement where the App store drops the toll charge to 20% or so, and Epic agrees that is a fair price /23 end