Matthew Ball's Analysis of Apple and Its (Monopolistic) Role in the Metaverse
Bits of Signum | February 5th 2021
Tim Sweeney first provided inspiration for our vision of Signum Growth Capital several years ago in his description of the “Metaverse” *and* in his drumbeat of pleas for a more open web. Similar inspiration has come from Satoshi Nakamoto’s vision of Bitcoin and its potential to create self-sovereign money, as well as Gavin Wood’s vision of the Polkadot Network as a self-sovereign Web3.0 for everything else. And I can’t forget to mention Joseph Gordon-Leavitt’s mantra which we have adopted - “Likes and followers are out. Creativity and collaboration are in!”
Apple’s actions *do not fit* into this future as Matthew Ball has (again) so eloquently articulated. The antitrust situation for gaming and for *all digital businesses* (a/k/a the bulk of new growth) is of critical importance. As Matt says in Chapter 5 of “Apple, Its Control Over the iPhone, The Internet, And The Metaverse”:
We have to care.
The very decisions that have made Apple so successful today also limit the number of creators that participate in the virtual economy, handicap the creativity of their products and business models, and make every transaction more expensive. Most important, it is blocking the organic evolution of the overall Internet.
And on Apple Store fees:
Average profit margins in the US are between 10-15%. Apple’s 15-30% cut of revenue therefore means Apple collects more profit from the creation of a new digital business or digital sale than those who invested and took risk to build it.
Apple’s fees are even harsher for businesses that focus on virtual experiences. Amazon or Uber can ask for your credit card, but purely digital experiences (i.e., a lot of the new ones, especially post COVID) may not. As Matt points out, Apple will take 30% of digital Nike sales but 0% of physical ones.
Below are a few more important excerpts, but the whole thing is worth a read!
Apple is inhibiting this future Internet. And it does so via tolls, controls, and technologies that not only deny what made and still makes the open web so powerful, but also prevents competition, and prioritize Apple’s own profits.
Apple forced using an OS, distributing an app, billing for an app together. If a developer wants to make an app, they need access to native drivers. And if a developer wants access to native drivers, their apps need to be distributed by the App Store. And if they want to use the App Store, they must adhere to Apple’s policies, which means using Apple’s billing systems.
There is no proprietary, closed system that affects more lives on a daily basis than that of iOS. Due to this fact, Apple has become a de facto regulator for the internet; a single for-profit body that wields enormous soft, hard, and even accidental power.
Wal-Mart can choose not to stock poor quality products that wastes consumer money — or consumers can choose not to buy it, leading Wal-Mart to stop stocking it. But in either case, the maker of that product can pursue other retailers or sell direct-to-consumer. But when it comes to apps, there’s only one retailer. And the market only decides when it comes to purchasing multi-purpose hardware every two-to-four years, which has no material relationship to a given app (which might not even exist at the time of purchase).
Matt pointed out that Roblox somehow slipped through the anti-gaming cracks (perhaps a “grandfathered accident”), but it likely hopes every day that Apple doesn’t exert its power. For every $100 Roblox creates, it loses $25, developers collect $24.5 in net revenue (i.e. before all of their development costs), and Apple collects roughly $30 in pure profits despite putting nothing at risk.
Apple’s cloud gaming policies prevent each of its Big Tech competitors - Google (via Stadia), Amazon (via Luna), Facebook (via Gaming), and Microsoft (via xCloud) - from operating on iOS and therefore coming between Apple and both game developers and game players.
Circuitous monopoly logic: The only way developers are better off developing only for Apple is if Apple’s OS runs all relevant devices, its standards power all experiences, and the company successfully develops the devices or services for every possible category. This isn’t true and won’t be true. And the mobile gaming ecosystem on iOS is massively bigger because developers use Unity, even when iOS drives the majority of their revenues. This is because Unity, as a cross-platform engine, allows a developer to easily reach the entire global market with their game, rather than just iOS users. With more users comes more revenues and a better game, which in turn benefits both App Store revenues and iOS users. And because Unity and Unreal are focused on being the best possible cross-platform game engines and in turn, benefit from a wide range of customer innovations, the entire game industry benefits from lower prices and better capabilities. In addition, cross-platform games like Fortnite, Roblox and Call of Duty are so powerful because they connect players across every device, rather than just the devices Apple makes.
Thanks, and have a great weekend!
Angie
Signum Growth Capital Team
Angela Dalton | Founder and CEO | angela@signumgrowthcapital.com
Max Fiege | Head of Digital Assets | max@signumgrowthcapital.com