The Federal Trade Commission (FTC) announced that it would be fining Epic Games — the maker of Fortnite — more than half a billion dollars for violating children’s privacy laws and for including default settings that made it easy to mistakenly purchase items. These in-game purchases are a major revenue source for Epic Games, which has now embarked on efforts to challenge payment agreements built into the use of Apple’s software. As companies jump on the movement to analyze online payment systems, lawmakers should remember that these efforts are more about private financial incentives than protecting the competitive process.
Apple’s rules for payment processing were at the heart of the lawsuit Epic Games brought against the tech company. The complaints include allegations by Epic Games that Apple is asserting monopoly powers to require the use of its in-app payment processing. Apple counterclaimed that Epic Games breached its terms of service by introducing an alternative payment system.
The payment process in question is the requirement that apps use Apple’s payment processing system for all in-app purchases. Apple earns a 30 percent commission from these purchases, so both Apple and developers have a vested financial interest in their rules surrounding payments.
Epic Games claims that by avoiding the 30 percent commission, they would be able to pass savings along to consumers. Given the company’s documented pattern of fraudulent purchases and creation of barriers to avoid issuing refunds, it’s difficult to believe that consumers’ financial well-being is truly at the heart of its fight against Apple.
In a decision issued in September 2021, Judge Yvonne Gonzalez Rogers didn’t grant an unequivocal win to either party. The result was that Apple had to allow access to outside links that could direct users to third-party payment processing. However, payment processing didn’t have to be allowed inside the app.
Both companies have appealed the decision. The Department of Justice (DoJ) has issued a filing expressing concerns about the case’s narrow interpretation of existing antitrust laws and disagreement over market definitions. It’s possible that the DoJ may ultimately reach a different decision than Judge Gonzalez Rogers.
In-app purchase fees are a $19 billion market, providing plenty of incentives for Apple to maintain its fees, and for developers to push for their removal. According to court testimony from the original trial with Epic Games, Apple earned at least $100 million from facilitating Fortnite purchases — although the actual number is estimated to be closer to $300 million. Whether the number is $100 million or $300 million, it represents a financial incentive for both sides.
The desire to avoid fees isn’t unique to Epic Games. Elon Musk has also recently developed an interest in eliminating the Apple commission after his purchase of Twitter.
As the owner of Twitter, one of the changes Musk plans on enacting is a verification service that requires a recurring payment to retain “blue checkmark” status. This recurring payment structure is what caused Musk to have a vested interest in Apple’s payment processing system.
Since subscription payments for a verification service are likely to become a larger portion of Twitter’s business model, Musk has publicly criticized the fee. Additionally, he claims that Apple has threatened to remove Twitter from the App Store, although Apple has not confirmed this.
Alternatives do exist. According to the ruling from Judge Gonzalez Rogers, Apple does allow links to external sites. However, as Epic Games asserted in the Apple trial, many consumers do not like to be diverted from apps. The push to eliminate Apple’s payment processing is not due to a lack of other options but due to a lack of other equally attractive options. The value of a convenient user experience is what allows Apple to charge a commission in the first place.
Reasonable people can disagree over whether Apple’s commission violates current antitrust laws. However, before lawmakers or voters rush to support legislation aimed at targeting Big Tech, they should consider that both parties in the discussion have a financial stake in the matter. Epic and Musk’s attempts to eliminate the Apple commission may in part be motivated by an altruistic desire to protect small developers from what they view as monopolistic behavior, but it’s also motivated by their own bottom line.
Tirzah Duren is a policy analyst at the American Consumer Institute, a nonprofit educational and research organization. You can follow her work on Twitter @ConsumerPal.