In a surprise twist to the ongoing drama regarding the status of the big tech companies in our lives, an interesting article just came out worth reading from Jon Swartz at MarketWatch. https://www.marketwatch.com/story/will-videogames-be-the-achilles-heel-for-big-tech-in-antitrust-investigations-2020-08-21
His angle? that video games, that really fast growing industry within the tech world, are highlighting the control that at least two of the big four have on the entire industry.
We are, of course, talking about Epic Games Inc’s lawsuits against the online app stores of Alphabet (Google) and Apple, for what he describes as “punitive business practices associated with 30% fees”. This could indeed shed a very important light on the anti-competitive practices of these tech giants, allowing them to maintain their grip on the market. Just a few weeks ago we all saw as Congress grilled the CEOs of the big four for the world to see — this was one of the issues that came up.
James Currier, a managing partner at NFX, a VC, and who has co-founded a number of startups including a video game company, noted in Swartz’s article that this “these closed gardens feel like extortion”, referring to the platforms that Apple and Google have created.
At the end of the day, we are all wondering, what is the right “cut” that the platforms should take for hosting these new games and apps, and giving these startups such large growth potential? It is really not clear.
These lawsuits, are a part of a larger process of society finally waking up and asking the right questions: how much control should we allow these companies to have over our entire lives? How big a cut should they be allowed to take? Mind you, they are all being investigated for unlawful business practices in some fashion or another. As Currier pointed out, small companies have no choice but to go to these platforms, and pay the exorbitant 30% fee, just to have a chance to survive.
Basically, the small developers are totally at the mercy of the platforms. They can also be banned, or the algorithm can lower them down the search results. There is not much they can do either. And this 30% nets the two giants billions in revenue each year.
Enter gaming — the gaming industry has become the largest entertainment medium in the world. It has expanded to full fledged social networks and is no longer simply entertainment. As industry profits sore to new heights, that argument over just how much to pay for the use of the platform becomes even more important. Thus, the article mentions the popular game Fortnite, which through May had brought in $1 billion through Apple’s platform, which means Apple would have taken $300 million for its cut.
It is true, as Apple’s Cook points out, that his platform and others secure platform is what allows these small developers the chance to reach nearly 1 billion users. Few seem to be arguing against this. The question is whether the price is too steep. And if so — what is the correct price?
The outcome of the Epic lawsuit will certainly have serious implications for the video game industry and it is worth keeping our eyes open. I certainly will be. If Apple, Google and the others show they can offer better terms, this would be beneficial for the growth of new developers looking to get into the market. What is clear is that our country’s anti-trust laws are outdated — I agree with Swartz on this point.
And until Congress or the federal government can figure out where it wants to go, such lawsuits are going to be important to help shape the public conscious and rein in the big tech firms. Nobody doubts their importance and contribution, but it can’t be at the expense of smaller developers. I don’t think anybody would want to see what happens then.