Apple v Everybody : Planet Money When Epic Games CEO Tim Sweeney sued Apple over its App Store, it started a war about antitrust and the internet.
NPR logo

Apple v Everybody

  • Download
  • <iframe src="https://www.npr.org/player/embed/914563075/914612087" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Apple v Everybody

Apple v Everybody

  • Download
  • <iframe src="https://www.npr.org/player/embed/914563075/914612087" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

UNIDENTIFIED PERSON #1, BYLINE: NPR.

(SOUNDBITE OF LOON CALLS)

KENNY MALONE, HOST:

There you are. You're listening to your Spotify playlist, Soothing Loon Calls Across a Northern Lake. The stress of 2020 is just fading away. And then - wham.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON #2: Verizon knows how to build Internet and TV right. Start with Fios.

MALONE: Ripped from your Canadian lake, 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%. So that would be $4 of the $13 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 in the morning, an eccentric video game designer declared war on the Apple App Store.

(SOUNDBITE OF DAN STEIN'S "POLAR CHILL")

MALONE: 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 pickaxes, to be specific.

(SOUNDBITE OF DAN STEIN'S "POLAR CHILL")

MALONE: All right, for this first section, I'm going to bring in Bobby Allyn, whose official title is...

BOBBY ALLYN, BYLINE: Yeah, I'm a tech reporter at NPR. I cover Silicon Valley out here.

MALONE: 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.

ALLYN: 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 ZZT. And that's because he wanted it to stand out by being way at the bottom.

MALONE: 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.

ALLYN: Epic - yes, known for Fortnite. If somehow you have never heard of Fortnite, perhaps the most popular game in the world right now, here is a clip of a player in the game...

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON #3: That's not going to help me.

ALLYN: ...Getting ambushed by a horde of players who, no less, are dressed up like bananas.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON #3: Bananas attacking me. Oh [expletive].

MALONE: Yeah. I mean, in Fortnite, 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.

ALLYN: Yeah. And I recently talked to Tim Sweeney. And he told me he personally likes playing Fortnite, and he's played some 1,600 matches. That's a lot. And when he's playing, he doesn't announce who he is.

(SOUNDBITE OF ARCHIVED NPR BROADCAST)

TIM SWEENEY: Well, I'm not very good at Fortnite. 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.

ALLYN: So if a jellyfish shows up in your Fortnite match, it might just be the billionaire CEO of Epic Games, and you'd never know it.

MALONE: Ask the jellyfish for money. Ask the jellyfish for 10 bucks.

ALLYN: (Laughter) Yeah, please.

MALONE: Jellyfish and banana skins, or costumes - this is the way that Fortnite makes money. Fortnite is free to play. And then Tim Sweeney's 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.

ALLYN: But here's where the problem starts. Tim Sweeney and Epic Games are not the only ones making money every time you splurge on a new ostrich outfit or a rainbow unicorn pickax.

MALONE: Real item. Very popular item. Real item.

ALLYN: 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 - 30% of all in-game purchases. And arguably, this whole thing started - this 30% started with Apple.

MALONE: And let's just pause for a minute and talk about that 30% 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...

(SOUNDBITE OF ARCHIVED RECORDING)

STEVE JOBS: Welcome.

(APPLAUSE)

MALONE: ...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.

(SOUNDBITE OF ARCHIVED RECORDING)

JOBS: The developer gets 70% of the revenues right off the top. This is the best deal going to distribute applications to mobile platforms.

ALLYN: So this is an example of new technology lowering costs. In 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.

MALONE: 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.

ALLYN: 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.

SWEENEY: Right. In a healthy competitive environment, you'd have a lot of stores competing. Those fees would be bid down. And we wouldn't care what any one store's individual fee is because they're all competing and we can choose freely among them.

ALLYN: A new store could say, hey, we're only going to charge a 20% commission at our store. You get to keep 80%.

MALONE: 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% commission.

ALLYN: And it's not just when you buy an app in the store. Apple also takes 30% of any transaction of a digital good you buy when you're using an app. That's why they get 30% of every jellyfish outfit and every grenade launcher people buy in Fortnite.

SWEENEY: The 30% fee is just a number they're able to get away with because they deny all competition from even existing on their platform.

ALLYN: And the way it works is that when you buy something in Fortnite, it is Apple running your credit card. They keep 30%. The rest of the money goes to Tim Sweeney's company.

MALONE: 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% fee? Nope. Those are the rules you agreed to.

ALLYN: 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, bite the trillion-dollar hand that is feeding you?

MALONE: But Tim Sweeney, but Epic Games wasn't dependent on Apple the same way other companies were because most people do not play Fortnite on their phones. They play on their computers or on PlayStation or Xbox.

SWEENEY: Well, you know, Epic is fighting this battle because we're, in some regards, uniquely positioned to do it. If it were truly a David versus Goliath tale with a, you know, 10-person developer shop taking on Apple, it'd just be crushed. I'm sorry. It's not a plausible outcome.

ALLYN: In other words, Epic Games was big enough to fight. And so at 2 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.

MALONE: And along with that email, Tim Sweeney launched an update to the Fortnite game. If you were playing the game on your iPhone and you tried to buy something that would normally cost, let's say, $9.99, you now got a message saying, you've got a choice. If you pay the normal Apple way, it's going to cost you $9.99. Or you can go around Apple and pay us directly. That's only going to cost you 7.99.

ALLYN: 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% cut for Apple.

MALONE: 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 Fortnite out of the App Store. You could no longer download Fortnite to play on your iPhone. And if you did happen to have it already, you were locked out of the new version of Fortnite that was about to come out.

ALLYN: So Tim Sweeney does two things. One, he tries to rally the 350 million people who play Fortnite around the world to attack Apple. He gets the hashtag #FreeFortnite trending and releases this video.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ACTOR: (As character) Today, we celebrate the anniversary of the platform unification directives. For years, they have given us their songs, their labor.

MALONE: 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 Fortnite version, Apple is Big Brother on the TV screen, and a Fortnite character is chucking that rainbow unicorn pickax straight through the screen.

(SOUNDBITE OF GLASS SHATTERING)

ALLYN: The second thing Tim Sweeney did was he sued Apple in federal court, arguably a bigger deal than the unicorn pickax video. By the way, he also sued Google after getting kicked out of their store.

(SOUNDBITE OF CLAUDE PELOUSE AND LE FAT CLUB SONG, "CLUB SODA")

MALONE: 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 rein in that power.

(SOUNDBITE OF CLAUDE PELOUSE AND LE FAT CLUB SONG, "CLUB SODA")

MALONE: 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, like, how this will all work, I called up Eleanor Fox, who has been carefully watching this Fortnite-Apple lawsuit.

ELEANOR FOX: But I'm not a faithful watcher of Fortnite.

MALONE: Fair enough.

FOX: Don't ask. Don't ask me about the program.

MALONE: You're not a player.

FOX: I'm not a player. I don't...

MALONE: You don't have any favorite - no favorite Fortnite dances or anything?

FOX: Well, I like dances, but I don't see the Epic stuff.

MALONE: (Laughter).

FOX: But it caught my eye because it's so related to the heart of what's happening in Big Tech.

MALONE: Eleanor is a law professor at NYU and an antitrust expert. 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.

FOX: Let me say first, we're talking about a very particular statute, the law against monopolization.

MALONE: OK.

FOX: So you have one firm, and it's in a monopoly position or close to it.

MALONE: OK.

FOX: So the first thing the plaintiffs have to prove is what is the market and what percentage of the market does Apple have.

MALONE: So the first thing Epic 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.

FOX: And then Apple has 100% of the market. The only way in is through this bottleneck, the exploitative bottleneck that is controlling us.

MALONE: One hundred 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. Buy 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% 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% monopoly - or all mobile apps - like, 25% - not a monopoly? This question - what is the definition of the market we're talking about? - 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 the App Store doesn't work that way. Apple isn't buying apps and turning around and selling them. 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' 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, the people who use our cards. They get perks. They get free flights. They get better stuff.

FOX: 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.

MALONE: 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?

(SOUNDBITE OF ALEXIS TOUTZIARAKIS SONG, "SEISMIC ENCOUNTER")

MALONE: Is there a giant, high-stakes pending lawsuit that you would like us to look into? We are always interested in those. You can email us. We are planetmoney@npr.org. You can also find us on Facebook, Twitter, Instagram, TikTok. We are generally @PlanetMoney.

Today's episode was produced by Liza Yeager and Alexi Horowitz-Ghazi. Alex Goldmark is our supervising producer. Bryant Urstadt edits the show. I'm Kenny Malone. This is NPR. Thanks for listening.

(SOUNDBITE OF ALEXIS TOUTZIARAKIS SONG, "SEISMIC ENCOUNTER")

Copyright © 2020 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.