Creating Competition: Global legislation and litigation to cut profits of Apple and Google’s app stores

April 29, 2022

3 min read

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What's going on here?

There is a growing trend of legislation and litigation worldwide aimed at curbing the duopoly that Apple and Google have over app stores.

What does this mean?

The Open App Markets Act, advanced by the Senate Judiciary Committee of USA on Thursday 3 February, has emerged as a flash-point in a number of legislative attempts to curb the profits brought by app stores to Big Tech. iOS and Android app developers have frequently complained about the unfair fees charged by Apple and Google on in-app purchases (up to 30% tax on the purchase), the prohibition on using external payment systems and the locking down of iOS and Android platforms to disable installing apps outside their stores.

This trend of introducing legislation to curb Big Tech’s power started last year, when South Korea banned app stores from forcing developers to use their payment system. Last December, Dutch regulators made a similar ruling against Apple. The European Union has recently approved (in draft form) the Digital Markets Act, potentially forcing mobile platforms to allow third-party app stores, and the downloading of apps directly from the web (sideloading). By breaking open the walled gardens, such legislation is aimed at increasing competition in the tech industry.

What's the big picture effect?

App stores are a big market, with combined sales of $133bn, making up to a fifth of profits at Apple and Alphabet (Google’s parent company). This global trend could cut Apple’s App Store revenue by 7%, and  Play Store’s revenue by 5%. Despite this, the legislation is not an existential threat to either Apple or Google, both having other important revenue streams, such as Google’s advertising business, and Apple’s iPhone segment. Further, the litigation between Epic Games Inc. (a video games developer) and Apple has suggested Apple could still collect a commission from app developers without requiring them to use a specific payment system. Apple proposed that developers who use alternative payment systems would simply pay a 27% fee on in-app purchases, small savings for a system users will find more complicated.

However, this trend signifies the global sentiment that the control exercised by Big Tech over app stores has to be broken. Most significantly, the Open Markets Bill was passed with bipartisan support ( both Republicans and Democrats), a truly rare occurrence. There has also been a break within Big Tech, with Microsoft and Meta siding with governments against Apple and Google. Since most app store spending occurs in video games, Microsoft favours blowing up rules that have been unfriendly to its cloud gaming services. Since Meta wishes to create the video-games heavy metaverse, along with in-app commerce expansion, it stands to gain from curbing the power of app stores.

The pressure is getting to Apple and Google, with the latter attempting to get out in front of the legislation. Google reached a deal with Spotify to offer an alternative in-app payment method, although it has not yet been disclosed what Google’s cut of revenue from this method will be. Apple, however, remains adamant against the passage of such legislation, claiming that requiring their App Store to offer alternative payment systems and “sideloading” would lead to serious breaches of customers’ data security and privacy, one of Apple’s cornerstones. However, several security experts have come out in favour of the legislation. Further, the language of the Open Markets Act includes an exception for actions necessary to achieve “user privacy, security or digital safety”. There is, then, potential for Apple to use such language to justify its current practices.

It remains to be seen whether this global trend of legislation will actually foster innovation, competition and consumer choice, or whether it will just be another politically charged and empty attempt to restrict the ever-growing power of Big Tech.

Report written by Roshni Suresh Babu

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