Competitive ecosystem

The dominance of app stores calls for regulation

After a brief hiatus, Google has reinstated Indian apps on its Play Store, following their removal last week. This reportedly required government intervention, after which Google decided to relist all the Indian apps. The heart of the dispute centres on compliance with Google’s Play Store policies, in terms of payment and the sale/download of these apps from outside Google Play. This is a global issue affecting not only Google Play but also Apple iStore. It has sparked high-profile litigation in the US, and the European Union has also investigated the policies of these two giants. The two control close to 99 per cent of the mobile ecosystem between them, with Google servicing Android and Apple servicing iOS.

Google charges service fees and takes a cut on payments for paid apps listed in the store, and Apple does the same. Moreover, both companies have attempted to deploy restrictive terms of service that make it hard for app developers (including large companies) to sell apps by sideloading (from outside Google Play or Apple store). This may be characterised as monopolist behaviour and the Supreme Court in India and the European Commission have questioned these practices. In 2023, the National Company Law Appellate Tribunal (NCLAT) upheld a penalty of Rs 1,337 crore imposed by the Competition Commission of India (CCI) for anti-competitive practices on Google, though it set aside several of the non-monetary penalties imposed by the CCI.

The rationale for Google and Apple to charge fees is clear enough. An app listed in the respective store receives a guarantee of being highly visible, as well as going through a vetting process where users may be reasonably certain that the app is not harmful. In principle, this is analogous to a physical supermarket chain taking a margin on the sale of products displayed within the store. However, developers say that the percentages charged are very high (around 30 per cent) and the policy is restrictive in that developers cannot easily offer the same apps in other outlets. Moreover, Android manufacturers have said Google Play should not be allowed to insist Play is displayed on the opening screen, since several of them (Samsung, for instance) offer their own dedicated stores as well.

This particular instance apparently involved Google removing many apps (including apps from several startups) that did not comply with the terms of service. The level of commissions charged would ordinarily be a matter for commercial negotiation. However, given the monopolist dominance of the digital giants, app developers may not have the leverage to negotiate better rates without judicial intervention. The other restrictive terms of service may also arguably be monopolistic. The government’s intervention is welcome but it would be temporary until and unless it is backed up by legal rulings that clearly outline what is acceptable practice. The basic problem here is the dominance of large players with market power to decide the terms of service, where most users have little choice. In such monopolistic situations, usual checks of market mechanisms don’t tend to work. It is thus often necessary to have regulatory intervention. In the present context, India needs to evolve a policy that allows free competition in this important ecosystem, benefiting both Indian app developers and mobile users.