Skip to main content

The company behind the most popular video game on the planet is suing Apple ( (AAPL) - Get Apple Inc. (AAPL) Report) and Google ( (GOOGL) - Get Alphabet Inc. Class A Report). Despite all of the handwringing, it means almost nothing for investors, or big tech.

Fortnite, a popular, pioneering multiplayer video game, has earned billions for Epic Games, its producer. Now its managers want to cut platform gatekeepers out of the loop.

The strategy is greedy, and it will not work.

To be clear, Fortnite is a proven game. Its online community now has 350 million active players. Registered users in May spent a collective 3 billion hours inside the Fortnite universe, battling zombies, and each other. It’s a business that generated $1.8 billion in 2019, selling advertising and hawking virtual trinkets like avatar outfits and extra lives.

Twenty seven million people showed up in June to watch a virtual performance by rapper Travis Scott that was shown exclusively inside the game. The 10-minute concert was a kaleidoscope of rap music and color, unmoored from the laws of the physical world. Fortnite cleverly positions Epic at the intersection of pop culture, tech and commerce.

Private investors have been clamoring for a piece of the lucrative franchise.

Bloomberg reported in June that private investors ponied up a reported $750 million for a minority stake. The investment valued Epic at a cool $17.5 billion.

However, Epic does have an Achilles heel.

Most of Fortnite’s users access the game on iPhones and Androids. Under the terms of service, the App Store and Google Play are entitled to scrape 30% of all in-app generated fees. Since Epic has made a big business out of selling virtual stuff, that works out to be a huge number. Epic wants out of the Terms of Service and company execs have been carefully choreographing a strategy.

It started Thursday when the company offered a permanent discount on V-Bucks, a virtual digital currency used to buy items inside Fortnite. Users buy V-Bucks directly from Epic, circumventing the in-app purchases. It means no 30% fees. And it also violates the TOS at the App Store and Google Play.

Apple and Google wasted no time removing the Fortnite app from their mobile stores, causing a huge controversy and plenty of outrage among gamers. The Epic Games lawsuits followed immediately.

Investors should not lose sight of what is happening. Epic is in position to play the 30% fee. Company managers simply would rather not because their investors feel the price is too steep. Plus Epic, given its size, has the wherewithal to secure user’s payment data.

That’s not true of most app developers. While they may gripe about the 30% tax collected by Apple and Google, keeping payment systems and user data secure inside the respective app stores is a legitimate service to users. It has real value that courts are likely to recognize.

Meanwhile, Epic may have put its Fortnite franchise in a bit of a jam. The game can still be played on Android devices but it must be sideloaded. This practice loads the game directly from Epic but it also eliminates any Google Play protections. iPhone users have no such access.

Epic is betting that Fornite is more important to iPhone users than the Apple ecosystem. That’s a losing bet, in my opinion. Betting on a favorable outcome in the courts may also be a losing bet. It could take years, and Apple is providing a legitimate service to users.

Video games resonate with consumers on a different level than movies and even live sports where the interaction is mostly passive. As the gameplay has improved, video games have become more immersive. And always-on network connectivity means players scattered across the world can communicate in real-time. Big franchises, like Fortnite, have become platforms unto themselves.

It’s easy for investors assume game producers have power to change and set the rules. They don’t. Ultimately, the real power rests with the major mobile platform gatekeepers, like Apple and Google. They control the flow of users.

Investors should buy Apple and Google on any related weakness. It will be short-lived.