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DeanBeat: Apple must tread carefully so as not to trample on the gaming industry

Apple has a value of more than $ 2 trillion. But the behemoth is in danger of forgetting where it came from. One day, the federal government or the courts will conclude that this tax in a company has become too great, and that it may stifle competition and stifle the values ​​and freedoms that it relied on from its origins.

By listening to the smaller companies and the people around them – those who give the company the enormous value – Apple can save itself from flying too close to the sun. We saw a small example of that this week. Apple aimed for some big goals with an update coming in iOS 14, which debuts in mid-September. It wanted to take a step towards greater privacy for users, which has become one of Apple̵

7;s collective calls – that privacy is a fundamental human right. At the same time, it took a turn on two other technical giants (and some would say minor bullies), Google and Facebook, whose business models are built on knowing everything about us.

Google and Facebook rely on users to provide their personal information free of charge. They turn and monetize that information and enrich a number of other devices, including mobile gaming companies and the mobile advertising ecosystem. Apple decided to make this more difficult by withdrawing from the Identifier for Advertisingers (IDFA). It decided to ask users if they wanted to be tracked. If they said no and opted out, advertising-dependent companies such as Google and Facebook would lose access to user data.

This is where the security damage to this artillery barrier aimed at the tech giants can damage the gaming industry. Apple’s move may also have hurt many $ 77 billion mobile gaming companies in the industry (estimated by market researcher Newzoo, while App Annie says it will be $ 100 billion), as well as many mobile advertising, measurement and marketing companies.

Elephants and mice

As CEO Brian Bowman warned on Thursday, Apple’s move – especially the retirement of IDFA without a sufficient alternative to the mobile gaming ecosystem – would squeeze many mice. It can result in thousands of layoffs and billions of dollars in lost revenue in mobile gaming, mobile advertising and related industries. Apple clearly realized that they did not want that to happen, and it postponed the industry, saying that they would not enforce the changes in IDFA until early next year.

The segments of the global gaming market

Above: The segments of the global gaming market

Photo credit: Newzoo

It was the right thing to do, as Apple had also hurt its own revenue, as it is getting a big cut in mobile revenue. But the whole process felt like Apple was not listening to the little people. Only when the disaster turned around in two weeks, and mobile game companies and advertisers began to express their concerns – and lay people off – did Apple seem to notice what was happening. As the folks at Microsoft used to say in the early days of the Xbox, the developers are “the canaries in the coal mine.” When they start to die, the platform is in trouble.

It feels like Apple is one of those friends who needs an intervention. CEO Tim Cook runs a company that does not realize that it has become a bully. Facebook tackled a similar problem when Zynga grew rapidly with FarmVille. Social game producer Zynga found that flooding our news feeds with cute pruning messages was good for getting people back to their games. But it was to turn off the regular audience that Facebook needed to survive. So CEO Mark Zuckerberg cut Zynga off and prevented them from using viral messages so that it would no longer annoy users.

It was a landmark that helped Facebook secure billions of users. But there was a cost involved. The social gaming companies left the platform in an emigration. They tried to go to Google+, but it failed. And where did they land? IPhone. Apple offered them a sanctuary where they could publish their games without making a huge cut and without having to worry about viral messages. And Apple took only 30% of the revenue from purchases made in mobile games, compared to 70% for the evil mobile operators that Apple disrupted. Chased by other platforms that did not welcome them, game makers saw Apple (and later Google) as a savior, especially as mobile became the largest part of the gaming industry. Steve Jobs once held a dinner for game developers and thanked them for believing in Apple and getting them off the ground in the first critical days of the App Store. Still, Apple’s good intentions lost somewhere.

Antitrust issues

Epic swings on Apple.

Above: Epic swings on Apple.

Photo credit: Epic games

Apple’s 30% cut has become a huge sum of money over time, about $ 12 billion a year, based on estimates from market researcher Newzoo. That makes Apple the No. 3 gaming company in the world, even if Apple does not make games, as Epic Games CEO Tim Sweeney recently tweeted in a campaign to get Apple to do the right thing and give more profits to game developers. The entire mobile gaming industry could bring in around $ 76 billion by 2020, according to Newzoo. This means that Apple takes in 16% of mobile revenue, but Apple’s withdrawals from games are only around 4% of the total profit it makes in a year. Apple commands two-thirds of its mobile profits, but Apple does not care about profits. Apple is an elephant that steps around in a room where it can step on some mice.

And as Apple has learned in handling Sweeney, these mice can be intimidating. Sweeney cares a lot about small game developers, who are the lifeblood of the Unreal Engine that Epic makes. But thanks to the profits of Fortnite, which has 350 million registered users and $ 750 million in annual profits coming from them, Sweeney has been able to take on Apple and Google in antitrust lawsuits.

Sweeney wants Apple to reduce its “tax” on mobile gaming revenue from 30% to 12%, as he feels Apple is no longer earning the cut. In Apple’s defense, it started Apple Arcade, but it has not set the world on fire. In fact, can you ask what Apple has been doing for gaming lately? Well, it almost killed the industry with the IDFA process.

Apple can claim that it does not make games, and it does not compete with Sweeney, and its actions are not competitive. Apple may well win that lawsuit. But it will not make friends in the process. As an example, Apple threatened to cut off Epic Games because of the lawsuit. Not only did it disable Fortnite in the App Store, but it also said it would cut Epic’s access to Apple’s Unreal Engine development tools. It could have disrupted Epic’s 11 million game developers using Unreal Engine. Epic requested a preliminary injunction in the case to prevent Apple from intercepting Unreal. And Epic won, so access to the Unreal Engine is safe for now. But many game developers, including Microsoft’s strange comrade, were ready to complain to Apple about the unfair tactics. Even Facebook and Google could theoretically participate in lawsuits against Apple, and that would be sweet revenge for the IDFA move.

Sweeney could not win this lawsuit, but he could hear Congress and federal antitrust enforcement agencies, which could make life very difficult for Apple. They can bring a case to break Apple, or they can pass laws to ban it from doing things that could harm the little people.

Everything is connected

Epic Games satirized Apple's own 1984 ad in Fortnite.

Above: Epic Games satirized Apple’s own 1984 ad in Fortnite.

Photo credit: Epic games

Is it possible that Sweeney’s antitrust case and the IDFA move can be linked? Yes, it is possible. This takes me back to antitrust lawsuits against Intel in the 1990s, when Advanced Micro Devices tried to compete with its processor chips against the industry giant. The Federal Trade Commission sued Intel for antitrust, and some of the evidence had to do with how the giant company behaved across the ecosystem that supported it. Not only did Intel make chips, but they also made motherboards, systems, and finance ads to sell computers that used Intel chips. AMD could not compete, nor did independent manufacturers of motherboards and PCs. If Intel moved to the motherboard manufacturers and PC makers with Intel Inside marketing dollars, it could effectively control them so that they never bought from AMD. The result was higher prices for consumers and what could be considered anti-competitive behavior.

The FTC and Intel decided the lawsuits in 1999. But here is why it is relevant. In the name of protecting privacy, Apple has shown that they are willing to take back what they have given to the third-party mobile marketing industry. Apple will adopt a measure of the effectiveness of mobile advertising, and it will handle many mobile marketing features for game developers. In the future, it may create its own ad network. But that would be anti-competitive. When you have monopoly power, you can not use that monopoly power to wedge yourself into adjacent industries – in this case mobile advertising – and take them over when existing players are already out there. It will be like Microsoft trying to use the operating system to take over browsers and stifle Netscape’s air supply (another case from the 1990s).

Now Apple is quite far from going into yet another antitrust issue, as it has not said it would create its own internal advertising network. But the point is, behaving like a bully or turning over the companies that helped you get to where you are today produces negative karma. And that karma can come back to haunt you. So Apple CEO Tim Cook should remember the gaming companies that put Apple where it is today. The road to hell is paved with good intentions. Caring for privacy is a good thing, but such intentions almost imploded the gaming industry in the midst of a historic gaming boom and the worst global recession ever. And all large companies should remember that how they treat smaller companies and the small people around them, is what matters to the large companies.

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