Wardley maps, the payment war in the mobile app ecosystem

On this post I want to review several types of gameplays that Simon Wardley proposes on his book

This post is the first one of entries I want to write about gameplays used in Wardley maps. I would like to write about simple examples that enable people to understand how the gameplays work and enable conversations with all of you.

On this one, I will use a situation that is taking place in 2020: the payment war in the mobile App ecosystem.

Background

There are 3 companies that have created their own application ecosystems, enabling other companies to publish their applications in these environments and generate profits as long as the payments are made through the marketplace that these companies created. These companies are: Alphabet, Apple and Tencent.

These ecosystems are very useful, and very rich, they provide a programming language, development environments, test and production environments, a set of market rules and many other components. All this have enabled the creation of millions of applications and the creation of several companies.

These markets are highly valued assets for these large companies and are very lucrative, so any attack on this side of the moat will have an answer.

When you buy in one of these marketplaces, payments are made through it, and there is a percentage that the market itself keeps for itself. At the time of writing this article that percentage is 30%.

If you are a small company, you just have to understand that this is the case, and count it as part of the rules of the game, so you just forecast that it is a cost in your P&L. As small player, this market allows you to reach a huge number of users and the cost of reaching them would be more than 30% of turnover.

But if you are a large company, you are also willing to try to break some of the things established in these markets (considered by some to be monopolistic). Specially if you are a large company and your product knows itself, why pay 30% per transaction?

Is it a lot or a little for Apple?

If we look at Apple’s third quarter results we can find this table:

On the table, we see how services, which mainly come from the App Store, are the second segment that provides more revenue to Apple, after the iPhone.

The reference map

Well, let’s see how this one goes:

BATTLE FOR DIRECT PAYMENTS

 

August 2020, the beginning of the battle

Payment management is one of the characteristics of this market place, and it’s during the upload process to the app store when quality checks are done.

The quality processes of the app store checks if payments are made through the Apple payment gateway or if it is redirected to another site.

Apple and Alphabet detected that the Fornite application, belonging to the Epic Games company, was skipping the payment gateway, and announced that they were freezing Fornite updates to the latest published version of Fornite, not allowing new downloads or updates.

To put it in context, Fornite has 116 million users through Apple who suddenly cannot update their application, cannot be uninstalled and reinstalled, and also do not allow new installations.

Visually the situation is such that:

On one hand Apple offers a payment through its gateway, retaining a percentage of the billing, on the other hand Epic Games tries to obtain the payment directly.

The hordes of lawyers on both sides showed up, on one hand Epic Games sued Apple’s veto, and on the other hand Apple replied that Epic Games is skipping an agreement that they signed. They claim that the retained revenue is used for covering the costs of the market place.

What kind of plays are we seeing here?

Well, the ones that come to mind for now are:

  1. Move First : Epic Games is moving first against these market places. There are competitors of Epic Games that have not made a move yet, and that are very powerful economically. In the event that Epic Games get something for this daring it would be at an advantage over its direct competitors.
  2. Land grab : Epic Games’ offensive move to try to break down the status-quo of the App Store market that imposes a fee that is abusive to them.
  3. Movement restriction : Both Apple and Alphabet have for now restricted the movement of Fornite.
  4. Undermining barriers to entry : What Epic Games is doing is trying to break down a very large barrier to entry that provides Apple with a fairly large revenue line.
  5. Alliances : Apple and Alphabet brought their restriction measure almost jointly. The stakes are high and it would be necessary to watch how aligned these two giants are during this battle.

To put in context with respect to the table of types of known moves:

In yellow the plays put in place by Epic Games, and in orange the plays put in place by Apple

From here, what can we expect?

Well, everything:

  1. Alliances: It would not be ruled out for other companies to join forces with Epic Games and join the complaint filed by them.
Note : I will update this article as events occur