IDFA and Apple’s legal battles actually mean 60% larger audiences for game developers

During the “The Apple Ecosystem Challenges” panel, presented by Xsolla at GamesBeat Summit Next, panelists discussed how the changes to the Apple app store ecosystem offer challenges, but also potential opportunity, from the IDFA deprecation to Apple’s various legal battles.

How a class action lawsuit is breaking open the market for developers

It began when Apple and Google moved to remove Epic from their stores after Epic added a link in Fortnite asking players to pay them directly, rather than paying through the in-app processing.  Epic was ready with a federal lawsuit, accusing both of antitrust violations under the Sherman Antitrust Act. The court held in Apple’s favor, explained panelist Rick Hoeg, host and founder of Virtual Legality on YouTube, and in favor of section 3.1.1 in Apple’s app developer guidelines — which prohibit developer metadata, links, and calls to action.  And as a result, the 30% fee that goes to Apple still stands. But developers have options, says Chris Hewish, president of Xsolla.

“What we’re seeing a lot of developers and publishers do now is spinning up web shops that are basically stores for their games, or a version of their games on the web that links back into the app itself, in the app store, on the back end,” he explained. “They’re driving users to that web shop and monetizing them there. Doing it this way, at least from our perspective, they’re paying anywhere from 7 to 10% versus a 30% fee.”

Developers like Supercell have also implemented top-up pages, and companies like Nexters and Scopely have created web shop versions of their games. It’s a strategy that’s been around awhile, in which bigger companies reach out to their players through Discord or in other ways online to direct them over to these proprietary stores.

That’s changed since the ruling with Epic versus Apple, and subsequent changes to the app store guidelines last Friday. In response to a class action lawsuit from another developer, Apple removed guideline 3.1.3, which prohibited developers from using information or contacting players based on information they got in the app, and guideline 5.1.1, which restricted how developers used the data. Now mobile developers can collect information about players in-app and then use it to contact the players and direct them to these alternative stores.

Smaller mobile publishers and developers have now seized this opportunity, which overall nets them a savings of about 20 cents on the dollar, Hewish said.

“What we’re not seeing yet is people that are actually putting new payment systems into an app, or creating ads in an app that drive users outside of the app store,” Hewish said. “That still, from our perspective, is a no-go zone.”

“But one thing that’s been widely misunderstood is those calls to action — if they are implementing a 3.1.1 change directly in the app, hitting a button and going and spending money, [that] probably still accrues some amount of fees to Apple,” Hoeg noted. “The court was pretty adamant about the fact that Apple has a right to get some amount of money for using its IP.”

But whatever choice a developer makes, whether that’s on the store or going off on its own, there’s still a big cost around customer support, handling taxes, VAT compliance, chargebacks, the server and platform fees, and so on, Hewitt said. Somewhere along the way those have to be paid.

“The immediate opportunity is the fact that people are waking up to the reality that there is a bigger world out there to do business in,” he said. “Getting your game onto the web and driving business there through Google ads or whatever it may be, through more personal relationships with your players, you gain access to up to 60% larger audiences when you start to look at a lot of the other territories around the world.”

Why IDFA is making creative the new king

“It’s nothing to do with privacy,” said Brian Bowman, CEO, ConsumerAcquisition.com, about Apple’s IDFA changes. “It has to do with Apple losing control of merchandising the app store.”

If privacy was really their concern, he asserted, they would have put app tracking transparency on their own apps when they launched 14.6, and added the pop-up window asking whether the consumer was okay with being tracked by their Apple products, instead of calling it “personalization.”

“It’s Apple exerting monopolistic capabilities because they can,” he said. “They’re clearly on the path to trying to launch another ad network. They failed twice. I would highly suppose that they’ll fail a third time unless they’re willing to build something that’s elegant and allows people to target with efficiency that has been lost.”

Across the board, IDFA has impacted both targeting and measurement, which has had a pretty major impact on the effectiveness of both ecommerce and user acquisition. Q3 is the first quarter companies have seen the full impact of the measure. The more that an advertiser focuses on direct response advertising, the greater financial loss there appears to be to their business. Most companies expect Q4 to be just as bumpy, with less efficient spend: more money on ads to get the same number of sales, without enough data to effectively measure the sales they’re getting.

“Over the past decade we’ve all built our models, our lifetime-value models, the way we analyze and work on things, to take into account this kind of deterministic certainty,” Bowman said. “When that gets removed, very quickly the whole industry has to spin and figure out how to take advantage of it.”

The answer is going to be contextual advertising, Bowman says.

“Unity and AppLovin have a good chance of growing through this, for two reasons,” he says. “One, they’ve been contextual at their core for years, and two, everyone is scrambling to try to recover lost efficiency coming out of some of the other channels, so they’re exploring these new guys in ways that they may not have before. Now they’re very focused on that.”

For Bowen, the way out for developers is clear.

“Creative is king now,” he said. “Since the algorithms have changed fundamentally, the last lever you have control over is to do better creative. It’s obviously very hard to do.”