Epic Games vs. Apple Update: Apple to reduce its demanded cut for in-app purchases by half, but not for Fortnite

Since the August store update in Fortnite, Epic Games and Apple have been embroiled in a legal battle to determine who has the rights to money spent in-game.

Prior to this development, Apple demanded a flat 30% cut of all revenue generated by apps on their App Store, whether from the smallest apps to giants like Fortnite. Epic prevented Apple from extracting this 30% cut by developing their own payment processor in Fortnite - one that went through their own servers.

How was Apple able to demand a 30% cut from Fortnite and other apps?

Effectively, Apple has created what is known as a gated market. That is to say that if app developers had free access to the iOS store, then Apple’s demanded 30% cut would be so high that no one would accept it.

Apple claims the cut they demand is due to the services it offers in addition to hosting the app on its App Store. These services include things such as payment processing, which Epic likes to compare to other payment processing companies like Visa and Mastercard, which typically only request a 3-5% cut.

What does Apple lowering their demands from 30% to 15% mean?

Apple has stated that they will change their demand from 30% to 15% for apps which make $1 million or less on January 1st of 2021.

While this appears to be an act of goodwill seeking on behalf of Apple, it still has significant underlying implications for Apple’s markets, which actually highlight exactly what is wrong with these kinds of gated markets.

Firstly, if Apple can simply half their demands on a whim, then it suggests that they don’t actually need or rely on the profit generated from these apps to be a functional company.

Secondly, it shows that Apple has the ability to unilaterally adjust their pseudo-taxation at will, with little regard to the people who are effectively forced into doing business with them.

Lastly, Apple's arbitrary cutoff, while more of a thinly veiled hit at Fortnite, shows that Apple has the ability to specifically target any company which it sees as a threat to its technological hegemony.

While Fortnite will likely continue to make millions, if not billions, each year, this rivalry has shown how detrimental tech giants have become to creators and developers.

As it stands, Apple takes little risk while guaranteeing profits in a way more indicative of landlordship than of actual innovation.