Epic Games, the creator of the hit game Fortnite is launching its own mobile app store for Android devices this year. It will run as a standalone Android app that will likely be downloaded from Epic's website instead of Alphabet 's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google Play and will run its own non-Google app ecosystem within Android.
Epic will let developers on its platform retain 88% or app's revenues, compared to just 70% on Google Play and Apple (NASDAQ: AAPL) App Store. Epic's 1
Therefore, a developer using the Unreal Engine retains only 65% of the app's revenues on Google Play or the App Store (compared to 88% cut on Epic's store). This could be a huge selling point for developers, since many high-end mobile games – including PUBG Injustice 2 and Epic's own Fortnite titles –
This represents Epic's second attempt at pry gamers away from Google Play. Last year it initially partnered with Samsung (NASDAQOTH: SSNLF) to launch Fortnite Battle Royale as an exclusive Android game on its Galaxy Apps Store.
After the exclusive deal expired, epic offered Fortnite as a standalone APK installation package on its website instead of Google Play, which enabled it to retain 100% of the game's revenues. Sensor Tower, which keeps an eye on app data, estimates that epic's snub caused Google to miss out over $ 50 million in revenue last year.
While Android is an open source OS that lets companies like Epic and Samsung install their own Apps and cut Google out of the revenue-sharing loop, Apple's iOS is different. It is a closed-source ecosystem that bans the installation or external apps.
Smaller developers wouldn't go it alone, since Google Play gives them much needed exposure, allowing users to review them, and makes them easier to install. However, companies that already have large followings – like Epic and Samsung – have the luxury of asking their users to install their apps from their websites.
A rebellion against "app store taxes"
Several other companies have sidestepped Apple's and Google's "app store taxes" before.
In 2015, Spotify offered subscribers cheaper prices if they signed up on its website instead of its iOS or Android apps. The strategy prevented Apple from collecting a cut of its subscription revenues. Netflix also recently tested a feature that redirected iOS users to its website to pay for subscriptions, which also allowed it to avoid Apple's App Store fee.
But that rebellion isn't only on mobile devices. Over the past few years, several top video game publishers rebelled against Valve 's Steam, the biggest DRM (digital rights management) platform for PC games in the world. Those publishers – including Electronic Arts and Ubisoft – created their own DRM platforms for their own top games and pulled them from Steam.
That's why it wasn't surprising when Epic recently launched its own DRM platform for PC games. Like its mobile store, Epic's PC gaming platform will only take a 12% cut of a game maker's revenue (which includes the Unreal Engine royalty), compared to Steam's 30% cut. Its new mobile app store on Android is an extension of that strategy.
Should Google worry?
Google does not regularly use its growth in Google Play revenue. However, Newzoo estimates that Google generated $ 2.85 billion in gaming revenue from Google Play in the first half of calendar 2018, which equals only 4% of Alphabet's top line in the first half of fiscal 2018.
However, epic could still cause headaches for Google if it is delivered the popularity of Fortnite to promote its own app store. That defiance could incite other makers of popular games to rebel. If that happens, Google could be forced to reduce its 30% cut and offer more perks to its developers. The retreat wouldn't cripple Google Play, but it would fall further behind Apple – which reportedly generated 93% more mobile app revenues than Google during the third quarter of 2018.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Netflix. The Motley Fool has the following options: long January 2020 $ 150 calls on Apple and short January 2020 $ 155 calls on Apple. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy