We are your government now

When I was a kid, the word for stealing was tax.

The bad kids at school would walk around stealing things from the weaker kids and shout “taxed!” as they did it.

The idea of tax was something someone more powerful than you took from you against your will. Be it a government or a bully.

If you want to live in society, you have to pay your taxes… or else.

Of course, many people would argue that taxes are a good thing. Look at the Scandinavian countries, they say. They have high tax rates and a high standard of living. That’s what high tax rates get you.

Others are completely against the idea of tax. Look at all the waste and corruption in government, they say. Let the free market take care of it. That’s the fairest way.

It’s a debate that will never, ever end. And I won’t further it by writing about it here.

The reason I bring it up is because of a story I saw about Google this week. I thought it was interesting because it flipped the usual situation with Google and tax on its head.

And depending on how it plays out, it will have a big effect on how Google does its business in the future.

It’s also interesting because of the parallels you can draw between a big tech giant like Google, and an actual government. The arguments both governments and Google use are very similar, as you’ll see.

Here’s the situation

If you want to develop an app for Android, you have to go through Google’s Play Store.

It’s the same idea as Apple’s App Store, but for Android, not IOS.

Google vets the app to make sure there is nothing malicious in it and then takes a 30% cut of any money it brings in. This 30% rate is Google’s tax for using its system. For living in its society.

In return for 30% of your profits, Google makes your app downloadable in the Play Store.

If your app becomes popular, Google will then also make money selling ads for other apps using the keywords for your app.

This takes away from the user experience but adds to Google’s profits. If you’ve ever searched for a specific app and found you’ve had to scroll through tons of apps you don’t want in order to find the one you actually searched for, this is why.

But remember, if you want your app in the Play Store, you don’t have a choice. Like it or lump it.

You’d have to be an unimaginably successful app to snub Google and go a different, unofficial, route.

Enter Fortnite

Fortnite is a free-to-play game that runs on pretty much every platform out there. It makes its money through in-game micropayments.

It is unbelievably popular. Everyone seems to play it, from kids to adults to grandparents to teachers to students.

It is the most popular game on the market, with over 125 million players.

So far it has generated over $1 billion for its maker, Epic Games. And it was only released in 2017. It makes around $2 million a day from iPhone users alone.

So it’s fair to say Fortnite has some clout. So much so that it’s decided to shun Google’s Play Store.

If we were to go back to the analogy, this would be like a multi-billionaire keeping their money in off-shore accounts and refusing to pay tax.

Why Fortnite decided to snub Google

Here’s what Epic Games’ CEO Tim Sweeney said about his decision in an interview with VentureBeat:

There are two reasons for what we’re doing. First, we want to have a direct relationship with our customers wherever we can. On open platforms like PC and Android, it’s possible for them to get the software direct from us. We can be in contact with them and not have a third-party distributor in between.

The second motivation is the economics of the store ecosystem as it exists right now. There’s typically a 30/70 split, and from the 70 percent, the developer pays all the costs of developing the game, operating it, marketing it, acquiring users and everything else. For most developers that eats up the majority of their revenue.

We’re trying to make our software available to users in as economically efficient a way as possible. That means distributing the software directly to them, taking payment through Mastercard, Visa, Paypal, and other options, and not having a store take 30 percent.

If you look at it, the stores on the smartphone platforms actually do very little. They’ll put ads up in front of your game. When you search for Fortnite on iOS you’ll often get PUBG or Minecraft ads. Whoever bought that ad in front of us is the top result when searching for Fortnite. It’s just a bad experience.

Why not just make the game available direct to users, instead of having the store get between us and our customers and inject all kinds of cruft like that? It’s a general criticism I have of the smartphone platforms right now.

But the system is there for a reason, say critics

The biggest concern people have with Fortnite side-stepping Google’s Play Store tax is that it will lead to chaos.

That’s because in order to install a non-Play Store app on your Android device, you need to enable adding apps from unknown and unverified developers.

Fortnite’s official app may be malware free, but fake malware-riddled copies will pop up and trick many unsuspecting users.

From The Register:

Unless Epic goes out of its way to heavily promote the fact that the game is only available from its website – epicgames.com – then millions of players are likely to search for the game through a search engine. That provides scammers with a huge opportunity to push their malware to unsuspecting users by taking out ads and embarking on SEO campaigns to appear near the top of search results.

The aim will be to invite netizens to install malware-riddled copies or variants of the game from various websites, exploiting the fact the title is not available from the official Play Store.

To download and install the game, some users may need to change their security settings to allow for third-party downloads. And that opens the door for other malware that would normally be kept off the phone – assuming that users don’t immediately put back safety controls once they have downloaded a legit copy of the game.

You see, you pay the Google tax for the good of society. When developers start circumventing the system, end users end up losing out.

At least, that’s the argument. It will be interesting to see how it all plays out. Because let’s not forget that Google will be losing out on an awful lot of money thanks to Fortnite’s strategy.

Android is an even bigger market than Apple. And if the IOS version is bringing in $2 million a day, the profits from the Android version will likely be even bigger.

Maybe Google will just decide to lower its tax and make a deal.

Because if Fortnite’s gamble pays off, it won’t be long before we see other popular developers going the same route.

This would definitely lead to more Android malware, more users getting scammed and thanks to the bad experiences, less sales of Android.

Perhaps Google would then switch to Apple’s strategy of not allowing any apps that aren’t licensed through its official app store. But then that would go against Google’s ethos of openness.

We see so many stories about big tech avoiding taxes, I thought it was interesting to see the dynamic flipped.

How will Google react to this cyber-revolt?

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Technology

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