Epic Games, Google and app store monopolies | by Viggy Balagopalakrishnan | Dec, 2023


In a surprise win for the makers of Fortnite, a jury ruled that Google engaged in anti-competitive conduct by suppressing other app stores and banning alternate payments.

Disclaimer: The views expressed in this article are solely my own and do not reflect the views or positions of any organization with which I am affiliated, including my current and past employer(s).

Photo by Erik Mclean on Unsplash

Epic Games (one of the larger game developer companies and maker of Fortnite) and CEO Tim Sweeney have been on a public crusade against both Apple and Google since 2020, protesting what they consider oppressive app store policies. Their major gripe has been primarily with the 30% commission that both app stores take from all in-app digital transactions (that Epic views as an assault on creator revenues) and secondarily wanting the freedom for app developers to have their own app stores (without being forced to use Android Play Store and Apple App store).

The showdown began in 2020, when Epic Games boldly implemented alternate payment mechanisms to bypass default Android and Apple payment mechanisms that take a 30% cut. In response, both Google and Apple kicked them out of the play store, and Epic Games continues to not be both app stores. Epic responded with their viral #FreeFortnite PR campaign with this iconic video that’s absolutely worth a watch — Apple originally launched this video in 1984 showing Apple as the kid on the block taking on Big Brother (IBM), and Epic remade the video in 2020 but this time the kid on the block is Epic and the Big Brother is Apple.

Alongside the PR campaign, Epic sued both Google and Apple for anti-competitive monopolistic practices.

In 2021, Epic lost their case against Apple. This week however, they had a surprise victory against Google in a case that for all practical purposes is similar to their case against Apple. This victory comes in the background of increasing unhappiness with both Google and Apple, who essentially control the rails for the $100B+ in-app digital purchase market and have seen a variety of actions against them — from EU’s Digital Markets Act forcing their hand to allow external app stores, to several countries like South Korea and India explicitly forcing them to allow multiple payment gateways that don’t de facto take 30%.

In this piece, we’ll dig into:

  • State of the App Store monopoly
  • Why Google lost
  • “Relevant markets”, power of juries, and need for legislation

There are a few different estimates for how much in-app billings flow through app stores annually but it’s in the vicinity of $42B on Android and ~$100B on Apple (take it with a grain of salt but they are directionally correct). That’s a HUGE market.

Google and Apple control the rails of this entire market, and have historically taken a 30% cut on all billings flowing through the default app stores. On Apple, no third party app stores are permitted and consequently all billings go through Apple’s app store. On Android, “sideloading” (download an APK file and install it directly) is permitted but very cumbersome for obvious reasons and prone to security risks like viruses. Third-party app stores are permitted but the scale of these app stores is insignificant. Therefore, virtually all of the $142B+ of in-app bills go through the default app stores.

This is particularly important to game app developers like Epic because gaming apps make up ~70% of all in-app billing. Additionally, a majority of this revenue is generated from less than 10% of apps in the app store. In other words, most apps don’t make money, some apps make small amount of money, and a very small subset make a lot of money (think Spotify, Epic’s Fortnite). Which explains why Epic was mad about having to pay a large tax on this revenue to gatekeeper platforms.

After being dragged into the PR battle by Epic, Apple responded by dropping their cut to 15% (half of status quo) for all apps that made less than $1M a year. Put this together with the nuance about the market, and you’ll see that this was a nice PR stunt that made it look like they were providing concessions with minimal impact on their bottom line (because the large apps are the ones making meaningful revenue and continue to be taxed 30%).

A reasonable question to ask in an antitrust context is — why should we care if one big company (Apple) is taxing a few large app developers (Epic) that make sizable revenue anyway? It helps to look at example markets and the impact this has on competition. Spotify is a classic example — if a user signed up for Spotify from their iOS app, Apple would take 30% of the revenue generated from this user. Forever. In other words, for $100 in revenue that Spotify makes from users who signed up on iOS, Spotify pays $70 to creators, and then pays $30 as “tax” to Apple. That’s essentially cutting Spotify’s bottom line by half, and it’s with these economics that Spotify now has to compete with Apple Music that pays no tax.

It’s undeniable that Google and Apple have been critical to unlocking the app economy and there are legitimate arguments for why they should take a cut of the revenue (visibility developers get from the app store, maintaining security on devices) but the 30% tax without doubt hurts app developers and consequently minimizes competition in the ecosystem. The question though — is this unlawful?

We’ve talked about anti-trust in a fair amount of depth previously (Google v. DOJ, FTC v. Amazon), so I won’t go into too much depth but there are the two key things that need to be true for any anti-trust violation — the company should be a monopoly in a specifically defined market (“relevant market”) AND the company should have engaged in anti-competitive conduct to maintain their monopoly position. It is not illegal in the US to be a monopoly, but only to maintain that monopoly through anti-competitive conduct.

Epic Games argued that there are two relevant markets — the Android app distribution market, and the Android in-app billing services for digital goods & services transactions market. This may sound specific but it’s really not — it’s a $42B+ market and Google owns 90–95% of this market. The market definition often ends up being a contentious issue in antitrust cases — in Epic Games v. Apple, the judge did not accept the same definition of a relevant market and argued that the market should be a broader digital gaming transactions market. However, in this case against Google, the jury agreed with the market definition (more on judge vs jury in the next section) and agreed that Google is a monopoly in this market.

Snippet from the jury’s ruling
Snippet from the jury’s ruling

The next part of the ruling was whether Google engaged in anti-competitive conduct. There were two specific types of practices that the jury was asked to rule on — “Unlawful restraint on trade” and “Tying”.

Section 1 of the Sherman antitrust act prohibits any contracts, combinations and conspiracies that unreasonably restrain trade. In simpler terms, if Google engaged in any contractual practices that suppressed competition in the defined relevant markets, that would be unlawful. If you have followed Google v. DOJ, it probably won’t come as a surprise to you that the jury ruled against Google based on multiple pieces of contracts that were designed to suppress competition:

  • Android Developer Distribution Agreement prohibited third party payments was ruled unlawful
  • Google’s “Project Hug” paid hundreds of millions of dollars to 20+ top developers to keep them away from potential competitor app stores
  • Google’s agreements with device manufacturers, which Google v. DOJ showed were fairly onerous to these companies, were also extended to heavily incentivize them to not compete with Google in return for significantly better revenue share

All of these were ruled unlawful anti-competitive practices that unreasonably restrained trade and that they helped Google maintain their monopoly position.

The second alleged violation was Tying, where a seller agrees to sell a product only on the condition that the buyer agrees to buy another product. In this case, the use of the Google Play Store was tied to the use of Google Play Store Billing. Tying arrangements can be lawful in situations where this is clear business justification (eg. in the absence of this tie-in, the play store may not survive) but the burden of proof is on Google. Google argued that this tying lets them collect compensation for their services. The jury was asked to rule on whether the justification provided by Google is the real reason behind the tying engagement, and more importantly, whether this could have been achieved by less restrictive means. The jury ruled that the tying arrangement was unlawful, and with that came the ruling that Google had violated anti-trust laws.

Snippet from the jury’s ruling
Snippet from the jury’s ruling

Given how similar the two cases are, it’s worthwhile to dig into why Epic won against Google but not against Apple. There are a few meaningful differences between the cases:

  1. The Google ruling came from a judge while the Apple ruling came from a jury; I’m not an expert on this topic but broadly in the US, the filing party can ask for a “jury of your peers” and the request is typically granted unless there’s a clear reason not to
  2. Android app distribution market was accepted as a “relevant market” in the Google case while the Apple app distribution market was not accepted in Apple case
  3. The case against Google was able to prove conduct that stifles competition through the onerous Android contracts, but it was ruled that the Apple case did not adequately prove that
  4. In both cases, it was ruled that practice of not providing alternate payment mechanisms was anti-competitive

A few observations from these:

  • Google’s stance on Android being “open source” while continuing to maintain control over it has opened them up to this situation (crux of Ben Thompson’s argument); Apple, being a fully closed ecosystem, likely has a stronger argument for why “Apple app distribution market” is not a relevant market and why their tying in of billing and app story is a business requirement for a fully integrated system
  • The definition of relevant markets is and always will be nebulous — this continues to be one of the biggest challenges for antitrust enforcement and opens up a high amount of dependence on how a particular judge views this; consequently, this leaves the rulings open to appeals — Google plans to appeal the decision, and both Epic / Apple plan to appeal the decision as well
  • Juries represent the current “will of the people” and are likely better arbiters for antitrust cases than judges; in the US, there has been increasing appetite among judges for judicial activism, including the US Supreme Court that currently has a 41% approval rate
  • The most sustainable solution to tackle the app store monopolies is regulation — case in point is Apple who is taking the third party payments appeal to the US Supreme Court, while already making changes in the EU, South Korea and India in response to clear regulation passed in these regions.

Nevertheless, it’s encouraging to see antitrust success in US courts given the extent of resistance and lobbying that has gone against tech regulation, and it will be interesting to see how far current antitrust laws (or rather, laws from a 100 years back) hold up in the era of big tech.


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