Well that escalated quickly…

Epic’s recent move to force competition in the Apple and Google App Stores has now gone full nuclear warfare. According to this court filing from Epic, Apple now not only threatens Fortnite but potentially any game using Unreal Engine:

“By August 28, Apple will cut off Epic’s access to all development tools necessary to create software for Apple’s platforms — including for the Unreal Engine Epic offers to third-party developers, which Apple has never claimed violated any Apple policy.”

How should we be thinking about the current situation and who should we be rooting for? Read on…

Premeditation

Should we be worried about Epic?

While there has been massive speculation and at least 100 different legal opinions from everybody except for from actual lawyers (and by the way, you really need the opinion of a fair trade or antitrust specialist), one thing we do know is true: Epic had been planning this for a very long time.

The media interviews that Tim has been doing including with yours truly from weeks before, prominently featured the old Apple 2 in his background. Tim uses the computer to symbolize the Apple of old that fought against IBM’s monopoly over computer technology at that time. The old Apple and the launch of the Macintosh are referenced in the first paragraph of Epic’s Apple lawsuit.

Along with the parody video and timing of legal actions, clearly we know that these actions were premeditated by Epic. In fact, it’s likely they may have been planning these actions for 6 months to a year in advance.

So, while I’m not saying don’t worry about Epic, you have to think that every scenario has been contemplated by the Epic legal and business strategy team. Even further, that the recent funding of $1.78B was in anticipation of this action. They were likely gearing up, just in case, for a potentially protracted battle ahead.

Misconceptions

One of the biggest takeaways from my interview with Tim Sweeney has been the nuance in his thinking that often gets misunderstood.

A couple of current misconceptions continuing to be propagated by the media include:

1. Epic’s Objective is to Reduce the 30% App Store Fees

Guys, it’s not about the fees. There is no mention of the fees in Epic’s legal action and I could sense his frustration with this very common misunderstanding when we spoke:

“First and foremost, these platforms should be truly open to competition. You can come in and say the revenue sharing should be X or Y.

But really, the core problem here is that the revenue sharing is not determined by free market competition. If the revenue sharing is determined by free market competition, then maybe Apple and Google can charge a premium if their services warrant it.”

2. Tim Sweeney is an Altruist

People think Tim Sweeney is some kind of hippie altruist. In fact, I believe that Tim Sweeney is closer to a gangster than an altruist. But gangster in the sense of someone who is very business minded and wants to destroy his competition.

In my observation, Tim cares foremost about the “ecosystem”: he cares about having open systems of competition and interoperability. From there, he wants to compete as fiercely as he can at every major component within the value chain of gaming.

So, the way to view Tim is as follows:

• Ecosystem > Business Gangster > Altruist

Not that Tim’s not a good guy, I think he’s actually a good dude, but the view of hippie altruist I believe is not accurate.

Epic’s Playing… A Greedy Algorithm?

Epic’s playing chess, while Apple is playing… Arcade?

What’s the actual game Epic is playing here?

While it’s difficult to discern Epic’s full thinking, it’s absolutely clear that Epic is actually not playing a simple minded game of chicken. They are too smart for that and there’s too much at stake.

Hence, while many industry folks believe Epic has no chance against Apple, you’ve got to think Epic’s played this out.

While I’m not saying Epic will win, at the very least you have to think that far from being a “dumb move” with “no chance”, even a small chance of success could be a positive or “optimal” move.

Just as a thought experiment, let’s take a very simple minded scenario to illustrate how regardless of the actual specific chance of success of the legal case, Epic’s current move is likely the optimal decision path of a greedy algorithm.

If we consider six relatively straight forward scenarios above and the potential (ok, maybe more like wild guess — but remember this is illustrative only) probability of each scenario against the potential impact to Epic’s enterprise value, it’s easy to see how this move should be strongly expected value positive and optimal for Epic.

Below I include my rationale for each of the scenarios, but feel free to construct your own scenarios and probabilities. I believe you’d be hard pressed to find a negative expected value for this decision using reasonable assumptions.

It’s hard not to believe that this is an aggressive, bold AND highly optimal move by Epic although negative scenarios do exist.

Who Should We Root For?

While many people in the industry seem to be rooting for Epic, should we be?

Perhaps the question we should all be asking is the following: Which path is better for the consumer in the end?

What I believe many experts in the industry are missing is the fundamental trade-off that we should be focusing on. That, in fact, the biggest issue at play here is really the impact to the customer. The trade-off really is one focused on competition/innovation vs. user experience & data.

Competition has always been a forcing function for innovation. You could make the argument that the current Apple App Store has actually become worse over time. Where are the Netflix and TikTok like recommendations? Why does Apple continue to create little read editorial content?

Competition should not only drive innovation but force margin back to developers who could use those funds to invest back into their game products and build better games.

Hence, an Epic win would mean much more efficient use of capital and a better store experience for users over time with new innovations.

On the flip side, a world with a bunch of different App Stores or a world with 30 different payment processor companies isn’t great either. Users may have to enter their credit card data multiple times for different games. User data also has higher risk of being compromised by potentially dubious payment companies. Developers would need to create different builds for different stores and to optimize for more stores.

Hence, does the user care about trusting its payment processor or having a streamlined payment and App Store flow? Well, according to this survey by TapResearch, they sort of do care:

So who you root for, may come down to the trade-off you believe is more important: do you care about innovation and margin for developers or do you care about user experience and data integrity?

Go Get Your Popcorn Ready!

Whoever you’re rooting for and however this plays out, seems like we’ve got a lot of fireworks ahead.

What do you think? Let me know!

2020 has been a crazy year, so go get your popcorn ready!