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Microsoft’s app store changes are pushing up Apple pressure

Microsoft shook the PC gaming industry this week with the announcement that it was reducing the fee it charges from selling games in the Windows Store. On the surface, it’s a welcome move, with Microsoft matching the 12 percent cut that Epic Games is taking and putting more pressure on Valve, which is still taking 30 percent down on most Steam purchases. But the cut is also a tactical move: Microsoft wants to help push Apple, and this week’s changes could play a role in the bigger app store battles starting next week.

Microsoft’s announcement comes just days before a huge lawsuit between Epic Games and Apple, and just as the EU has found problems with Apple̵

7;s rules – the company claims to have a “dominant position in the market for distributing music streaming apps through its App Store. “Microsoft has quietly supported Epic Games’ action against Apple and not so quietly urged regulators to investigate the App Store. If one of the efforts succeeds, it would directly benefit Microsoft’s software company as well as its ambitions for cloud gaming.

Epic founder Tim Sweeney has a long history with Microsoft, and it is only recently that their interests are aligned. Sweeney famously excelled at Microsoft’s efforts to control the Windows software ecosystem with its in-store and Universal Windows Platform (UWP) initiative. Microsoft has since gone back a lot of this, and the company’s more open model for HoloLens saw Sweeney share the stage with the software maker and promised Epic Games’ support for Microsoft’s mixed headset.

Tim Sweeney at Microsoft’s HoloLens 2 event in 2019.
Photo by Vjeran Pavic / The Verge

Apple’s App Store, which is at the heart of the current lawsuit, has also been a particularly sore point for Microsoft. After losing iOS and Android with its Windows Phone efforts, Microsoft has been fighting its own battles against Apple’s App Store for years. After striking out in the App Store with its own changes to the Windows Store policy last year, Microsoft will take every opportunity it can to help force favorable fees, especially if well timed. The software maker tried to launch its SkyDrive (now OneDrive) app for iPhones back in 2012, but was locked in a battle with Apple over a 30 percent cut in revenue for in-app cloud storage. It was a test for Microsoft’s real cash cow – Office on iOS.

Microsoft has also struggled to launch its xCloud game streaming service on iOS, where they would love to keep the 30 percent cut it makes on game purchases and in-app transactions on cloud versions of Xbox games. Apple is still blocking services like xCloud or Stadia, and Microsoft has had to create a web version to get around the restrictions.

While Microsoft has not filed any formal complaints against Apple, the company’s legal chief Brad Smith reportedly met with the House Judiciary Antitrust Subcommittee last year to brief the panel on concerns about the App Store and its fees. This was around the same time that Apple had commissioned a study claiming that its 30 percent cut was an industry standard. It’s hard to look at Microsoft’s PC gaming fee reduction this week and not see it as a well-timed push to help highlight the difference between PC and mobile app stores.

Microsoft’s app store on Windows is not a huge revenue driver for the company, and it already had a 15 percent cut on apps ahead of these PC game changes. Gaming is the most lucrative part of any app store, but a large number of game developers do not currently publish their games in the Windows Store. That makes Microsoft’s cut to 12 percent sensible business if it or even Epic Games wants to take advantage of the changes to argue that the App Store is being reviewed elsewhere. It also helps promote Microsoft and Epic Games’ narrative that PCs and smartphones are common computing platforms with fairer app store models.

Streaming Xbox games on an iPhone.
Photo by Tom Warren / The Verge

Microsoft also announced this fee change, which will only start in August with no solid promises to improve its ailing Windows store. It feels rushed with no obvious benefit to consumers in ways that matter, like cheaper games or a revised store. The fee cut does not apply to Xbox console games either, and the timing feels like it is also designed to prepare for future questions over the Xbox 30 percent cut by placing the PC differently.

Microsoft has previously defended its 30 percent cut for Xbox digital gaming. “Game consoles are specialized devices that are optimized for a specific application,” said Rima Alaily, Microsoft’s Deputy Attorney, last year. Alaily claims that “the business model of game consoles is very different from the ecosystem around PCs or phones” because Microsoft subsidizes the hardware, and consoles “are far below the number of PCs and phones on the market.”

But while Microsoft has been more protective over the 30 percent cut collected on the Xbox, Epic Games seems to be leaving it in place. An Epic Games director revealed in a deposit in court this week that the company has never tried to negotiate with Microsoft to avoid using its trading engine on the Xbox. “We are a significant revenue generator for all three of these platforms [Xbox, PlayStation, Switch], probably in the top five, you know, sources of revenue for them, ”admits Joe Kreiner, Epic’s vice president of business development. “So they have an interest in promoting Fortnite. We receive significant store placement that we do not have to pay for. ”

The same court filing revealed it Fortnite‘s cash cow is PlayStation, not iOS, so there’s some incentive for Epic Games to question platforms where it makes the most money and receives special marketing deals.

Fortnite generates the most money on PlayStation, not iOS.

As luck would have it, Microsoft’s curiously timely change of PC store fee was announced the same week, with the EU accusing Apple of App Store violations of the cartels. While Friday’s announcement from the European Commission focuses on music streaming apps in the App Store, the Commission is also investigating further, separate cases on e-books and the App Store in general.

European Commissioner Margrethe Vestager also revealed that the Commission is looking at Apple’s games policy in the App Store. “We are also interested in the gaming app market,” Vestager said, answering a question about the money involved in gaming apps in the App Store. “It’s really early days when it comes to it.”

Next week’s case between Epic Games and Apple starts a battle for the future of the App Store that lasts much longer than a season in Fortnite. The battle lines are drawn in several directions, and Microsoft is patiently sitting on the sidelines, hoping the app store war goes as it will.

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