Apple still stands in the way of Epic’s App Store

The dream of a successful Epic Games Store on iOS sounds like an oasis: a thriving alternative app store outside of Apple’s isolated garden, where developers do not have to pay the significantly higher commission to Apple for in-app purchases and can use any payment processor they want.

The Epic Store launched in the European Union last week – thanks to new regulations opening up iOS – and should be a boon for Epic and its long-running game. Fortnite. However, it is not clear whether Epic can expand the store much beyond its own games. The company wants to welcome a vibrant ecosystem of third-party developers, but the move to the Epic Games Store could be a challenge for any company that is not Fortnite-large piles of cash.

“It seems to be a losing situation for Apple, developers and consumers,” says Bob Roberts, the developer of Round protection at the indie game studio Wonderbelly Games. “It just makes life more complicated and confusing without really improving the situation in the way people imagined.”

Epic’s Game Store may offer better terms to developers, but every developer, including Epic, still has to pay Apple fees, even outside of the App Store. And Apple’s terms and fees for apps on alternative marketplaces are so onerous that Epic has a huge hurdle to overcome to convince developers that it’s worth the time and money to list their apps in the first place.

To sell a game outside of Apple’s App Store, developers effectively have to pay an installation fee of 50 cents per user per year once they reach a certain number of downloads. If developers want to link users to purchases outside the app, they also have to shell out a 10 percent commission on all sales “on any platform” — including outside iOS. That’s on top of a 5 percent commission on purchases made within a year of installing the app. They would then have to pay any fees charged by the operator of the new marketplace. In Epic’s case, that’s 12 percent — a significant discount on its own, but a significant add-on when you factor in Apple’s costs.

By comparison, if developers remain exclusive to the App Store, they pay up to 30 percent commission on all in-app purchases and up to 25 percent fee for purchases made via an external link. There is no installation fee per user per year, which reduces the risk with free-to-play games.

For Epic, even if it cheats twice by charging installation fees for both an Epic Games Store download and a Fortnite Download, which is theoretically only one euro per person per year. The company can probably take that risk in the long term, especially if regulators change things in a way that makes some of Apple’s rules no longer valid.

It’s the non-Epic developers who could be disadvantaged by the agreement. For one thing, Apple’s per-user fee applies to users on third-party marketplaces as well as its own App Store. Steve Allison, GM of Epic Game Store at Epic, gave an example in a briefing last week: Take a game that’s been downloaded a billion times. If that app gets updates, a developer is paying 50 cents every year for all those updates, even if someone has the app they downloaded from the App Store passively on their screen. “That’s unsustainable,” Allison said.

At the moment, Apple’s new terms only seem to be acceptable for large companies like Epic and developers who do not generate revenue from their apps – there is hardly anything in between. Developers of free apps without monetization do not have to pay Apple a fee per user. Apple does grant smaller developers a three-year grace period without fees, but only as long as they do not generate more than 10 million euros in annual revenue during this period. Apple also offers developers lower fees in its Small Business Program.

The rest of the developer community, however, will have to pay the same fees as a giant like Epic Games. According to the company’s own calculations, an app with more than a million downloads and annual sales of $150,000 would give almost half of that to Apple. In addition, there would be the 12 percent commission that the Epic Games Store also receives.

This is an unfortunate result, as developers want more opportunities to distribute their apps. “Over the years, the App Store has become overloaded with applications, many of which have not been updated for a long time,” says Raffaele D’Amato, the developer of Arcadia – Watch Games. D’Amato would have planned to publish his app in a third-party store if there was one specifically for Apple Watch apps, as there would be a greater chance of better visibility. “Alternative stores could certainly offer more visibility to apps that really deserve it.”

And it doesn’t seem like some of the biggest third-party developers are publicly interested. In last week’s press conference, Allison said Epic is in active discussions with “pretty much every single one” of the top 250 mobile developers about placing their apps on the Epic Games Store for mobile, but noted that “almost all” of them said they couldn’t make it work on iOS. EA (which makes The Sims Mobile), King (Crush candy), Scopely (Monopoly, go!), supercell (Battle of the Clans) and TiMi (Call of Duty Mobile) did not respond to questions about whether they plan to place their apps in Epic’s store.

It could be quite a while before the Epic Games Store on iOS becomes profitable, if it ever does; the PC store, at least according to Allison’s statement last year, isn’t even profitable yet. But the company expects to fill the store later this year, even if it will be in small quantities at first. Allison said last week that Epic plans to offer a “curated” selection of third-party games in its mobile store, which is also available globally on Android, in December. Epic is making a “very hopeful push” to bring those games to iOS, Allison said, even if it’s “a very difficult conversation.”

For now, launching its own mobile store is more about Epic taking some control over its own destiny, and ideally sharing that control with other developers. But Apple still wants to maintain control – whether a developer is on the App Store or not. If history is any indication, it’s unlikely to give up that control until it’s forced to.