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Fortnite will bypass Google’s app store. That’s a bad sign for Android

(Source: www.scmp.com)

Video game Fortnite has amassed an unrivalled following with its child-friendly multiplayer action that can be enjoyed on most modern devices. The 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 recently said it will not distribute Fortnite through the Google Play app store. Instead, Android users will need to visit the Fortnite website and disable some security features on their phones to complete the download.

The move threatens Google and highlights some of the weaknesses of its Android operating system, especially compared with Apple’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, Google and Apple take 30 per cent of the revenue that 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 did not 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,” wrote Ross Sandler, an analyst at Barclays, in a note to investors. Google declined to comment and Epic didn’t respond to a request for comment.

Google will rake in about US$10 billion this year from games, apps, e-books, movies and music distributed through Google Play. Most of that is from in-app purchases, Sandler estimated, adding that it is a crucial revenue stream that helps Google make money from Android, which is licensed for free. If more game developers take Fortnite’s route around the Play store, that revenue source could suffer.

It’s possible that with looser constraints on Android OEM contracts, we could see Facebook, Amazon or many of the Chinese ‘mega-caps’ try and enter the market for third-party app distribution

Ross Sandler

In contrast, Apple does not let iPhone users download games and other apps from outside its app store. During the last quarter alone, Apple took in almost US$10 billion in services revenue, and a big chunk of that came from its app store. The free Fortnite mobile game, which is the top-grossing iPhone game in the US, according to data company App Annie, is included in that store.

While the standard Fortnite game is free, it generates revenue from in-app purchases for additional items such as outfits and “emotes”, or character gestures. The app version of the game, which features cartoonlike characters battling to the death on a stormy island, earned US$109 million in gross revenue on mobile in the second quarter, according to a Bloomberg Intelligence report citing Sensor Tower data. Apple would take about US$30 million of that, based on its typical revenue-share deal. That is the sort of money Google will not see.

Josh Olson, an analyst at Edward Jones, said the impact of Fortnite’s absence from the Google 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 operating system, which means many devices do not have software capable of running complex games such as Fortnite.

Fortnite is compatible with roughly 10 per cent of 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.

“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 cannot ignore the Play store, but in South Korea and Japan, some app developers and messaging services – including the popular Line and Kakao messaging apps – 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. That means they can take their own cut of in-app purchases.

This approach does not 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 pre-install its search engine and Chrome web browser with the Play store.

“It’s possible that with looser constraints on Android OEM contracts, we could see Facebook, Amazon or many of the Chinese ‘mega-caps’ 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.”

More Info: www.scmp.com

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