Why Apple Can Afford to Play Nice, and Should

I originally posted this as a thread on twitter, but thought it would serve nicely as my first blog post.

‍

A coworker asked me today what I thought the impact on gaming would be if antitrust hits Apple/Google and weakens their lock-in on their 30% fees. Here's why I think this would be a good thing for developers and gamers, and done right, wouldn't meaningfully hurt Apple:

I agree with @benthompson that Apple has an antitrust problem. Demanding 30% of revenue for use of their platform and payments platforms might not be illegally anticompetitive, per se, but doing so and using App Review to keep developers from implementing any browser-based alternatives certainly is. It seems likely to me that this type of contractual restriction is the most likely to fall as antitrust scrutiny increases.   

If I was Apple, I would remove the third restriction immediately while continuing to demand that developers offer Apple Pay as a default option. I don’t think it would actually cost them much and would do a great deal to reduce the antitrust pressure. Three reasons I think this is the right decision for Apple:

1) Anyone who has ever worked in mobile games will tell you that convenience is king

Mobile developers do everything they can to reduce purchase friction and Apple will always have a massive convenience advantage over any other payments solution. While other developers need to collect credit card data the first time a player makes a purchase, Apple already has that information on file, not just from the games you already play, but from any purchase you’ve ever made in the App Store. Between that and OS-level integration, one-tap Face-ID Apple Pay checkout will be the easiest solution for players everywhere.

‍

‍

2) Payment processing, especially outside of the West, is a hard problem that most game developers do not want to solve

Global payments collection is a hard problem that very few developers want to solve on their own. Between fragmented payment ecosystems, fraud detection, managing chargebacks and refunds, tax reporting and more, this is not a trivial problem. While the direct margin cost for these things might only be <8% (and much higher outside of the US), having to develop and maintain a system to manage all of these things drives the price much higher, leading most developers to rely on an Xsolla, Stripe, etc that will take additional margin. Combine that with the fact that all existing iOS games will already have Apple Payments integrated, and it’s not clear to me how many would even want to switch to another solution.
‍

Yes, there is rampant selling of digital currency outside of the app store using web platforms, especially in SEA, but that is occurring anyway and is largely driven by Apple/Google’s lack of coverage in fragmented markets with a largely unbanked audience. This convenience gap also has to be incentivized with regular discounting that further narrows the margin gap between Apple and alternative platforms. As the 1st party platforms mature to cover more of these customers, the advantages above will come into play and the incentive to integrate additional platforms will shrink.

3) Apple can act as an aggregator of players and leverage that relationship to retain outsized margins

Apple’s greatest advantage is in the relationship they have with players across games. In addition to the convenience factor mentioned above, they can encourage spending via Apple Payments with rewards programs that promote spending across all iOS apps. When you get rewards points for your spend on Tinder and Wild Rift, why click into the browser and re-enter all of your credit card info for a measly 10% discount? Driven by fear of Epic, Google is already reading the tea leaves and heading this direction. Were Apple to launch such a program today with a 6-month lookback on past purchases, they would immediately have a deep lock-in on customer spending. 

The end result is that Apple can immediately take the wind out of developers’ anti-trust sails while losing very little of their business and allowing them to maintain their 30%. Acting now instead of upon a court order would build a lot of developer goodwill, not to mention a lengthy and expensive legal battle. It also reduces the chance that courts hit them where it really hurts and force them to reduce their 30% fee across the board, which would be disastrous. 

At the end of the day, all of this would be great for players. Platforms are incentivized to improve their checkout experiences, lower their cost to deliver to compete on margin, and promote sales and discounts. I hope Apple agrees.