Sullivan
Brandon Sullivan
Professor Ryan Chang
Writing 39C (33303): Argument & Research
26 May 2022
Abstract
This paper covers the ongoing debate over Apple’s monopolistic control of the iOS App Store and how it impacts app developers. Furthermore, my paper will offer insight into which of the possible solutions would be most effective at solving this issue as well as the positives and negatives of each solution. Apple, in the past, has received a plethora of news coverage following the many lawsuits against Apple from app developers. The most recent and most well known case was made by Epic Games, creator of popular video game Fortnite, and makes the claim that Apple’s 30% IAP (In App Purchase) fee, among other policies, is anti-competitive. In response to this case, many sources have proposed solutions to Apple’s anti-competitive policies, each with their own strengths and shortcomings. This paper will cover three proposals, the Open App Markets Act, the American Innovation and Choice Online Act, and the permittal of use of third party payment systems. The challenge with devising an adequate solution to Apple’s anti-competitive App Store policies is to mitigate app preferencing while lowering prices for consumers. While each proposal comes with its own merits, this essay will argue that simply permitting the use of third party payment systems is the most effective solution available at the moment.
Apple and the Debate Over App Market Monopolies
Apple’s control over the iOS App Store marketplace has become a cause for concern over the recent decade as more and more big tech companies enter the radar for potential monopolistic practices. For Apple, much of the antitrust efforts (laws seeking to maintain competition and regulate anti-competitive marketing practices) have been focused around their App Store and their role as both gatekeeper and competitor. Notable past cases have included but are not limited to: Apple Inc. vs. Spotify, Apple Inc. vs. Pepper, and of course the most recent case against the popular game company and creator of Fortnite, Apple Inc. vs. Epic Games, Inc. These cases exemplify the growing issue with Apple’s App Store policies, in that they have complete control over the iOS app market and in turn, complete control over access to the massive iOS user base. This results in negative consequences for both app developers, who lose part of their revenue to Apple, and consumers, who end up paying extra for the resulting marked up prices.
With their power over the marketplace, Apple acts simultaneously as both regulator and competitor. This combination creates an imbalance of power and inequity. A prime example of this comes from the case of Spotify vs. Apple. In March 2019, after a long series of unfair and unilateral changes to the App Store guidelines since Spotify’s release, Spotify finally decided to file a lawsuit against Apple (Spotify, n.d.). The lawsuit claimed that Apple’s policies were anti-competitive and favored their own services as Apple has their own music streaming service that competes with Spotify. The reason for the lawsuit stems from Apple’s policy which forces all purchases be made through the App Store and pay the 30% IAP (in app purchase) fee. App developers must also increase their prices to make up for the fee, thus increasing prices for consumers. The result of this chain is that Apple’s app services, which are unaffected by the 30% IAP fee, stay the same price, allowing a competitive advantage, while their competitors (Spotify, etc.) app services now have increased cost or significant decrease in revenue in comparison to Apple . By abusing their power as market regulator, Apple has effectively favored their own apps by making them cheaper than their competitors, a clearly anti-competitive practice. Thus it is necessary for Apple to be constrained in some way from abusing their power over the market.
In order to regulate Apple’s dominance over the marketplace, Several solutions have been proposed. The first, and most clear choice going into the future, is actually one that has already been suggested in court. During the case of Apple Inc. vs. Epic Games, Inc., the court decided that Apple’s 30% IAP fee is anti-competitive due to the fact that it forces developers to raise prices and pass on the cost on to consumers. Besides this however, many of Epic’s other claims against Apple were denied, resulting in minimal change except one key implementation: “A nationwide injunction permanently restraining Apple from ‘prohibiting developers from (i) including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and (ii) communicating with customers through points of contact obtained voluntarily from customers through account registration within the app’” (Sullivan & Cromwell, 2021). This means that Apple will have to allow developers the ability to embed links to third party payment systems in their apps which can avoid the 30% IAP fee. This new policy, however, was appealed by Apple to the 9th Circuit Court of Appeals, leading to a halt on any new developments until the appeal is settled. This could take upwards of months, meaning that the use of third party payment systems in the iOS App Store is still nowhere near being implemented (Axon, 2021). But while this may be the case, it is still the most effective and non-destructive solution to Apple’s monopolistic control over the App Store.
Allowing third party payment systems will give app developers the chance to choose their payment processing platform of choice and create competition with Apple’s services. With the option of other payment systems, app developers can avoid the 30% fee on IAPs. This, as has been reported by many large app development companies, ultimately leads to a sharp increase in price for the consumer. Airbnb has even claimed that complying with the IAP fee as well as the other limiting conditions Apple imposes could raise prices by 50% - 60% for consumers (Geradin & Katsifis, 2021). Providing an alternative payment option would not only lower prices for consumers, but would even out the playing field for service providers like Spotify, allowing them to charge the same prices as Apple Music for their services, reducing Apple’s ability to preference their own apps. Permitting third party payment systems requires less resources than competing propositions and will not have a cost as it is already set to be implemented in the future by court. For these reasons, permitting third party payment options is the most effective and realistic solution to Apple’s anti-competitive App Store practices.
Another solution that has been proposed is the Open App Markets Act. This act plans to stifle Apple’s monopolistic App Store practices by allowing developers to circumvent the 30% IAP fee as well as other guidelines that Apple mandates its app developers to follow in order to access the massive Apple user base (MacCarthy, 2022). The bill, approved by the senate judiciary committee on february 3 2022, would do this by both preventing Apple “from requiring developers to use their in-app payment systems as a condition of distribution in an app store” and would also “allow consumers to download third-party applications or third-party stores and hide or delete apps or app stores that were preinstalled on their devices” (Romanoff, 2022). This would effectively limit the control that Apple has over developers and promote competition between apps and app markets.
There are positives and negatives to the bill. As writer for Brookings Mark MacCarthy states, the Open App Markets Act will provide “needed regulatory oversight for both antitrust enforcement and privacy and security for mobile apps” (MacCarthy, 2022). Compared with just providing an alternative payment system for Apple apps, the Open App Markets Act also provides users with alternative app marketplaces besides the App Store. This provides app developers and users alike with even more freedom from Apple’s policies as developers would be following the third party markets’ policies and not Apple’s. It has the possibility of giving apps more freedom to interact with their user base, because as Spotify claims, Apple is highly controlling over what service options users can see and have access to. Similarly, separate app markets might allow customers to talk directly with app developers about complaints, without having to go through Apple to do so.
This, however, is also where the Open App Markets Act runs into some major flaws. A major selling point for iPhone users is the guarantee of top notch privacy and security. The introduction of other app stores onto Apple devices could result in leaks of data and other personal information upon use of said third party apps. Similar to Android devices, Apple would no longer be in control of which apps are legitimate and which apps contain malware or other invasive tracking mechanisms, potentially compromising Apple devices (MacCarthy, 2022).
This argument is the same one that Apple uses to justify the 30% fee. They say that the fee is there to offset the price of higher security standards and user data protection on Apple devices. While this may be somewhat true, according to Macquarie Research analyst Ben Schachter, Apple made an estimated $17.4 billion from app store commission in 2020 (Geradin & Katsifis, 2021). This is far more than the projected cost of providing the newest and most advanced security features to iOS devices, with the most expensive estimate coming at just around $10 billion from Facebook in 2022 (MacCarthy, 2022). For this reason, most developers believe the 30% IAP fee is unreasonable and anti-competitive.
Using third party app markets would also allow malicious apps onto Apple hardware and could compromise user data. Some scholars believe that it is necessary for Apple to have total control over their devices’ digital marketplaces due to these concerns. Although some believe that Apple’s operating system could prevent malicious activity, others disagree and warn that there are weaknesses in the operating system protection that could be exploited (MacCarthy, 2022). In contrast, some other scholars believe that the security challenges are overblown and security could be maintained or even improved through open app distribution. While the Open App Markets Act is effective at limiting Apple’s monopolistic power in some ways, it is still not comprehensive enough yet and definitely needs some work to address potential concerns listed above before it should be considered for implementation (MacCarthy, 2022).
Another solution to Apple’s anti-competitive practices is with the American Innovation and Choice Online Act. This act aims to stop corporations from gaining an advantage over competition by gatekeeping other businesses who must go through them to reach customers (Edelman, 2022). The Act will give permissions to the FTC (Federal Trade Commission) to take action against corporations violating rules stated in the Act. The act would outlaw market providers’ self-preferencing in markets. It also “prohibits a company making ‘preferred status or placement on the covered platform’ dependent ‘on the purchase or use of other products or services’” (Edelman, 2022). This would keep companies such as Apple and Amazon from discriminating against third party sellers who choose to use other products or services, meaning no special treatment for developers who decide to pay Apple’s app tax and no fee in order to have prime delivery speeds.
This act, however, comes with too many options for loopholes to be effective. It also does not necessarily cover the initial problem, which is to mitigate the 30% IAP fee. On top of this, the American Innovation and Choice Online Act would have many of the same security issues as the Open App Markets Act, jeopardizing user security. Thus the best option is to simply permit the use of third party payment systems as this is the most effective solution available.
A strong advocate for competition and open app market policies is Richard Blumenthal, United States Senator for Connecticut. A member of the Democratic Party, Blumenthal is one of several key members who have introduced the Open App Markets Act and continue to push for fair, clear, and enforceable rules to protect competition and strengthen consumer protections within the app market (Blumenthal, 2021). Other contributors include but are not limited to: U.S. Senator Marsha Blackburn; U.S. Senator Amy Klobuchar.
An advocacy group called the Coalition for App Fairness also works to promote open app marketplace practices. Their vision is to reduce app store exclusivity (developers forced to use only one marketplace to reach consumers), and promote equal access to services and competition in a marketplace. They also specifically fight against self-preferencing among platforms as well as unreasonable or discriminatory fees that are sometimes required to gain access to a marketplace. They have done work on addressing Apple’s gatekeeper status in the iOS App Store marketplace and oppose the 30% fee on in-app purchases in the Apple App Store. They also endorse the Open App Markets Act as well as other policies that address anti-competition in app markets.
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