Month: May 2021

The E.U. And Australian App Store Antitrust Investigations ⇥ theverge.com

The European Commission:

The Commission’s concerns, as outlined in the Statement of Objections, relate to the combination of the following two rules that Apple imposes in its agreements with music streaming app developers:

  • The mandatory use of Apple’s proprietary in-app purchase system (“IAP”) for the distribution of paid digital content. Apple charges app developers a 30% commission fee on all subscriptions bought through the mandatory IAP. The Commission’s investigation showed that most streaming providers passed this fee on to end users by raising prices.

  • “Anti-steering provisions” which limit the ability of app developers to inform users of alternative purchasing possibilities outside of apps. While Apple allows users to use music subscriptions purchased elsewhere, its rules prevent developers from informing users about such purchasing possibilities, which are usually cheaper. The Commission is concerned that users of Apple devices pay significantly higher prices for their music subscription services or they are prevented from buying certain subscriptions directly in their apps.

Note carefully what the Commission is saying: it is not either but both. The combination of these two rules — plus the rest of Apple’s first-party advantages, like being able to advertise across its platforms — make it onerous for other music streaming services to compete with Apple Music. You could make a similar argument about Apple’s other services and the third-party services they compete against, but the Kindle marketplace and streaming video services other than Apple TV Plus seem to be doing okay.

Tom Warren, the Verge:

Spotify previously claimed that Apple uses its App Store to stifle innovation and limit consumer choice in favor of its own Apple Music service. That complaint was followed up with a similar one by Rakuten, alleging that it’s anti-competitive for Apple to take a 30 percent commission on ebooks sold through the App Store while promoting its own Apple Books service.

Epic Games also joined many developers and companies opposing Apple’s App Store policies, and filed an antitrust complaint with the EU earlier this year. It’s part of an ongoing dispute with Apple, after the Fortnite developer publicly criticized Apple’s App Store policies around distribution and payments. This resulted in Epic attempting to circumvent Apple’s 30 percent cut on in-app purchases in Fortnite, and Apple quickly removing the game from its App Store.

Meanwhile in Australia:

The ACCC’s second Digital Platform Services Inquiry interim report finds that Apple’s App Store and Google’s Play Store have significant market power in the distribution of mobile apps in Australia, and measures are needed to address this.

From the report (PDF):

The ACCC’s examination of the operation of the Apple App Store and the Google Play Store in Australia has identified a number of significant issues which warrant attention. These include: the market power of each of Apple and Google; the terms of access to app marketplaces for app developers, including payment arrangements; the effectiveness of self- regulation, including arrangements to deal with harmful apps and consumer complaints; and concerns with alleged self-preferencing and the use of data. These issues affect competition with potentially significant impacts for both app developers and consumers.

Michael Tsai has a good collection of developer and press reactions to the App Store antitrust investigations in both of these regions.

This is the flip side of Apple’s long-mandated subscription rules — developers are increasingly furious at the gatekeeping imposed by the company on a majority of smartphone users in the United States and Japan and a large percentage of other markets like Australia and the United Kingdom. Apple’s commission-based model works because it is the easiest — and sometimes only — way to reach all of these users.

The irony of Apple’s model for third-party developers is that it would have an easier time if it were more selective about which apps were allowed to be on its platform. If the iPhone were only open to developers that Apple preselected — something like the old Apple TV model — it would simplify the argument that iOS is not a wholly open platform. By opening it up just enough — by allowing developers to build apps but not launch them without complying with the App Store’s rules, and by mandating that the App Store is the only avenue for distribution — it has written policies that amount to rent-seeking.

Regardless of the outcome of these legal battles, Apple’s position makes its platforms worse for consumers in the long term. Apple can keep playing these games over how it splits revenue with developers, nitpicking app text so that it becomes vague and unhelpful, finding circuitous paths where a digital purchase may not use in-app purchases, and so on, but users always lose. Apple has often had poor developer relations, but it is worrisome that it has broken down into an adversarial relationship with so many high-profile companies.

Resetting the App Store ⇥ ben-evans.com

The European Commission on Friday issued what it called its “preliminary view” of Apple’s allegedly anticompetitive market position in streaming music; the Epic Games trial begins today. I thought this piece from Benedict Evans was a good overview of some of the what-ifs:

$10-15bn [in App Store commissions] is real money, even for Apple, but it’s much more interesting to ask what else might change. There’s a small number of businesses where Apple’s payment rules were prohibitive, in Steve’s words, or at least made things very difficult — most obviously, ebooks and music. What other businesses do use Apple’s payment but would be fundamentally different if they had that extra margin? And what never happened at all? What products could not be built because of the ways that Apple’s sandbox works, that now might change? How significant are the changes in payment models I suggested above?

One could say that this is the classic unanswerable counter-factual — we don’t know what doesn’t exist. But a partial answer is to look at Google’s Android, which has always been run with much looser controls. Name ten really big, important, widely used Android apps that don’t exist on iOS. The obvious one is Chrome (there is an iOS Chrome app but it has to use Apple’s WebKit rendering engine), but what else? No, not something that you use, but something with hundreds of millions of users — that’s what scale means in consumer tech today.

John Gruber’s commentary from ten years ago, when Apple mandated the use of its own in-app purchase system for subscriptions, generally holds up. There are some detail quibbles — Apple has introduced tiers of commissions and created various carve-outs and rule relaxations which amount to a modest minefield for developers — but this is prescient:

This is what galls some: Apple is doing this because they can, and no other company is in a position to do it. This is not a fear that in-app subscriptions will fail because Apple’s 30 percent slice is too high, but rather that in-app subscriptions will succeed despite Apple’s (in their minds) egregious profiteering. I.e. that charging what the market will bear is somehow unscrupulous. To the charge that Apple Inc. is a for-profit corporation run by staunch capitalists, I say, “Duh”.

This has turned out to be entirely true.1 Have Apple’s rules have been an impedance to the growth of companies that depend on subscriptions? That is certainly a tough argument to make. Fortnite effectively printed money for Epic Games even after Apple’s commission. Apple’s statement to the press on the E.U. music streaming findings takes some credit for Spotify’s success; unsurprisingly, mobile users have been key to Spotify’s growth for years, coincidentally since around the time Apple launched this in-app subscription model.

I am not arguing this is right, fair, just, legal, or best for everyone. I really do think Apple pushed its luck too far by making few changes over time and being overly protective of every possible hole in this business model; now, it may end up that regulators will set some of the rules instead of Apple. More importantly, I think a lower commission rate really would make a difference for independent developers that build mostly or exclusively for Apple’s platforms, as they are what makes buying into this ecosystem such a draw. You can get Netflix pretty much anywhere, but you can’t get Deliveries or Obscura or Things or Tweetbot on an Android phone. I wonder what some of those developers could do if they had some of the money that Apple is now using to buy back shares.

But for the big companies that are instigating these lawsuits, Apple’s platforms have netted huge rewards. In-app purchases have unquestionably worked in these developers’ favour. Everyone who thinks that the App Store rules should be overhauled — which is something I agree with — or that sideloading should be permitted on iOS should see this as a ten year counterargument.

  1. Unfortunately, the next and final sentence did not fare quite as well:

    If it works, Apple’s 30-percent take of in-app subscriptions will prove as objectionable in the long run as the App Store itself: not very.

    Now that every developer sees how much money they are required to hand over to Apple if they want to allow purchases in their apps, the pitchforks have never been sharper. ↥︎