Deconstructor of Fun

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Mobile Gaming After the Digital Markets Act

Written by Michail Katkoff, founder of Deconstructor of Fun and a games industry veteran with 15 years of experience in building, operating, and scaling games and game companies.

He’s also something of a protein smoothie sommelier. Now you know what’s the best way to “grab a drink” with this lad…


Why are we talking about the Digital Markets Act?

For the past year, governments across the EU, China, South Korea, Japan, and even the US have been looking at how digital markets operate and assessing that there is some unfairness there. An unfairness that we in the mobile game industry have experienced a tightly controlled distribution landscape for our entire industry's lifetime.

Today governments are, for the first time, assessing whether or not, these are illegal business practices that they have to deal with. The implication of government actions will bear consequences on mobile games and apps that are being distributed in the future. That has a massive effect on the mobile app ecosystem, which is why we’re talking about it.

The DMA framework is a massive divergence from the way of thinking about competition policy before. 

It starts by designating certain core platform services as a fundamental infrastructure of the internet-type entities. So this would be something like app store distribution. From the lenses of DMA, this is seen as a public good utility that needs to be operated in a way that promotes competition.

Then the DMA designates gatekeepers that operate these core platform services. These are very large companies that have massive influence and as gatekeepers, they have a certain set of obligations. They have to demonstrate that they are creating fair, reasonable, and non-discriminatory policies that aren't preferencing their own products or blocking competition (case: Spotify vs. Apple Music). 

The gatekeepers have the legal obligation to prove they are complying with these obligations. This is very different from how you might think legal cases work. Think of it as guilty until proven innocent rather than the other way around. 

Apple “Heads I win, tails you lose!” 

DMA came with big promises! It was supposed to bear good times for advertisers, publishers, and web store vendors alike in three meaningful ways:

  1. Allow apps to link ads to web stores and offer third-party payments. 

  2. Allow side-loading and third-party app stores.

  3. Give developers access to more complete data from the platforms.

After the DMA went through Apple’s greedy hands, they proposed the following:

  • Reduce fee for alternative App Store's to 17% with a 3% processing fee

  • Introduce an annual runtime fee of 50 cents for yearly downloads exceeding 1M

  • Subject third-party app stores to Apple's rigorous checks scare screens 

At the face value, Apple’s proposal is preposterous. Annual 50-cent runtime makes Unity’s initial runtime fee proposal look almost reasonable, especially since that fee is paid for the luxury of “Apple’s core technology services”, which are vaguely defined.

Yet if you further analyze it, there are some games that could benefit from switching to Apple’s proposed alternative. 

If your game makes more than $5 per user per year in in-app purchases, the model will make your game even more profitable due to the reduced tax rate on in-app purchases. As we know, all successful core and casino games fit this description.

However, there’s the issue of acquiring spenders. Post-IDFA core games focused on broadening their funnel with creatives and accessible play modes. This was done because targeting became very difficult. Yet the 50-cent fee on every install means that the publisher should avoid broad targeting and focus on attracting payers only – again. 

Can targeting of payers be done effectively in 2024? Or is Apple’s proposed option reserved only for games that are in the mature phase of their lifetime? The installs are modest, and the revenues are high due to the existing core base of users that are retained. 

But beware. You can only make this change once. Apple allows you to revert back to their original distribution model where they will take 30% of all your in-app purchases for as long as your app is downloaded from their App Store. But if you give it another go, that’s final and Apple will never take your app back to the App Store and will continue to charge you 50 cents per install for their “core technology services”.

EU “We’re not messing around…”

The way that governments are interacting with the app stores now is completely different from how it's been done before. There’s resistance from Apple and Google, but the EU has teeth now.

EU's enforcement mechanism for this is particularly interesting because it's done not at the member state level but at the Commission level. The only real precedent for that is GDPR. We know the tangible effect that legislation had. 

All of this means that legal cases will not be held up in courts for years. If these gatekeepers (big tech companies) are found to be non-compliant with the DMA they will be fined between 5% to 10% of their global turnover. 

The enforcement began on March 7th. It took three weeks for Apple and for the EU to announce its first investigations and non-compliance.

Linkouts and Anti-Steering Policies

Picture this. You’re browsing Instagram. You see an ad for a game. You tap on it to download and instead of the app store owned by Apple or Google, it takes you to a website, where you can download the game from. And since the developer didn’t use app stores to distribute it, they waived the app store tax.

That’s a linkout in theory. But Apple sees it in a different way…

There's another very important set of policies called anti-steering policies that block publishers from steering users to alternative payment methods or alternative install methods from within an app that Apple has distributed. 

So if I have an app that I’ve distributed to players through the App Store I have real limits on what I can do within that app to inform users about or link them to anything that is competitive with that App Store or its payment systems.

Because of the way Apple sees it, if I download Instagram from Apple’s App Store, Instagram cannot show me ads that steer users to alternative payment methods or alternative install methods. This would naturally make it very hard to offer alternative services to users.

How the linkout is going to shake out is an essential question. Apple’s interpretation seems to be anti-competitive. 

The likelihood of the first theoretical scenario panning out to be true is, in my opinion, high. We already have the court ruling in the Epic vs. Apple case that it was anti-competitive for Apple to prevent informing or directing users to competitive payment channels.

Apple's response to that was of course the 27% fee. They said you can link out to an alternative payment channel, but A) you have to go through a submission process with us and we have to approve it. B) you can only do it in this kind of language. And C) we'll charge you 27% on everything you sell through anyone who's linked out, as opposed to 30%.

But that has been appealed by Epic in April, and they've had hearings on it the last two weeks. The judge in the USA seems very skeptical of Apple's compliance with her ruling in this case.

Future Outlook

The future is positive because a lot of non-regulatory factors are driving it.

Technology improvements, HTML5 distribution and cross-platform are key factors when driving alternative payments revenues. The regulation will continue to develop in ways that are favorable for developers because the EU seems like it's got teeth.

We should watch what happens in the USA, notably, Epic v Google. Because Epic won that, but the judge has yet to issue a remedy. That should happen soon.

Then there’s Apple vs Epic. We'll see whether the 27% link-out policy is fair. And then the big one in America is the Department of Justice case against Apple.

DMA could be the thing that rescues the mobile games industry. It could be as good for the industry as IDFA was bad for it.