Tim Sweeny, the CEO of Epic Games, recently gave an interview to Bloomberg where he talked about the business practices of Google and Apple. In it he discussed the way both of those companies restrict innovation and development through rent seeking behavior.
How rent-seeking restricts the consumer’s choice
Rent-seeking refers to the practice of extracting a profit from something wherein the profiteer adds little or no additional value. Because no value is added, there is nothing to justify the profit earned through the practice, and that profit is only earned due to the rent-seekers control over outside forces.
In this case, Apple and Google both have great control over smartphone use. Apple outright restricts all app development for their phones, and only allows apps on iPhones if they are sold through Apple’s app store. Google runs a similar practice within the Google Play store for Android devices.
In these cases, the rents sought by both Apple and Google are set at 30% of all revenue conducted through these app stores. Epic Games' Tim Sweeny suggests that the 30% number is well beyond what would be acceptable in a truly competitive environment, and that both companies can only get away with such outrageous rates due to their control of the operating systems of mobile devices.
Are these standard business practices?
In a sense, what Apple and Google have set up have become the new normal. Creators and sellers often have little choice with regards for where to sell their products, something that has even Epic Games frustrated with the practice.
For Epic Games, however, this is simply an inconvenience that they can deal with. Many smaller creators and sellers can hardly afford the 30% fee associated with business on these platforms. Alternatives for them, however, often mean being unable to conduct even basic business as there are simply no other viable markets to sell through.
How does the Epic Games Store differ from this?
The biggest difference between a rent and a profit extracted from a business transaction ultimately has to do with the options available to the creators and sellers. With Apple, anyone who wishes to sell to the iPhone market must do so through the Apple App Store, and pay the 30% rent required by Apple.
Google is in a slightly better position in that Android technically does allow for other app stores to function on Android, however given that every Android comes packaged with the Google Play Store means that this market is the biggest one to sell through. This position gives Google the power to extract its 30% rent as well.
When Sweeny was asked about the 12% fee the Epic Games Store takes from people who choose to sell through that platform, he mentioned that, given the services they offer, Epic Games actually only makes a 4-7% margin on each sale. Additionally, even if Epic Games attempted to extract a 30% fee from each transaction, that would not be considered rent-seeking on their behalf.
This is because Epic Games does not control the underlying factors which determine who can sell and where they can do so. Someone selling a game can sell through Epic Games, as well as Steam, GOG, Itch.io, the Humble Store, and even physical retailers if they so choose. Simply put, there is no way for Epic Games to control the likely success of a game by restricting access to their store because sellers have other options.
How will this be resolved
Apple and Google are set to make their cases in an antitrust hearing today, alongside Facebook and Amazon. All four of these companies have been accused of rent-seeking behavior which limits creative viability, reduces competition, and fails to provide adequate value for the profit extracted by each company.
It's important to remember that all four of these companies have significant control over the esports scene. Amazon doesn't just sell games and parts, it also controls the largest dedicated streaming service in Twitch. Google also owns YouTube, the single biggest streaming and video content platform. Facebook remains the largest social media platform in the world and also has its own streaming platform. And Apple is the sole controller of the iPhone marketplace.