Virtual combat has spilled into the boardroom as Fortnite has been kicked off the Apple App Store for violating in-app payment guidelines. Fortnite is rallying its users to fight back against what it calls the App Store “monopoly”. But it’s more complicated than just a popular videogame standing up to an anticompetitive big bad brother. Platform ecosystems have complex forces at play that helps us understand this real-life standoff.
Epic Games, which owns Fortnite, is suing Apple for kicking them out, and in a staged rebellion, have produced a brilliant parody remake of Apple’s own Superbowl ad in 1984 (watch it below). Ironically, 36 years ago, Apple was “rebelling” against IBM’s dominance of the PC market and launching its new Macintosh as a challenger product.
Now, in 2020, Apple is no longer the protagonist. Rather, it has replaced IBM as George Orwell’s 1984 dystopian villain, simply because it’s enforcing pre-agreed platform rules. These standards embed trust and consistency in how the platform is used by everyone; they also protect privacy, prevent age-restricted content, and so on. The #FreeFortnite dispute is a potential loss of trust and could be a significant imbalance in the Apple ecosystem.
Fortnite could argue it keeps 350 million highly engaged users on the Apple platform — ask any Fortnite parent about behaviour modification! An average Fortnite gamer clocks up to 10 hours per week, they spend/earn V-Bucks and gain social acceptance with battle victories called Royales. On the other hand, Apple has built an intuitive platform that Fortnite takes full advantage of to give its players an immersive virtual battle experience.
Apple famously digitised the keyboard into touch screens on the iPhone and then did the same for gaming interfaces on the iPad. I still remember watching Steve Jobs play Need For Speed on stage with an iPad. Its accelerometer-control feature and digital interaction changed the gaming interface forever.
Network effects
A digital platform ecosystem like Apple’s has become so successful because it uses network effects to gain dominance. As more platform users join, so the compound benefit increases for everyone; this is perfect for multiplayer war games like Fortnite or social scrollers like Facebook. There are four roles in such an ecosystem: provider, consumer, producer and owner. The iPhone is an incredible handset, but its exponential success is because it is a provider of access into the ecosystem — the iPad provides access for gamers into the battlegrounds of Fortnite. The gamers play the role of consumers in the ecosystem, while the producers are the app developers, like Epic Games. (See Van Alstyne, Parker and Choudary’s platform players model for a full description of the players in a platform ecosystem.)
The fourth, equally important role-player, is the platform owner, in this case Apple. The owner builds or buys the platform, they control it, they run it and, in exchange, they extract value from the interactions between consumers and producers. In the Apple ecosystem, the extraction of value is the 15-30% commission it takes on any payment between a Fortnite gamer (consumer) and Epic Games (producer). Epic Games tried to bypass this commission by getting payments directly from its users and this breaks the rules. It’s the same reason you can’t pay your Uber driver directly. Epic builds games not platforms, but it needs a platform for its users to get access to its virtual battlegrounds. All the producers on the platform must follow the rules. Why should Epic Games be treated differently just because it keeps a disproportionately large number of highly engaged users on the platform?
Here’s why: Network effects in an ecosystem can only create value if there are sufficient users. You wouldn’t be on Facebook if there were only 100 other people using it. You wouldn’t use Uber if there were no drivers within a reasonable distance. This is Epic Games’ big gamble — taking its consumers’ attention off the platform could reduce these benefits for everyone else. This could affect the owner’s value extraction, potentially even more than the loss of commission.
My son won’t stop using his iPad if he can’t play his hour of Fortnite every week — there’s simply too much variety and convenience in the rest of the ecosystem that it provides access to. He will probably find another game to play, but losing 10 hours a week of 350 million other young — and possibly distrustful — platform users might be significant in the long run.
Apple will need to calculate the risk of letting them go versus offering special conditions that keep them on the platform. A competitor game has already been promoted and released by Apple, so it looks like Fortnite is truly heading for the door. But it remains to be seen how many of the loyal Fortnite gamers will follow.
It’s worth remembering how well Apple has done since it threw down the gauntlet to IBM in 1984. Fortnite is just following a revolutionary pattern, and that should worry Apple. The outcome is difficult to predict, but for me, the easiest approach is simply to wait and see what my son does.
- Peter Alkema is digital transformation portfolio manager at FirstRand. This column is written in his personal capacity
