Chapter 5: Okay, so maybe web3 enhanced games and NFTs aren’t dead!
5.7. G A Deeper Dive into the 30% Abyss
I do have one last thing.…What about developers? …We've come up with a very sweet solution.…We've got an innovative new way to create applications for mobile devices. Really innovative.…The full Safari engine is inside of iPhone. It gives us tremendous capability.…You can write amazing Web 2.0 and AJAX apps that look exactly and behave exactly like apps on the iPhone.
And these apps can integrate perfectly with iPhone services.
Steve Jobs, June 11, 2007311
"The truth is Steve Jobs doesn't care about games. This is going to be one of those things that I say something in an interview and it gets fed back to him and I'm on his s***head list for a while on that, until he needs me to do something else there. But I think that that's my general opinion. He's not a gamer. …It's difficult to ask somebody to get behind something they don't really believe in. I mean obviously he believes in the music and the iTunes and that whole side of things, and the media side of things, and he gets it and he pushes it and they do wonderful things with that, but he's not a gamer. That's just the bottom line about it."
John Carmack, August 4, 2008312
“We don’t expect this to be a big profit generator.”
Steve Jobs on the App Store in August 2008, 3 months following its launch313 In trying to understand how we got to this place with Apple, I went back and read some interviews from the early days of the iPhone and the App Store. It’s hard to believe that the iPhone launched without the ability for developers to build native apps and that Steve Jobs actually suggested that web apps were a “sweet solution” for third party apps on the iPhone. With the benefit of hindsight, it’s also remarkable that Jobs didn’t expect the App Store to generate much revenue and that Jobs’ focus was more on music than games, which legendary game developer John Carmack infamously said Jobs hated. Fast forward to present times — Apple is estimated to have made $86.8 billion in App Store revenue in 2022, $50 billion of which was attributable to games.314 (In fairness to Jobs, I don’t think he hated
311 https://mjtsai.com/blog/2007/06/13/a-very-sweet-solution/
312 https://www.eurogamer.net/steve-jobs-doesnt-care-about-games
313 https://www.wsj.com/articles/the-mobile-industrys-never-seen-anything-like-this-an-interview- with-steve-jobs-at-the-app-stores-launch-
1532527201?utm_source=Memberful&utm_campaign=5ed0c8b80c-
daily_update_2018_08_23&utm_medium=email&utm_term=0_d4c7fece27-5ed0c8b80c-110908273
314 https://www.businessofapps.com/data/apple-app-store-statistics/
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games — when Jobs dropped out of college, he took his first job at Atari (employee
#40) as a video game designer)).315
It’s also notable that while Apple always took its 30% cut on purchases made in apps, until 2011, companies were allowed to direct users to buy content in a web browser to bypass the 30% fee instead of in-app.316 In a sense, Epic Games has expended a tremendous amount of money and time over the last 3.5 years in hopes that the judicial system will restore the App Store of 12 years ago, when developers were permitted to link to alternate payment systems for in-app purchases.
If you haven’t read United States District Court Judge Yvonne Gonzalez Rogers’ September 10, 2021 opinion in the Epic Games, Inc. v. Apple Inc. case317, I strongly recommend you do so! Although a bit dated, it offers a solid background on how games are disproportionately impacted by App Store fees. To wit, Judge
Gonzalez Rogers writes:
“…the evidence demonstrates that most App Store revenue is generated by mobile gaming apps, not all apps”; “…generally speaking, on a revenue basis, gaming apps account for approximately 70% of all App Store revenue. This 70% of revenues is generated by less than 10% of App Store Consumers”; “… by contrast, over 80% of all consumer accounts generate virtually no revenue, as 80% of all apps on the App Store are free.”
In his book, The Metaverse, Matthew Ball spends a significant amount of time going over payment systems, including the origins of the Apple / Google 30%
fee structure. I also highly recommend everyone read Chapter 10, Payment Rails (as well as the entire book – it’s awesome!), where Ball runs through the
circumstances in which Apple’s 30% fee applies / does not apply and the strange economic (dis)incentives that result. A mix of Ball’s comments and mine here:
• Purchases of gaming virtual goods
• 30% fee applies, e.g., skins, emotes, battle passes, loot boxes
• Purchases of take-out food or groceries
• no 30% fee, e.g., DoorDash, Instacart
• Purchases of physical goods
• no 30% fee, e.g., sneakers on Nike, treadmill on Amazon
• Purchases / sales of NFTs in-app / internal marketplace and/or secondary marketplace
315 https://www.gamedeveloper.com/business/steve-jobs-atari-employee-number-40#close-modal
316 https://www.nytimes.com/2011/02/01/technology/01apple.html
317 https://cand.uscourts.gov/cases-e-filing/cases-of-interest/epic-games-inc-v-apple-inc/
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• 30% fee applies, e.g., purchase of virtual sneakers on Nike’s .SWOOSH app (note, however, that .SWOOSH is available via web only and this is probably why!)
• Sales of digital twin / phygital NFTs connected to physical goods
• probably 30% fee applies, but unclear
• Purchases of fungible cryptocurrencies, e.g., bitcoin, Ethereum
• no 30% fee
• User watches $10 worth of ads in-game
• no 30% fee
• User subscribes to the NY Times, Netflix, or Spotify in-app through link that takes subscriber directly to the provider’s sign-up website
• no 30% fee due to the “reader exemption”318
• User subscribes to a dating app, 30% fees generally apply, but this category is complicated based on jurisdiction319 (and likely to get more complicated as result of the recent Match / Google settlement320)
The tldr is that Apple treats games — and now NFT-based virtual goods — differently from nearly all other experiences. To be fair, it’s not just Apple that charges 30%. Game console platform marketplaces (Nintendo eShop on Switch, Sony PlayStation Store, and Microsoft Xbox Games Store), PC game marketplaces like Valve’s Steam, and Samsung and Google Play stores all also charge 30% fees on in-game purchases.321 Apple’s 30% tax is uniquely egregious because:
• Most of the overall gaming revenue comes from mobile gaming and Apple has a greater market share in mobile gaming monetization than both Google and Samsung. A recent report notes that an iPhone customer is 7.4 times more valuable than an Android customer.322
318 https://www.theverge.com/2021/9/1/22653264/apple-reader-app-exception-anti-steering-signup- page
319 https://www.theverge.com/2021/12/24/22852966/apple-netherlands-dating-apps-match-tinder-app- store-competition
320 https://www.theverge.com/2023/10/31/23941071/google-play-match-group-antitrust-settlement- epic-games
321 For a fantastic history of the origins of the 30% fee standard (and overall history of the business of games), check out Game Craft, a phenomenal podcast series by Mitch Lasky and Blake Robbins, both legends in their own right and wonderful storytellers.
322 http://www.asymco.com/2023/09/05/the-value-of-a- customer/?utm_source=substack&utm_medium=email
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• Most of the mobile gaming revenue is derived from the F2P model which relies on IAPs and ads whereas PC, console, and cloud have more diversified revenue streams.
• The App Store is closed garden and competing app stores are not (yet!) permitted within the App Store (e.g., Epic Games can’t launch the Epic Games Store within the App Store) whereas Google Play is open and side loading is possible, albeit filled with friction.
• It makes some sense for console providers to charge 30% fees because they’re generally selling console hardware below cost, which brings more gamers into the ecosystem — versus Apple, which sells its hardware at a premium.
This unfair treatment of apps / games with NFTs is further complicated by Apple’s pricing tiers. The average IAP purchase per user for iOS is $1.08 and for Android is $0.43323, whereas, the average price of an NFT in Q3 2022 was $150.324 If, for example, OpenSea decided to sell NFTs via the App Store (which it does not) and sold an Autoglyph for 200 ETH ($360,000), that would mean that seller receives only 140 ETH ($252,000) while Apple receives 30% or 60 ETH ($108,000). Even though OpenSea is permitted to sell NFTs via the App Store, it has elected to keep its mobile apps as “showcase only” with no trading support precisely for this
reason.325 Is there any reasonable case to be made for Apple “earning” $108,000 on that NFT sale? Of course not!
323 https://www.businessofapps.com/guide/in-app-purchases/
324 https://20137703.fs1.hubspotusercontent-
na1.net/hubfs/20137703/REPORTS/2022/NonFungible_NFT%20Market%20Report%20_Q32022.pdf?
utm_medium=email&_hsmi=228481357&_hsenc=p2ANqtz-- lYrCgRAiHtdZO3o2yF0bqGd_faPGqJThkcySzx-
KzVLYGadn4KE4UCgmAokCicH9WGyRYB8DaSu2nuJig-
zEeO4DE1A&utm_content=228481357&utm_source=hs_automation
325 Unfortunately, this means that OpenSea loses purchasing potential from Apple’s and Google’s 4.8 billion users via their mobile devices — or does it? See Chapter 6: web3 Wallets: the “thing that gets you to the thing” … or maybe not, at least not today
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5.7.H Web Stores and PWAs, while a step in the right direction, don’t solve