Epic Game’s insanely popular Fornite game app has been removed from the Google Play Store and Apple app store this week. Epic tried to bypass the mandated platform billing by updating its app to allow users to pay them directly, circumventing the 30% cut that the respective platforms take from in-app purchases. To put things in perspective, Epic has paid around 360 million USD to Apple as the cut for Fortnite downloads in the last couple of years. At the same time, Apple’s Music app on the Google Play Store asks for the user’s credit card information to bypass the Play Store payment cut. Epic going all guns blazing also released a parody of the famous 1984 Apple ad -

Other disgruntled publishers including Spotify and Facebook are trying to make full use of this opportunity. Here is an excerpt from a PR piece from Facebook published this week -

We asked Apple to reduce its 30% App Store tax or allow us to offer Facebook Pay so we could absorb all costs for businesses struggling during COVID-19. Unfortunately, they dismissed both our requests and SMBs will only be paid 70% of their hard-earned revenue. 

This disintermediation is not specific to apps on mobile platforms. Youtube content creators have a way to monetize their content in the form of ‘Super chats’, where fans of a Youtube channel can give money to the creators while writing a chat (which gets highlighted). Except that Youtube takes a 30% cut of the amount. A section of Youtube content creators has even tried to form an alternate platform, ironically advertising it on Youtube. It is also not uncommon for Youtube creators based in India to advertise their UPI payment ids in their video feeds for accepting payments in some scenarios. To bypass the 20% cut taken by cab aggregators like Uber and Ola in India, drivers are canceling the ride after onboarding the rider and then accepting the equivalent amount in cash. Amazon recently admitted to using analytics on sales of goods listed by their sellers on the platform to launch their own branded products (AmazonBasics et al.) and compete with sellers. Streaming platform Twitch has a take rate as high as 50% of subscription payments made for regular streamers and somewhat less for the famous ones. Patreon started with a 5% cut of the amount received from users and then increased it to 10% citing the former amount as unsustainable, receiving some backlash.

Online marketplaces are ubiquitous. There is a marketplace for food, travel, transport, love, education, shopping, and even sneakers. If you need a shout out from your favorite celebrity, there is a marketplace for that. Traditionally, a marketplace has always been a result of unbundling of a larger service where there was a demand for a niche that remained unfulfilled or provided sub-optimal experience. Think Youtube vs a Udemy or a Masterclass.

If you are an app developer, a new platform store gives you another shot at making something that provides an early mover’s advantage. In case the platform succeeds, you reap in the benefits. Think Apple’s watchOS platform or the early indie apps on the Android platforms which went on to become huge. There would be a similar opportunity when a new device like the purported Apple glass releases, for example. If you are a VC, once the inherent problems like liquidity are overcome, marketplaces typically evolve into monopolies and are scale monsters with a network effect. Think Airbnb. As an entrepreneur, marketplaces are some of the biggest high growth things you could think of building.

Services provided by a managed marketplace

While the above platform commissions might seem excessive, it is important to note the services that they provide to the sellers. In the case of mobile app stores, the platform takes care of downloads, distribution, seamless updates to the apps, providing a readymade customer base, features such as payments and ads. In the case of Uber, it would be ready access to thousands of customers in a city. On the demand side, booking a Uber for customers is convenient, has the same experience in any city you visit, has seamless payments, and is relatively safe (no typical taxi scams in touristy cities.)

Things that grow in walled gardens

There is an ongoing protest against various platforms. Youtube creators do not want the platform to dictate the kind of content that they can create and also want Youtube to disclose the algorithms that prefer the distribution of certain kinds of content to its users a bit more over others. There is also a protest against arbitrary takedown of content. Newer artists on Spotify are unhappy with the revenue sharing model that the later follows. Spotify pools all revenues in a bucket and then distributes it in proportion to the number of listens per track to the track owners. Spotify too had its own tiff with Apple last year which resulted in Apple publishing an unusual statement -

Let’s be clear about what that means. Apple connects Spotify to our users. We provide the platform by which users download and update their app. We share critical software development tools to support Spotify’s app building. And we built a secure payment system — no small undertaking — which allows users to have faith in in-app transactions. Spotify is asking to keep all those benefits while also retaining 100 percent of the revenue.

Spotify wouldn’t be the business they are today without the App Store ecosystem, but now they’re leveraging their scale to avoid contributing to maintaining that ecosystem for the next generation of app entrepreneurs. We think that’s wrong.

Payments integration is still far from simple

While a lot of progress has been made in payments tech, it is still a second class citizen on the web. No natively built web tech solution could get you running with accepting payments to your bank account in a matter of seconds. In some countries, even the process of getting through the KYC requirements for accepting payments takes days. Then there are matters of payment processors, tax jurisdictions, handling frauds, etc. requiring you to pay a certain cut to a third party service for each of the mentioned ‘features’. There have been attempts to integrate payments natively on the web with specific cryptocurrencies (e.g. Brave Tokens) and specifications but they are yet to find mainstream adoption.

There does not seem an effective way to bypass these marketplaces and still have access to their customers. Which is fair, to be honest. If you have to put a vacation home for rent, you need Airbnb. If you are a developer, you need Apple or be prepared to forgo all revenues from iPhone users. What is not clear is what if the take rate of these marketplaces increases over time. There is no regulation that prevents the platforms from exploiting this.

Other things that matter

Mozilla has announced layoffs and a refocus of efforts. Belarus has shut down internet access to the entire country after a controversial election, more reasons to work on an internet that cannot be simply turned off by a few people. DMs that you deleted from Instagram were not being deleted in reality, oops.

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