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And NPR. There you are listening to your Spotify playlist, Soothing Loon Calls Across a lake, the stress of 2020 is just fading away.
And then when Verizon knows how to build Internet and TV right to start with FiOS, the one ripped from your Canadian like smashed into a telecommunications ad.
This, of course, is only a problem because I am cheap and using the free version of Spotify. So let's say that I decide to try the paid version. I am using the Spotify app for iPhone and when I click on the little like premium button, I get the following message. Quote, You can't upgrade to premium in the app. We know it's not ideal, unquote, meaning that Spotify is not going to take my money through this iPhone app.
I am not used to companies telling me to put my credit card away. And yet many companies on their iPhone apps will tell you we're not going to take your money here.
Netflix, for example, says, quote, You can't sign up for Netflix in the app. We know it's a hassle. Kindle reader app, quote, This app does not support purchasing. It's not like Amazon and Netflix and Spotify.
Don't know how to build an iPhone app to take your money.
What you are seeing is a multibillion dollar struggle spilling out onto your home screen between Apple and kind of everybody, Netflix, Amazon, Spotify, those companies and basically every other company that wants to sell digital stuff on the iPhone has to agree to give Apple a cut and not a small cut, 30 percent. So that would be four dollars of the thirteen dollars you pay to Netflix each month.
And the biggest companies in the world have decided we may not like what Apple is up to here, but it is not worth starting a war, getting into an expensive legal battle and losing access to every iPhone in the world until that is last month, thousands of miles away from Apple headquarters.
At 2:00 in the morning, an eccentric video game designer declared war on the Apple App Store.
Hello and welcome to Planet Money. I'm Kenny Malone. Today on the show, we meet the man trying to bring down the Apple App Store. It is a story about giant tech companies, the power that they have and the price that we all pay. Also, rainbow unicorns, rainbow, unicorn, pick axes, to be specific. This message comes from NPR sponsor Teladoc Teladoc is here for you with 24/7 access to board certified doctors who can diagnose and treat non-emergency conditions like sinus infections, allergies, rashes and more.
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All right, for this first section, I'm going to bring in Bobby Alan, whose official title is Yeah, I'm a tech reporter at NPR.
I cover Silicon Valley up here.
Mean Bobby has been covering this eccentric video game designer who has now declared war on the Apple App Store. This is a person named Tim Sweeney. Yeah.
And this guy, Tim Sweeney, I can't overstate how much he relishes going against the grain. So, for example, back in 1991 when he launched his first game. So back then, all the other designers were picking names that started with the letter A. So they'd appear at the top of alphabetical game lists. It makes sense, right?
Tim Sweeney had another idea. He named his game. And that's because he wanted it to stand out by being way at the bottom.
Seems like a questionable business decision, but apparently was not. This was in the 90s. And you would send a check to Sweeney's parents house and then Tim Sweeney would like mail you the game. And this was good enough business that he moved out of the house, made more games, started a video game company called Epic.
Epic. Yes. Known for fortnight. If somehow you have never heard of a fortnight, perhaps the most popular game in the world right now.
Here is a clip of a player in the game that's not getting ambushed by a horde of players who, no less, are dressed up like bananas, bananas attacking me.
Oh, yeah. I mean, in a fortnight you've got a bunch of cartoonish characters, often in silly costumes or skins battling each other to the death. But like also doing funny dance moves. It is this game, but it is also this like joyous way for people to hang out with their friends.
Yeah, and I recently talked to Tim Sweeney and he told me he personally likes playing fortnight and he's played some 6500 matches. That's a lot. And when he's playing, he doesn't announce who is.
Well, I'm not very good at fortnight. I have a name that nobody knows. I just go play randomly with groups of people and they have no idea who I am and we just have a fun time together. I primarily play as the jelly skin, which is the jellyfish.
So if a jellyfish shows up in your fortnight match, it might just be the billionaire CEO of Epic Games and ask for money.
Ask the jellyfish for ten bucks, please. Jellyfish and banana skins or costumes. This is the way that fortnight makes money. Fortnight is free to play. And then Tim Sweeneys Company makes billions of dollars selling digital costumes and dance moves and grenade launchers to people who play the game and are willing to spend real money on that stuff.
But here's where the problem starts. Tim Sweeney. An epic games are not the only ones making money every time you splurge on a new ostrich outfit or a rainbow unicorn pickaxe.
Real item. Very popular item. Real item. It is. It definitely is, because in order to get their game out to customers, they need to rely on Microsoft to get it on the Xbox, on Sony for the PlayStation and Apple for the iPhone. And some of these companies demand a cut of everything sold within the game. Thirty percent of all in-game purchases and arguably this whole thing started this. Thirty percent started with Apple.
And let's just pause for a minute and talk about that thirty percent number, because when the iPhone came out in 2007, when people bought like video games, most of those people were buying physical copies of those games and a huge number of those were being purchased in physical stores. So a game developer like Tim Sweeney was going to have to pay for packaging and shipping and then would have to give a huge cut of sales to retail stores. Game developers would end up keeping less than half of every dollar that a customer paid for their game sometimes.
But then in 2008, Steve Jobs walked out onto a stage welcome and he announced the App Store and he said, good news, app developers, game developers.
If you want to be on this new iPhone, we are going to give you a bigger cut of the sale.
The developer gets 70 percent of the revenues right off the top. This is the best deal going to distribute applications to mobile platforms.
So this is an example of new technology lowering costs and its new app store. Apple is paying people to make sure all the apps in the store are up to its standards to make sure it works on your phone.
But think of all the savings. Unlike those stores in the mall, like Apple doesn't have to pay rent. It doesn't have to pay an employee to take every single customer's money and stock the shelves and make change. Apple had figured out this new better way of selling video games and other apps in a digital store, and that store was wildly successful.
So, OK, what happens next? Tim Sweeney says in a normal market, you would expect this success to inspire lots of other people to start their own app stores and a healthy competitor.
The environment is have a lot of stores competing, those fields would be beat down and we wouldn't care what anyone stores individual fears because they're all competing and we can choose freely.
Among them, a new store could say, hey, we're only going to charge a 20 percent commission at our store. You get to keep 80 percent.
But that is not what ends up happening because Apple decides that no one else gets to have an app store on the iPhone. Apple was going to run the store for quality control and they were not budging from that 30 percent commission.
And it's not just when you buy an app in the store. Apple also takes 30 percent of any transaction of a digital goods you buy when you're using an app.
That's why they get 30 percent of every jelly fish outfit and every grenade launcher people buy in a fortnight.
The 30 percent fee is just. No, they're able to get away with because they deny all competition from even existing on their platform, and the way it works is that when you buy something in a fortnight, it is Apple running your credit card. They keep 30 percent. The rest of the money goes to Tim Sweeneys Company.
But Tim Sweeney had been emailing with Apple over the last year saying this is messed up. We are also able to run customer credit cards and charge them way less. But you won't let us. And Apple is like, that's correct. You are not allowed. Those are the rules. And so Tim Sweeney is like, well, what about lowering the 30 percent fee? Nope. Those are the rules you agreed to.
Yeah. And people have been grumbling for a long time about these same issues. But, you know, if you're a small company that makes apps, what are you supposed to do by the trillion dollar hand that is feeding you?
But Tim Sweeney epic games wasn't dependent on Apple the same way other companies were, because most people do not play fortnight on their phones. They play on their computers or on PlayStation or Xbox.
You know, epic as epic is fighting this battle because we're we're, in some regards, uniquely positioned to do it. If if it were truly a David versus versus Goliath tale with a 10 person developer shop taking on Apple, it just be crushed. And I'm sorry, it's not a possible outcome.
In other words, epic games was big enough to fight. And so at two a.m. on a Thursday last month, Tim Sweeney stopped trying to negotiate with Apple. He wrote an email essentially saying, we don't care about the rules anymore and we're going to break them. If you punish me, expect war.
And along with that email, Tim Sweeney launched an update to the fortnight game. If you were playing the game on your iPhone and you tried to buy something that would normally cost, let's say, nine dollars and 99 cents, you now got a message saying you've got a choice.
If you pay the normal apple way, it's going to cost you 999. Or you can go around Apple and pay us directly. That's only going to cost you seven ninety nine.
And this seems pretty pedestrian, but this was a brazen move. Tim Sweeney was doing the thing you're not supposed to do the very thing Netflix and Amazon and Spotify all grudgingly agreed not to do. He was letting people buy directly from him from inside an iPhone app. And when people bought directly from him, that meant No. 30 percent cut for Apple.
Apple declined to be interviewed for this story, but we know generally what happens next. They were like, no, you agreed to the terms of our contract.
This is a breach and then took fortnight out of the App Store. You could no longer download fortnight to play on your iPhone. And and if you did happen to have it already, you were locked out of the new version of fortnight that was about to come out.
So Tim Sweeney does two things. One, he tries to rally the three hundred fifty million people who play for tonight around the world to attack Apple. He gets the hashtag free for night trending and releases this video.
And it is amazing that Tim Sweeney had this made and ready to go and drop it is a parody of that like iconic 1984 Apple commercial where this like punk rock looking person representing Apple throws a sledgehammer through a TV screen with Big Brother on it.
Well, in the fortnight version, Apple is Big Brother on the TV screen and a fortnight character is chucking that Rainbow Unicorn pickaxe straight through the script.
The second thing Tim Sweeney did was he sued Apple in federal court, arguably a bigger deal than the Unicorn Pickaxe video, by the way, he also sued Google after getting kicked out of their store.
After the break, what Tim Sweeney's lawsuit against Apple tells us about the power of giant tech companies and what the courts may or may not be willing to do to reign in that power.
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Listen now to the No Compromise podcast from NPR. Tim Sweeney's lawsuit, Epic Games lawsuit against Apple is an antitrust lawsuit, antitrust is the part of the law that deals with competition and monopoly power. And antitrust law is a big deal right now because lots of people are worried about the growing size and power of big tech companies. And what happens in Tim Sweeney's lawsuit is going to tell us what the courts are willing or unwilling to do to some degree about the kind of power that Apple has over its app store and that lots of other tech companies have in their own way.
To learn more about how this will all work. I called up Eleanor Fox, who has been carefully watching this fortnight Apple lawsuit.
But I'm not a faithful watcher a fortnight. Fair enough. Don't ask, don't ask about the program. You're not a player and you don't have any favorite, no favorite fortnight dances or anything.
But I like dances, but I don't see the epic stuff. But it caught my eye because it's so related to the heart of what's happening in big tech.
Eleanor is a law professor at NYU and an antitrust expert. We we talked to her a bunch last year when we did a series on antitrust enforcement. And we were curious, just what was she watching for in this particular case? And she told me about two key things that EPIC is going to have to prove in court in order to win this case.
Let me say first, we're talking about a very particular statute, the law against monopolisation. OK, so you have one firm and it's in a monopoly position or close to it. OK, so the first thing the plaintiffs have to prove is what is the market and what percentage of the market does Apple have?
So the first thing EPIK has to prove here is that Apple has a monopoly in this market. But there's a debate over what the market actually is here. Epic Games is arguing that the market in question in their suit is the market for apps on the iPhone. Just that and the only place you can buy apps for the iPhone is on Apple's App Store.
It's the only store Apple allows and that Apple is 100 percent of the market. The only way in is through this bottleneck, the exploitative bottleneck that is controlling us 100 percent of the market.
Obviously a monopoly. But Apple says, no, no, no. The relevant market here is not just apps for the iPhone. It's the market for apps on all mobile devices.
If you don't want to use the Apple App Store, don't buy an iPhone by a phone that runs Android.
And it's hard to get specific numbers, but you'll see estimates that Apple only has anywhere from like 15 to 30 percent of the entire mobile phone market.
So the first question the court has to decide, what is the market? Is it just iPhone apps, 100 percent Monopoly or all mobile apps like.
Twenty five percent, not a monopoly. This question, what is the definition of the market?
We're talking about it.
It is actually a common question that comes up in antitrust cases.
And then if the court decides Apple has monopoly power, then there is a second question. Has Apple done something bad with that power, something that hurts competition and hurts consumers?
And this question may have broader implications about tech companies and the power that they have, because Apple's App Store is what's known as a two sided market. And a lot of the big tech companies are in two sided markets. And here's what that means. In a one sided market, you essentially have just one group of customers. You are, let's say, a hot dog stand. You buy those hot dogs from the hot dog company and then you sell them to people who want hot dogs, your one customer.
And then the App Store doesn't work that way. Apple isn't buying apps and turning around and selling them. It's it's creating a virtual place where people who make apps and people who want apps can find each other. And then the app makers and the app buyers, the iPhone users, those are the two sides of the market.
And there was a big relatively recent Supreme Court case dealing with the weirdness of two sided markets. It was a case against American Express. American Express is in the middle of a two sided market, bringing together customers who want to buy stuff and merchants who want to sell stuff. And American Express charges merchants higher fees than other credit cards.
And it doesn't let its merchants tell customers, hey, you know, I could give you a cheaper price if you don't use American Express. The case against American Express argued that those rules are a violation of antitrust law. And here was American Express, his defense. Those high fees we collect from merchants on one side of our market, those pay for all of the things we do for the people on the other side of the market. It the people who use our cards, they get perks, they get free flights, they get better stuff.
American Express says this is a two sided market and you can't look at one side and say there's harm to consumer welfare. You have to look at both sides and net it out. And if in the end of tallying up both sides of the market, consumers win, I have to be allowed to do this.
The court agreed with this argument they found in favor of American Express.
And in the Apple case filings, you can see that both sides know that they need to make these kinds of arguments. So Tim Sweeney, EPIC is saying developers are one side of the market and they are being hurt by having to pay this huge amount of money.
And the iPhone users, the other side of this two sided market, they're also being hurt because costs are being passed on to them. Then on the Apple side, the argument is that on the whole, the consumer is benefiting from this.
They get a safe, trustworthy app store and developers are also benefiting from that trust. They want access to the iPhone users because they love their iPhones, because Apple has created this safe place. How this case turns out could affect lots of big tech companies because lots of big tech companies are in the middle of these two sided markets. Amazon brings together people who want to sell stuff and people who want to buy stuff. Uber brings together drivers and people who want a ride, Airbnb, eBay, all two sided markets.
And the question in all these two sided markets, when you have this powerful company sitting in the middle of everything, is is the market working as it should? Is it still competitive? Is it good for consumers or has the market broken down? Do the courts need to step in to fix it?
Is there a giant high stakes pending lawsuit that you would like us to look into? We are always interested in those. You can e-mail us. We are Planet Money at NPR, but you can also find us on Facebook, Twitter, Instagram. Tick tock. We are generally at Planet Money. Today's episode was produced by Lisa Yagur and Alexi Horowitz. Gazy Alex Goldmark is our supervising producer, Bryant Erst that edits the show. I'm Kenny Malone. This is NPR.
Thanks for listening.