 On August 13th, one of the biggest games in the world disappeared from the App Store. Fortnite had implemented its own in-app payment system, bypassing Apple's in-house payment network and violating the App Store's rules. But when Apple followed through on its policies and kicked Fortnite off the store, the company got a big surprise. Fortnite had a 65-page lawsuit set to file as soon as they got banned, complete with an extended video parodying Apple's iconic 1984 commercial. For years they have given us their songs, their labor, their dreams. Epic set a trap, and Apple walked right into it. Epic pulled the same trick on Google too, so it's going to be taking on both major app stores at once. But there's way more at stake here than just Fortnite. With the App Store, Apple revolutionized the way we distribute software to mobile devices. Google followed that model on Android, and the two companies have been at the center of mobile software distribution ever since. It's an incredibly powerful position to be in, maybe too powerful. But to really understand how that power works, you gotta look at the big picture. Twenty-five years ago, if you wanted to buy this hot new game called Doom, you had to go to the mall and get a physical cardboard box with the game inside it. You got it at a regular store that looked like this, and that store was probably charging a regular retail markup of around 50%. Add in the cost of physically fabricating the boxes and shipping them out to all the malls all across America, and the share that was going to developers was actually pretty small. Fast forward to 2020, and if you want to buy this hot new game called Doom, you go to an online portal like Steam or the PlayStation Store, which will usually take 30% of whatever you're paying. The way those portals see it, it's a great deal compared to how we used to do things. They're taking a smaller cut, and because it's all digital, publishers have to spend a lot less money getting out their product. Apple basically made this shift happen, and it's a huge part of the legacy of Steve Jobs. Well, we're going to solve that problem for every developer, big to small. And the way we're going to do it is what we call the App Store. It's made it easier and cheaper for developers to get their work out, and resulted in tons of new options for iPhone users. As Apple sees it, that's well worth the 30%. And Tim Cook made this exact point at the Tech Antitrust hearing in July, when he was asked about the so-called Apple tax. To zoom out and to give you some historical context on this, when we entered the App Store market, the cost of distributing software was 50 to 70%. And so we took the rate in half to 30%, and we've held it in that same level over time or lowered it. But what are these stores actually doing to earn their 30%? Back in 1995, Electronics Boutique had to cover rent, employees' salaries, and inventory management. But the only real expense for the App Store is vetting the games and keeping the servers running. There were $50 billion in App Store sales in 2019, which means Apple brought in around $15 billion in revenue just from the App Store. Maintaining the digital store only cost a fraction of that. It gets even trickier now that most software isn't a one-time purchase. Instead of buying Photoshop once, you're paying a little bit each month. Free-to-play games like Fortnite have become hugely popular, making money off virtual items sold within the app. Apple takes its 30% on subscriptions and in-app purchases too, but with so many services existing across multiple platforms, it leads to some really strange situations. Right now, you can't buy a book on the Kindle app. You have to buy it on the web and then read it on the app, just because they don't want to pay Apple's extra slice. The same goes for Spotify, which used to allow purchases from within the app, but would charge an extra $3 just to cover Apple's cut. Wherever they can, developers are moving the point of sale off of Apple devices, just to avoid Apple's transaction fee. Suddenly that 30% starts to look an awful lot like a tax, paid to Apple for the privilege of distributing software to Apple devices. Apple controls the platform, you can't put software on an iPhone without them, so if you want to play on their platform, you gotta pay the tax. At least with portals like Steam or the Epic Games app, you can shop around between stores. But for iOS devices, the App Store is the only game in town. There's no jailbreaking, no sideloading. You pay the 30%, or you can't be on the iPhone. This is where Epic's lawsuit comes in. Epic's accusing Apple of violating the Sherman Act, saying the company unlawfully maintains a total monopoly in the iOS app distribution market. That might sound weird, of course Apple has a monopoly over Apple products. But there are enough third-party developers on the App Store that it's a serious charge. The way Epic paints it, you can't make iOS software if you're not on the App Store. And you can't be on the App Store if you don't use Apple's in-app payment system. The payment system is important because that's where the 30% tax gets collected. So if Epic were able to use its own payment system like it tried to do, it would be able to get around the tax. Crucially, Epic isn't asking for any money here. Instead, they're asking for the judge to enjoin Apple from continuing to impose its anti-competitive restrictions on the iOS ecosystem. In short, they want the court to break up the App Store monopoly. Spotify has already weighed in to applaud the lawsuit, saying, Apple's unfair practices have disadvantaged competitors and deprived consumers for far too long. The interesting thing is, Apple already makes exceptions to that rule when it wants to. In April, Amazon's video app started to allow Prime rentals through its own payment system. That is, without paying the Apple tax. It was the exact same thing Fortnite had tried to do, but this time Apple let it happen. At the time, the company said it was because of a program for premium video rentals. But really it was just that Amazon was powerful enough to set its own terms. There were enough Prime video members with iPhones and iPads and Apple TVs that Apple was willing to bend the rules a little bit. Android is supposed to be more open than that. But Epic says they had the same problem. Epic actually tried to make a go of it outside the Play Store, offering a sideload-only version of Fortnite for Android. But in practice, almost all Android downloads in the US still come through the Google Play Store. Not even Fortnite was enough to convince Android users to look outside the Play Store. It's not a coincidence that Android ended up running on one big app store controlled by Google. Google makes it hard to compete, bundling the Play Store alongside must-have Android apps like Gmail, Search, and YouTube. We actually got to see those agreements first hand when regulators in the EU tried to unbundle Android from the rest of Google. But even when you peel apart Android, Google makes sure that manufacturers can't pre-install Gmail or Google Search without making Google Play the default app store, bundling everything together as Google Play Services. The only way to avoid that bundle is to build a whole new ecosystem on top of the open source Android code, like Amazon's Fire OS. But for the most part, the dominance of Google services on Android is unchallenged. Regulators have been aware of these problems for a while, and Apple in particular is already kind of in trouble over it. There's a case about this headed to the Supreme Court right now, and an ongoing antitrust inquiry in the EU. But Epic is putting pressure on Apple in a way that regulators just can't. It's a sign of things to come, not just for Apple, but for the whole industry. Tech companies are used to being able to set their own rules, whether it's Google Search, Amazon Marketplace, or the Facebook News Feed, and it's no surprise when those rules end up benefiting the companies themselves. But with antitrust pressure mounting, the folks on the losing side of those rules finally have a chance to fight back. Epic was the first one to take its shot, but it probably won't be the last. Thanks for watching. Let us know in the comments if you have any questions. And not to toot my own horn, but we're like inching up on 3 million subscribers, which is a nice round number. So if you haven't subscribed already, you know, maybe consider it.