Fortnite has picked a favourite in the battle between Apple and Android

Fortnite is already so popular on personal computers and other devices that Epic Games decided it didn’t need Google’s help and chose to keep that 30 per cent for itself.

By: Bloomberg | Updated: August 8, 2018 5:49:26 pm
Fortnite, Epic Gmes, Epic Games Fortnite, Fortnite Samsung, Fortnite Android, Fortnite for Android, Fortnite update, Fortnite on Galaxy Note 9, Galaxy Note 9 The move threatens Google and highlights the weaknesses of its Android operating system. (Image: Bloomberg)

Fortnite amassed an unrivalled following with kid-friendly, multiplayer action that can be enjoyed on most modern devices. The video game’s creator is using that popularity to challenge one of the most-entrenched business models in the mobile industry: the app store. Epic Games Inc recently said it won’t distribute Fortnite through Google’s Play app store. Instead, Android users will need to visit Fortnite’s website and disable some security features on their phones to complete the download. The move threatens Google and highlights weaknesses of its Android operating system, especially compared with Apple Inc’s offering, analysts said.

Outside China and a few other Asian countries, most mobile game companies list their creations on the app stores that come pre-installed on Android phones and iPhones. In return for providing a massive potential audience and handling user identity and payment details, Alphabet Inc’s Google and Apple take 30 per cent of the revenue games generate. They pull in billions of dollars a year from the arrangement. Fortnite is already so popular on personal computers and other devices that Epic Games decided it didn’t need Google’s help and chose to keep that 30 per cent for itself. While Fortnite is a special case, some analysts think it sets a worrying precedent for Google and shows how Android is potentially less lucrative than Apple’s iOS operating system.

Fortnite’s move “could be a precursor for a possible shake-up to the current model of Google Play collecting 30 per cent taxes on game developers,” Ross Sandler, an analyst at Barclays, wrote in a note to investors on Monday. Google declined to comment and Epic didn’t respond to a request for comment. Google will rake in about $10 billion this year from games, apps, ebooks, movies and music distributed through Google Play, and most of that is from in-app purchases, he estimated. It’s a crucial revenue stream that helps Google make money from Android, which is licensed for free, the analyst noted. If more game developers take Fortnite’s route around the Play store, that revenue source could suffer. In contrast, Apple doesn’t let iPhone users download games and other apps from outside its app store. During the last quarter alone, Apple took in almost $10 billion in services revenue, and a big chunk of that came from its app store. The company lists the free Fortnite Battle Royale mobile game, which is the top-grossing iPhone game in the US, according to App Annie.

Also Read: Fortnite’s guided missile is making a comeback in the game

While the standard Fortnite game is free, it generates revenue from in-app purchases for additional items like outfits and “emotes,” or character gestures. The app version of the game, which features cartoon-like characters battling to the death on a stormy island, earned $109 million in gross revenue on mobile in the second quarter, according to a Bloomberg Intelligence report citing SensorTower data. Apple would take about $30 million of that, based on its typical revenue-share deal. That’s $30 million Google won’t see. Josh Olson, an analyst at Edward Jones & Co, said the impact of Fortnite’s absence from the Play Store goes beyond the company’s financials, setting Google behind Apple in its ability to capture a younger gaming audience. “You want to win the content battle,” Olson said.

Even if Google could lure Fortnite into its Play store, the fragmented nature of Android would limit the internet company’s revenue from the game. A fraction of Android phones have the latest version of the operation system, which means many devices don’t have software capable of running complex games like Fortnite. Fortnite is compatible with roughly 10 per cent Android phones, or 250 million of the 2.2 billion users, Barclays’ Sandler reckons. In contrast, most iPhones have the latest iOS version, making them more capable of handling demanding apps.

Also Read: Fortnite might be made available to Samsung Galaxy device owners via Samsung Galaxy App Store

“The vast majority of Android’s installed base are lower-end handsets with less functionality and in markets with low per-capita-income (hence are not spending as much as iOS users),” Sandler wrote.

The analyst has a potentially bigger concern, though. Most mobile game makers can’t ignore the Play store, but in Korea and Japan, some app developers and messaging services, like Line and Kakao, bypass the traditional app store model, even on certified Android phones, Sandler said. These companies already have users’ identities and payment details, and they can distribute and promote mobile games on their own. So they can take their own cut of in-app purchases. This approach doesn’t exist in the West, but it could spread beyond Asia, Sandler said. The European Union’s recent antitrust ruling against Google required the company to stop forcing phone makers to preinstall its search engine and Chrome web browser with the Play store.

Also Read: Fortnite ploy highlights Google’s Android weakness versus Apple

“It’s possible that with looser constraints on Android OEM contracts, we could see Facebook, Amazon, or many of the Chinese megacaps try and enter the market for third party app distribution, and grab some of the economics going to Google Play,” Sandler wrote. “This is a development we will be watching closely over the coming months.”

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