Apple is increasingly under fire what’s claimed to be unfair practices in the App Store. The criticism takes three forms: (a) Apple’s 30% fee is much too high relative to cost (b) the rules are arbitrary and stifle competition and (c) the App Store as the exclusive avenue to install apps on iOS is unjust. That’s a lot to chew, so let’s focus on (a) for this post.

Eric Seufert’s criminally underrated podcast talks about this very topic but phrases the question as “Does Apple earn it’s 30%?” Various App Store benefits like payment handling and preventing fraud are discussed, but I wanted to scream by far and away the biggest way Apple “earns” it’s 30%: acquiring a mega fuck-ton users to iOS. Nearly the entire value of a platform to a developer is how many people it can reach. No one is rushing to get on Epic Game Store (EGS) or develop for Stadia because there are so few users. 12% or even a 0% fee is irrelevant: [88% * 0 users] = $0 versus [70% * more then zero users] = more then zero. This is an extreme example, but users are by far and away the most important ingredient of any platform. After all, developers can list in multiple stores with maintaining the listing or code for the particular platform as the only cost to do so. The fact that so few are willing to take on these small costs tells us a great deal about the user bases of Stadia and EGS.

But platforms fees also increase the LTV of the devices who run on the platform, if and only if, the firm internalizes those platform fees. For instance, the added platform LTV of an Android phone in China is less than in the United States because Chinese users install non-Google owned stores. In this case, platform fee revenue doesn’t accrue to Google.

If LTV of the iPhone X is say $1000, Apple should spend up to $1000 in UA to acquire a user. However, with platform fees the LTV grows. Sensor Tower estimates that iPhone users spend over $79 per year on apps. On a lifetime basis, that’s probably north of $250 (3+ years of ownership). That ups the iPhone’s LTV to $1250 and unlocks more UA budget for Apple to acquire more users. These marginal users benefit all developers. This is how Apple (or almost any platform holder) gives developers a rebate on the 30%. I’m not sure what the true fee is but it must be lower than 30%.

Performance based marketing makes intuitive sense; of course you want to optimize ROI on spend that compose 30% or more of a your firm’s expenditures. But here’s the kicker: if it makes sense for firms why not individuals? Shouldn’t we be tracking the impact of our output?

Are co-workers actually reading your analysis, concept art or brand pitches? Imagine if you knew how long internal onlookers spent reading or viewing: how might that change future output? For instance, we might be able to find the optimal length of a memo or detail of a UX mock-up. With more widespread read receipts (on email, calendar invites, PowerPoints) I’d think we’d learn discovery of information within firms is rather low because search costs are so high. I’m routinely shocked by low view counts on important internal Google docs while on the other hand observing the willingness of participants to take a firm stance on the conclusions. Many firms haven’t invested in strong intrawebs to create easy ways to access content or for creators to push them to relevant parties.

This means information travels via internal networks via word of mouth. With a given game publisher distributed over many countries and time zones, this simply doesn’t scale well. Easy consumer discovery, regular “pushing” of content, and tools assist rather than inhibit creation are paramount to spreading the gains from Haykiean localised knowledge.

Bloomberg is reporting that Epic is seeking to raise $500M to $1B in new funding. Tim Sweeney, Epic CEO and provocateur extraordinaire, owns 60% while Tencent owns the other 40%.

Why would Epic need more funding as it continues to rake in Fortnite money? Tim has bigger ambitions, let’s figure out what they are. As we’ve seen with Roblox, there’s incredible (and growing) money to made in user generated game content. Furthermore, consider the games spawned from mods: Counter Strike, the MOBA genre, Team Fortress, Auto Battlers, H1Z1 (which becomes PUBG which becomes Fortnite)… Imagine if you were able to take even 10% of the lifetime revenue of those titles. Despite Tim’s criticism of platform holders, Epic takes a cut of many games that run on Unreal as part of the licensing agreement. This is reportedly how Fortnite pivoted to BR: Epic got an enormous cheque when PUBG was blowing up.

The pieces have been coalescing:

• Content creation tool in Unreal – which now scales to mobile
• Direct to consumer distribution – Epic game store – which now scales to mobile
• User Acquisition engine and revenue bedrock – Fortnite

But I think this play would blur more of the line between gaming and social networking. The biggest evidence comes from Epic’s acquisition of Houseparty, an app that essentially lets users join a Zoom call and play games together. How else do you explain that acquisition? It ties into their already created, but lesser known, Fortnite Party Hub app and recently announced Party Royale.​

The recent foray into non-gaming content via Fortnite concerts makes more sense in this light as well (or they’re trying to keep the Fortnite in the mainstream).

This helps explain hiring as well; in less then a year Epic has setup offices in practically every major gaming hub: Seattle, San Francisco, Stockholm, Montreal, Helsinki and Berlin. Recent jobs ads focus on the social.

Competition is spinning up in the meantime. Manticore games has already launched an alpha, and it’s hard to imagine Roblox being content with only owning the 10-14 yr old demo. It’s important to note this is nothing like a ‘metaverse’ as each game on the platform would retain a distinct identity, whereas a metaverse is closer to the failed PS Home or Second Life. Trying to squeeze hundreds of experiences onto one game presents a variety of complications and very little in the way of benefits.

Maybe when it’s all said and done, Fortnite let’s Tim become the social platform holder Zuckerberg always wanted to be at Facebook.