Monopoly power

Global digital ecosystem should be made competitive

The ongoing legal battle of Epic Games versus Apple and Google could redefine the app ecosphere. The fundamental issues centre on monopolistic power. Epic accuses Apple and Google of monopolistic abuse in the respective app stores — App Store (iOS) and Google Play (Android). In turn, Apple and Google accuse Epic of breaching the contract. Epic filed suits against Apple and Google in August 2020; Google and Apple filed counter-suits against Epic. Both Epic and Apple have appealed a judgment in California. There is also ongoing legal action in the European Union. Legislators in many nations are also examining the high concentration of the smartphone ecosystem, and crafting new legislation to regulate this. Apple’s App Store and Google Play hold dominant market shares. Apple generated $72 billion revenues from the App Store in 2020. Google Play revenues were $40 billion. Indian apps contribute 2-3 per cent, with Android holding 99 per cent of India market share.

The negative effects have been noted by a bipartisan US Senate Committee, after complaints by companies like Spotify and Tinder. The Senators said Google and Apple might “exclude or suppress apps that compete with their own products” and “charge excessive fees”. Both stores charge 30 per cent commission on in-app revenues, for apps with $1 million or more in annual gross revenues, and 15 per cent for apps with revenues below $1 million. Only 2 per cent of aggregated revenue is from apps in the below-$1 million category. Both giants claim the high commissions are needed to cover the costs of vetting apps for security, and for setting up secure payment systems. Both insist in-app transactions are processed by them, not third parties. Hence, they collect data, which helps them build in-house apps. Apple also insists apps do not mention alternative payment options. Apple blocks “sideloading” — downloads from outside the App Store, allowing this only for a few apps, under opaque criteria.
 

While Android allows sideloading, Google Play’s restrictive terms and high charges may provoke an alliance of Indian developers to set up an independent app store, serviced by fintech companies like Paytm. Although dwarfed by Google and Apple, Epic has a huge presence, with cutting-edge 3D technology and popular games. The bestselling Fortnite has over 350 million accounts and 2.5 billion friend-connections. Epic launched Fortnite in its own store, at a discount to the Google Play and App Store prices. Google and Apple claim this broke the terms of service (ToS). A California court ruled Epic did break ToS for App Store but also ruled Apple cannot prevent its messaging about alternative payment systems. Hence, both appealed.

Given the legal tussles and multiple complaints, legislators must reduce the scope for abuse. A competitive ecosystem would allow sideloading; allow any in-app communications; and enable multiple, alternative payment systems and distribution channels. In addition, developers should get access to the same features made available to in-house Apple and Google apps. Apart from proposing such changes, America’s draft Open App Markets Bill suggests Google and Apple refrain from “leveraging non-public information” collected via payment platforms to create competing apps. The EU is drafting a similar digital markets law. So is the UK. Gamer haven South Korea has already passed such legislation. This should result in a more competitive and equitable app ecosystem.