You might remember that last year Epic Games decided to pick a fight with Apple. Epic’s gripe was that Apple used their monopolistic power over the AppStore to make themselves an even BIGGER monopoly. The idea is that if you put an app / game on the App Store, then you MUST use their store for all financial transactions. Furthermore, by using their store you end up surrendering 30% of your income to them.
Now, a few details on this are still a bit hazy to me. I heard many claims that Apple tries to extend their control to other platforms. So if you’re based on iOS, then they want 30% of ALL transactions, even ones on Android devices. On the other hand, I’ve heard other people say this claim is nonsense, and other people claim it’s true, except Apple makes exceptions for large partners. Maybe my search skills are inadequate, but I couldn’t find a definitive answer to this. All I could find were merry-go-round flame wars between randos in the comments. If you’ve got a definitive (or at least authoritative) answer to all this, please drop a link in the comments.
It should go without saying, but I am not a lawyer. I do not give legal advice, and I’m not trying to. Also, this is not intended to be news or serious analysis. I’m not telling you the news, this is just me yelling at the television while the news is on.
Anyway, before we explain how Valve Software comes into this, let’s talk about where this all started…
Epic Fires the First Shot
In an effort to break free of Apple’s 30% lamprey, Epic deliberately violated Apple’s TOS by inserting their own storefront into Fortnite on iOS.
Predictably, Apple banned Fortnite for this. Epic then responded with a lawsuit they’d already queued up in anticipation for this move. (The same thing also happened between Epic and Google, but the Apple fight is the exciting part of the story and the fight with Google is mostly the same conflict but with less public interest. So let me acknowledge the stuff with Google and then shove it off to one side to keep this simple.)
So the stage was set for our big Epic vs. Apple matchup. However, both sides made some dumb moves that got everything off on the wrong foot.
Epic tried to push this narrative that they were somehow defending the industry. This included the Nineteen-Eighty Fortnite campaign and the #FreeFortnite hashtag. These were a cute gesture, but to the audience it just looked like a corporation was asking us to help them in their crusade to make more money. That’s not entirely accurate, but to the vast majority of gamers, that’s what it sounded like. Imagine if Gillette began a lawsuit to force grocery stores to take smaller margins so Gillette could make more money, and they launched a #FreeTheRazer campaign. Why would the consumer care about this back-office contract bickering. “Look, I just want to give you five bucks for this chunk of metal and plastic to stop my face from being so dang hairy. I don’t care how you idiots divvy up my fiver.”
In response, I reminded everyone that Epic isn’t the hero in this story.
Meanwhile, Apple decided to kill some peasants so everyone would realize they’re the bad guys and they mean business. They didn’t just boot Epic off their store, they blocked everyone who used Epic’s engine. This means they banned a bunch of small-time developers who never broke Apple’s TOS and had no control over Epic’s behavior. I think this was supposed to put the squeeze on Epic by making these indies pressure Epic to quit being so dang rebellious and get back in line with everyone else. It… didn’t do that. It was basically a gratuitous show of power that kinda proved Epic’s point about Apple’s abusive nature.
At this point, I stopped following the story. I knew the big showy PR moments were over and we’d have months of procedural court paper-filing and testimony-taking before anything new happened. So I decided to put the whole thing on the back burner until we got some headlines telling us who won.
But then I ran across this video from Richard Hoeg, managing partner of Hoeg Law, a Michigan-based law firm. That video brought me up to speed on this story and what’s been going on for the last six months, and how Valve got dragged into all this. But before we can talk about Valve, we need to talk about the fact that…
Apple’s Strategy is a Bit Crazy
Apparently, Apple’s plan to counteract the charges of “Monopoly” is to broaden the definition of the market they’re in. This initially makes sense. Before we can decide if something is a monopoly or not, we have to figure out how much market control it has, and to do that we have to define what the market is.
StuffMart is a department store with locations all over California and New Mexico. MegaMart is a department store with locations all over New York, Pennsylvania, and Ohio. Are these stores competing with each other?
Alice: Obviously! They’re in the same business, therefore they compete with each other.
Bob: Obviously NOT! There are 2,500 miles between the regions these stores operate in. If a customer doesn’t like StuffMart they can’t just walk across the street and try MegaMart.
Even in the clear-cut world of brick-and-mortar stores, this can get a little hazy. How close do two stores have to be before they’re legitimately competing with each other? How much overlap in their goods & services is required before they’re competing? What about a warehouse-style wholesaler vs. an upscale boutique? Even if they both sell the same type of goods, are those competing against each other in a meaningful way?
Now imagine taking that same ambiguity and translating it to the world of digital goods where products are tied to digital platforms, which are often tied to physical devices, which are shaped by their intended purpose. Phones and tablets are different from laptops and PCs, which are different from gaming consoles. But there are a lot of blurry lines between tablets and laptops, and other blurry lines between consoles and PCs. This looks like a straightforward argument, but if your lawyers are clever / diligent / malicious enough, they can argue for almost anything.
Anyway, Apple is looking to define their market. Here are some options they could choose:
Narrow: Apple’s market is just iPhone users. If Apple makes it so that they’re the only ones allowed to buy & sell and all transactions must go through them, then they are the worst sort of monopoly. Not only do they control everything, but they’ve used their power to make it impossible for anyone to attempt to compete with them. (This is the position that Epic is coming from.)
Slightly Broader: Apple’s market is the general mobile market. If you find Apple too restrictive or if you think their prices are too high, then you’re always free to switch to an Android device. In this argument, Apple is effectively the smaller half of a stable duopoly. If you’re curious about the balance between iOS and Android markets, then it’s worth checking out this video from Andrew Huang. Apparently it’s far better to sell certain things on iOS because iOS users are (obviously) willing to spend more for things. Android devices comprise 71% of the market, but Android users are generally not big spenders. Meanwhile, the iOS market is full of people willing to tolerate Apple’s obnoxious price-gouging shenanigans. Those people are used to paying $50 for a $7 proprietary cable that should have been USB to begin with. If they’re willing to put up with that sort of thing, then it’s not hard to get them to cough up an extra $10 for an app or whatever.
Hilariously Broad: Apple’s market is “people who buy digital goods”. Don’t like the AppStore? Just switch to GooglePlay, Steam, the Playstation Store, or any of the other platforms for totally different products on totally different platforms designed for a totally different set of users with totally different needs.
I think aiming for the second definition is a slam-dunk. It makes sense and it lets Apple claim they’re not a monopoly at all because they’re actually just 21% of the mobile market. If you’re looking for a nice, safe counter to Epic’s arguments then it seems like this is the way to go. But instead, Apple is arguing for the last one, claiming that their digital store on their hermetically sealed platform is somehow competing with Valve’s PC Gaming Wild-West because they’re both selling digital goods. That’s a much tougher sell.
And this is where Valve finally enters the picture…
Apple, wanting to show how their AppStore is just a tiny boat in a large ocean, decided to get some numbers to show how large the ocean is. So they sent a subpoena to Valve, asking them for detailed info on Valve’s entire 30,000 title catalog. This includes all titles that have ever appeared on the platform, what countries they sold in, and at what price.
Think about what a monumental pain in the ass this is. That’s a staggering volume of information. It’s not like Valve just has a single database they can dump. They probably have one database for transactions, another for products, another for users, another for partners, another for discount eventsSteam Summer Sale et al. and so on. Valve is going to need to cross-reference a lot of different databases to get Apple the information they’re demanding.
Worse, remember back when you could own a game and NOT add it to your library? Like, you could buy a game and add it to your inventory, and then later you could either give it to a friend or add it to your own library? This is no longer possible and I imagine it led to a secondary market of speculators that bought games during sales and then resold them when the product returned to normal price. Anyway, how do you handle this when responding to this subpoena? If my account is based in Canada, I buy a game while travelling in Budapest, and three years later I gift it to my buddy in Singapore, then what country was the game “sold” in? The point of sale and delivery are disconnected. When you’re in the position of Valve, you really want to know the EXACT specifications of the requested data before you dump tons of manhours into collecting it.
What about banned accounts? What about canceled transactions due to credit card fraud? What about the non-trivial number of people who bought the game using an IP address in country A, and then downloaded it from country B to circumvent some local censorship nonsense?
Essentially, Apple handed Valve a very annoying and expensive homework assignment. A reasonable person can make lots of objections to this:
- Hey, this is proprietary company information! I’m not going to just hand over our accounting books because you want them. (Courts can give certain documents special treatment so they aren’t available to the public, but the data would HAVE to be freely available to both Apple and Epic. And Epic actually IS competing directly with Steam. Apple is attempting to force Valve to surrender critical data to a rival company.) This creates a strong incentive for Valve to fight the Subpoena.
- This is a lot of work. It will take weeks to gather and verifyYou really don’t want to send incorrect data to a Judge! all of this data. Nobody is offering to compensate Valve for their time, which means that this creates a strong incentive for Valve to fight the Subpoena.
- It’s not clear why Apple needs this. If Apple just wants some general numbers to show how big “their industry” is, then they can ask for harmless, non-secret, bottom-of-the-spreadsheet numbers that Valve already has lying around. Why ask for the whole book if all you need is the last page? Moreover, Apple is asking for a monumentally large dataset. Are their lawyers really going to sit around reading this? Are they asking for this because they need it, or because the Apple legal team doesn’t know what it needs and so they’re just asking for everything because they’re not going to bear the cost of collecting it? Since there’s no explanation for why Apple needs this volume and complexity of data, this creates a strong incentive for Valve to fight the Subpoena.
- Hang on, is Valve’s business even relevant to the business between Epic and Apple? Imagine if your neighbor sued his boss, and during the suit one of them sent you a subpoena demanding a stack of paperwork that it would take you several nights of work to complete. Since the suit doesn’t involve you, you’d want an explanation for why you should spend so much of your time and effort on this. From where I sit, Valve’s platform isn’t really relevant to AppStore users. However, Apple’s argument is that this information will help them prove that it is relevant. This feels a bit like putting the cart before the horse. “Do all of this work for free, and when you’re done it will prove that it made sense for you to do all this work.” This seems like it would create a strong incentive for Valve to fight the Subpoena.
So Apple makes a large demand of Valve, and their request is made in such an obnoxiously overbearing way that it’s made Valve obstinate. Valve is now filing motions, trying to block this subpoena. At one point the court agreed with Valve and reduced the list from all 30,000 games to <500 relevant titles, but it sounds like Valve are still fighting.
My guess – which I can’t prove or even substantiate with facts but this is my blog and I can pollute it with my opinions as much as I want – is that if Apple had just made a reasonable request for a limited set of data that could have been gathered in a single workday, then Valve would have shrugged and provided the data rather than picking a fight with the world’s leading inventor and seller of overpriced proprietary adapters. However, Apple formed their demand in such a way so that Valve had to bring in their lawyers. And once their lawyers were going, it was natural to use them to stonewall Apple. Maybe Valve is just doing this to give them the finger for being such jerks. Or maybe this is a self-defensive move. Given how thoughtless Apple is, giving them what they want now might result in bigger demands next week.
Once again, it looks like Apple is just trampling over everyone else’s business in an effort to punish Epic.
Conjecture: If Apple just gets the bottom-of-the-ledger numbers from Valve, then that’s all they have to work with. On the other hand, if they get a massive multi-gigabyte database dump, they’ll have lots of room to massage those numbers in whatever way suits them. They can pick and choose from the data to focus on facts that favor their case and excise data they feel shouldn’t count because [$EXCUSE].
Additional Conjecture: Wouldn’t the above strategy just result in a bunch of haggling over the data and arguing over how it should be interpreted? Sure. But that makes the case take longer, and anything that delays the game favors the richer company. Epic is worth $17 billion, so for the $2 trillion Apple every delay just makes them stronger. Apple can look across the table at Epic and say, “We can dump a million bucks a week into this case for the next 38,000 years. Can you?”
(To clarify: Net worth does not equal available cash. If your house is worth $100k, that doesn’t mean you have $100k laying around to spend. But hopefully you get what I’m saying about the relative size of these companies.)
The Epic Showdown!
And so Apple decides to awaken the sleeping giant and tangle with the market-dominating Valve. WHO WILL WIN THIS EPIC CLASH? WILL THE EARTH CRACK WITH THE WEIGHT OF THEIR FURY? CAN APPLE HANDLE THIS INDUSTRY TITAN!?!?
Actually, yeah. It’s not even a big deal.
Valve isn’t publicly traded, but industry experts”Professional guessers”. appraise the company to be worth $3 billion. That’s a stunning amount of money. That much cash would be enough to buy seven hundred and fifty million Big MacsYes, I’m sloppily conflating “net worth” with “liquid assets”, which I mentioned above is an accounting foul. To actually get the $3 billion for the Big Macs, you’d have to SELL the company. I hope you’re hungry!. On the other hand, apparently it’s not quite enough to develop Half-Life 3.
For comparison, Apple is worth 2 trillion. That means that, within a rounding error, Apple is 1,000 times bigger than Valve.
Imagine 1,000 Valve Softwares. 1,000 Gabe Newels. 1,000 Monolithic PC-dominating platformsNot sure how you can have 1,000 of a thing and have them all be the biggest, but then this entire analogy is insane anyway so just go with it. called Steam. If you stacked up all of those Valve Softwares, then you’d finally have something in Apple’s weight classAnd maybe you could finally blah blah blah Half-Life 3..
If ValveThe regular one, not the ×1,000 one. went head-to-head in court, Apple could use their extreme wealth advantage to make things difficult and expensive for Valve. But this isn’t a lawsuit between these two companies. This is just Apple demanding some stuff from Valve and then generally being a dick about it.
The point is that Valve is little more than a speed bump to Apple. If Apple had just been a little less ham-fisted about this, they could have obtained what they needed and moved on. But because Apple has been so careless about stepping on the little guy, they’ve given Valve a reason to stonewall the process. As a result, now Valve is attacking the core of Apple’s strategyOr at least, as much of the strategy we’ve seen so far.. Valve is now saying “Prove that we are in the same market, because otherwise our numbers are irrelevant to your case with Epic.”
Apple has sort of been arguing like this:
A is in competition with B.
B is in competition with C.
Therefore, A is in competition with C.
It’s true that Epic competes against both Apple and Valve, but that doesn’t mean that Apple and Valve are automatically in competition with each other.
My point is that Apple once again threw their weight around, needlessly harmed non-parties to this case, and this time they’re getting a tiny dose of karma where Valve’s defensive moves are harming Apple’s overall cause.
Apple Has To Take This Seriously
On the other hand, I understand why Apple is being so aggressive about this. Their 30% skim on all transactions is pretty nice if you’re the one doing the skimming. Also, there’s a lot of value in having a single storefront for an entire device. It makes it much harder for malicious apps to trick users into fraudulent transactions. It makes the whole platform as a whole less attractive to hacking, because an anonymous fly-by-night hacker can’t obtain status as an Apple partner, and would therefore have no way to get paid through the system.
So if Epic wins, then Apple will lose out on a ton of free money, their platform would be a bigger target for hackers, they would have to deal with more confused users being baffled by multiple storefronts, and also we should mention the lost money bit again because that’s super-important.
I maintain that Epic isn’t the hero, but boy am I cheering for Apple to lose. I don’t know who is in the right in the legal sense, but for me Apple is basically the Luca Goers of digital platforms.
 Steam Summer Sale et al.
 You really don’t want to send incorrect data to a Judge!
 ”Professional guessers”.
 Yes, I’m sloppily conflating “net worth” with “liquid assets”, which I mentioned above is an accounting foul. To actually get the $3 billion for the Big Macs, you’d have to SELL the company. I hope you’re hungry!
 Not sure how you can have 1,000 of a thing and have them all be the biggest, but then this entire analogy is insane anyway so just go with it.
 And maybe you could finally blah blah blah Half-Life 3.
 The regular one, not the ×1,000 one.
 Or at least, as much of the strategy we’ve seen so far.
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