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"Just as every part of the web economy is open to competition, every part of the app economy must be open to competition as it is on Windows and Apple's own Mac platform," Epic Games CEO Tim Sweeney says.

Photo: Rachel Luna/Getty Images
Epic Games CEO Tim Sweeney
Power

Fortnite maker Tim Sweeney blasts Apple's revenue cut and competitive practices as 'absolutely abhorrent'

In an interview with Protocol, Epic Games' CEO criticized Google's Play Store and Apple's App Store and believes they need to open up their platforms.

The CEOs of Amazon, Apple, Facebook and Google will testify before Congress on Wednesday, but lawmakers aren't the only ones with questions for the tech giants. Epic Games CEO Tim Sweeney has a big list of his own.

On the surface, Epic's Fortnite should be a success story for Apple's App Store, which has helped the game reach millions of people throughout the world. But Sweeney is far from happy with Apple's policies. He argues that both Apple and Google need to open up their platforms to allow more competition and give developers more choices, instead of mandating that apps like Fortnite use Apple's payment's system while also taking a mandatory 30% cut of revenue.

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"To say that the fact that they have some costs justifies taking 30% of a company's revenue and preventing other companies from competing with them is absolutely abhorrent," he told Protocol.

Sweeney also criticized Google's practices, which he says make it harder for Android users to sideload apps instead of going through its official marketplace. His company eventually caved to Google in April and launched Fortnite through the official Play Store as well. Google declined to comment.

As lawmakers increasingly turn their attention to the big tech companies, Sweeney is emerging as one of their most vocal industry critics. Airbnb and ClassPass are now also fighting Apple over the 30% after Apple threatened to revoke the Airbnb app for not paying its commission on virtual experiences. (Apple differentiates between sales of physical and virtual goods.) Of course, opening up the platform would be to Epic's advantage. Epic wants its own game store, which has seen success on Mac and PC, to be available on iOS "in the future" but has so far been blocked by Apple's guidelines prohibiting similar software stores. Epic's own game store collects a 12% commission as well.

Protocol spoke with Sweeney on Tuesday about why he thinks Google and Apple are stifling competition, how he thinks the system needs to change, and what question he would be asking Apple CEO Tim Cook during the hearing if he had a chance.

This interview has been lightly edited for length and clarity.

On Wednesday we'll see four of the biggest tech CEOs being grilled by Congress. Do you believe they deserve to be in the hot seat over this?

Yeah. I think the bigger, the more impact the company has on world affairs, the more scrutiny is appropriate for it. And I think there are some bad practices that need to change and need to change quickly, and if the companies won't make changes themselves, then it's imperative that some combination of the courts and the legislative branch go about solving these problems.

So what are these bad practices that you think need to be changed or addressed by regulation or the courts?

I'll focus on the ones I'm deeply familiar with and not just be a drive-by commentator on Google and Facebook's data practices and search industry practices. But the things that are really close to Epic's business and my personal experiences as a programmer are the need to open up platforms to competition to ensure that, on iOS and Android, any company, any developer can build software on their own terms, can release it to users freely, and that users are free to install software from anywhere so that you have genuine competition in the field of software development and distribution. And that genuine competition goes side by side with Apple's store and Google's store.

But currently, Apple has an explicit policy in place saying you cannot build a store on iOS. They use their control of the operating system to prevent competition among stores, and that's completely wrong and has to change. And then Google has a softer stance where they built Android as an open platform, but then they used their business relationships with carriers and technical control of the operating system to obstruct actual competition from other stores and software sources that make them much less capable and much more clunky than Google's own store.

So I think you'd need guarantees of equal access: that every software supplier and every component vendor can compete for business on these platforms without terms being dictated to them by the company that just happened to program the operating system or crafted the manufacture of the device. Just as every part of the web economy is open to competition, every part of the app economy must be open to competition as it is on Windows and Apple's own Mac platform.

So let's talk about Apple for a second because it came out with a study last week that it commissioned on its own App Store, which basically said a lot of people aren't happy with the 30% but this is the industry standard. Do you buy that argument?

Their report is a piece of work, as we say here in the South.

First of all, Apple was comparing App Store fees with the charges of businesses that have serious operating costs. Uber Eats is actually less expensive than the iOS App Store, and they actually send the person around to pick up food from a restaurant and deliver it directly to you in a car consuming gasoline on the road in traffic. And there's really no comparison between those sorts of fields.

The Epic Games store, our store, is in that report. We charge 12%. We run a profitable business charging 12%. Our costs of offering the store, processing payments, supporting customers and providing bandwidth for download is between 5% and 7%. That's the cost of operating an app store, and we're not at nearly the economies of scale as Apple and Google, so their costs are likely lower. And to say that the fact that they have some costs justifies taking 30% of a company's revenue and preventing other companies from competing with them is absolutely abhorrent.

And especially preventing competition, right? That's the core problem here. If Apple wanted to run a premium store and charge 30%, that would be completely fine if they did not obstruct competition in all these other ways. They prevent developers from using their own payment processing in applications, and there's complete randomness in the rules. For example, Nike has an app in the App Store where you can buy shoes, and Nike processes payments. Everybody trusts Nike, and they get to keep all the money, but Apple demands that Fortnite, our game that sits in the App Store, has to use their payment processing and pay 30%.

The key element of antitrust is fair competition, and there's no question that in every market, either Apple is dominant or Google is dominant. And [in] a lot of Western markets, Apple has the majority of revenue in the smartphone industry, and other markets Google has the majority of revenue or customers.

Each company is dominant in a lot of markets, and they cannot use that dominant position in devices or operating systems to force everybody to take other services. That's the problem. If you want to put software on the iOS device, you have to use their payment services, you have to use their store. You're not allowed to compete with their store. If you want to launch a music service, you cannot compete on even terms.

Apple saying that they have a level playing field is the most disingenuous thing that company has ever said, because they tilt the rules to their advantage and against the interests of all their software suppliers. When Apple sells a song through iTunes, Apple gets 100% of the revenue. If Spotify wants to sell a subscription through the App Store, Apple takes 30% in the first year, 15% in the second year. And it means that a company like Spotify cannot compete for artists with the same economics [that] Apple itself has access to. And you see that over and over again — Apple advantaging its own services and disallowing other companies from competing with its services.

So if a 30% number is too high, in your opinion, is there a magic number that would make this better?

There's no substitute for competition. If you have real competition, PayPal can offer their services in competition with Apple's payments. MasterCard and Visa can offer their services. Then the rates will be set fairly through market competition.

I think it's really critical to build a competitive economy where companies can compete to provide the best services, and saving on costs can be passed along to consumers. If you don't have a competitive economy, then it's just like a power company negotiating with the government over what it thinks its rates ought to be. It's totally artificial. And so I think instead of legislating rates, we need actual open platforms and open competition, and we need to enforce the antitrust policies and if necessary build some new ones to ensure that tech companies can't weasel out of these obligations.

So what does doing this better look like? Is there just a cap on fees? Do you break up these big tech companies?

Breaking up a company is the last resort for a company that's proven to be a bad actor and will not comply with the law. It's terrible, and it shouldn't come to that. Apple and Google should not let it come to that.

I think what you really need is platform policies and, if necessary, legislation ensuring that software distributed through app stores can use any payment processing service of its choice — that every developer is free to release apps for these platforms directly as has always been the case on Windows and Mac, every user is free to install software of their choosing from sources of their choosing without interference by the platform maker. Essentially you need consumer freedom, and you need developer freedom, and you need fair competition among components.

If you put that in place, then the 30% fee will end soon enough.

On the point about consumers, one of the hardest and most critical pieces of antitrust legislation is actually proving not just the competition piece, but that consumers are being harmed. And if you look at Epic's success, it's kind of hard to argue that Fortnite has been hampered in any way. You guys have had a huge success. So how is this actually hurting the consumers?

Well, what you have are the Apple App Store and Google Play extracting 30% taxes to fund processing and bandwidth and customer service, which is at most 5 to 7% of revenue and cost.

So 25% of the revenue from your purchase is just wasted. It's vaporized. It's not gone on to bettering the software, it's not being passed onto consumers. And gaming is an incredibly competitive place — there are literally hundreds and thousands of games on the App Store competing for people's time. There's no question that lowering these fees, just like lowering taxes, will result in better prices for consumers and benefiting consumers in the form of stronger reinvestment into creating great applications and better prices.

Have you ever met with Tim Cook about this?

Epic has been asking Apple for a meeting with senior executives on this topic for three years, probably a dozen times, and they're never wanting to meet.

Have you had the same response from Google?

We've had several discussions with Google. We've never seen eye to eye, but they've always been willing to talk.

You originally got around Google's requirements for a bit by sideloading Fortnite. But then you made the change in April to ultimately go through the Play Store. So, why bend to Google at that point?

So we still support both. You can get Fortnite from our website on Android or on Google Play. The problem is Google makes the process of installing software from the web far more painful than the process of installing software from Google Play. I can't count the number of taps needed to install Fortnite on Google, something like three for Google Play and dozens for the website.

They took a lot of effort to sabotage the development of competing systems by popping up terrifying security warnings as you're going through the process of installing Fortnite, which causes a large number of users to drop off. And so it means that if you're not on Google Play, you're losing access to a large number of consumers through intentional Google obstruction.

Is that an area that you'd want to see regulation as well?

I'd like to see the companies just change their policies. I think the best people in the world to fix these problems are Apple engineers and Google engineers. We know they can build awesome software, if they choose to. So when you see any aspect of their platform that's awful, it's an intentional business decision. And if they won't do that, then I think the enforcement of our existing antitrust laws and the passing of new ones is necessary.

So if you were on the committee tomorrow and got to ask a question of the CEOs, what question would you want to ask? Maybe start with what you would ask Tim Cook if you had the chance.

The thing I would want to drill into is the question of Apple's big excuse.

The big excuse Apple uses for why they lock everything down and demand everybody uses their services is that they're protecting user security. I think tearing that apart is the most critical part of the argument to open up platforms. iOS devices are secure because Apple has the best operating system kernel team in the world. They built the most secure operating system you can buy, and they have the best security layer, the permissions-based security that enables users to decide whether an app can access your camera or your microphones.

I think really drilling into and establishing that Apple's decisions are just business policies motivated by money and are not security decisions is essential. Apple can't say that "it's insecure if Fortnite accepts payments because it'll steal your credit card!" They can't say that it's OK for Nike to take your payment directly, but Epic can't because they're making a game and Nike is making a physical product.

I think teasing out the contradictions in Apple's public position versus the actual technical truth is really critical. As a programmer, nothing frustrates me more than seeing bad policy attributed to technical necessity when it's very clearly not.

What would you ask Sundar Pichai?

Oh, I'd ask him, "Hey buddy, why don't you open the platform up completely?" Android is a semi-open platform. If it were an open platform, it'd be the best platform in the world if you could install apps without obstruction from third-party sources, if other stores could really compete with the same quality of Google Play. Why not just go all the way?

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