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US Lawmakers Take On App Stores

Operations & Management

Isadora Teich wrote this article

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A bipartisan group of senators just introduced a bill trying to dampen the power and market control of companies that use their app stores to exert influence: aka Apple and Google.

So, what exactly is going on and what are the future implications for developers and those of us in the business of apps?

Let’s take a look.

What’s Behind This Bill?

Democratic Senators Richard Blumenthal and Amy Klobuchar teamed up with Republican Senator Marsha Blackburn to sponsor this bill. It would essentially ban app stores from requiring app providers to use their payment system.

Also, app stores would no longer be able to stop or punish app creators who offer different prices or conditions through other app stores or payment systems.

If you remember, this exact thing is at the heart of the legal battle between Fortnite creator Epic Games and Apple. Long story short, Fortnite tried to get around Apple’s payment system, so Apple banned them. Epic Games claimed that Apple is crushing the market with fees and rules and went after them in court. Apple claimed that Epic Games broke their rules, so they were within their rights to remove Fortnite. This ignited an entire storm of drama between big tech companies in court.

The latest bill comes likely after months of both Epic Games and Match Group of Tinder fame lobbying different state governments to pass such regulations.

Blumenthal said in a recent interview:

“I found this predatory abuse of Apple and Google so deeply offensive on so many levels. Their power has reached a point where they are impacting the whole economy in stifling and strangling innovation.”

Responses from Apple and Google

Apple has said a lot of conflicting things about its own app store.

At the Fortnite trial, they contended that the app store is not a business in its own right, so no one in the company actually has any idea how much income it generates. However, in response to this new proposed bill, they called the same app store an “unprecedented engine of economic growth.”

Despite not being a business, and no one at Apple having any idea how much it makes, they are proud to say that the app store provides more than 2 million US jobs.

Google did not comment, but a spokeswoman repeated information from previous company statements on this matter. Many Android devices often come preloaded with multiple app stores.

Also, sideloading, or downloading apps from non-app store sources is possible on Android devices. This means that on the surface they are less closed off than Apple devices.

Some Of The Big Issues

All of this didn’t come from nowhere. Many companies have had issues with Apple, more so than Google, for years, but things seem to have really come to ahead in the past year or so.

‘In Spring 2021, Senators actually questioned Google and Apple about their businesses after widespread complaints and accusations.

Amy Klobuchar echoed longtime complaints from Spotify and Match Group that these companies use high fees and strict app store rules to stifle competition. Developers have also complained for a long time that Apple specifically applies its rules unevenly and randomly. This means that not all companies have to pay their high fees or follow their rules.

When Senators asked Apple why Uber, for example, doesn’t have to pay their 30% fee but other companies do, Apple could not give a satisfactory answer.

“I feel like an unfrozen caveman lawyer,” Senator Mike Lee said in response. “I’m not grasping it.”

It is also alleged that Google may have threatened Match Group prior to this investigation. However, the high fees these stores require are perhaps the most contentious issue. Match reports that it pays nearly $500 million in fees to app stores annually, making it the company’s single biggest expense.

Now, a large company like Match can handle that level of high fees. However, this could be a big blow to smaller companies and developers. Also, as Match’s single largest expense is app store fees, while companies like Uber don’t have to pay them at all, their frustration is understandable.

Antitrust Measures Around The World

Many countries are either actively taking or considering taking actions to limit the power that app stores wield over the market. Currently, in South Korea, the government is working on a bill that would allow third-party payment methods in app stores.

The Coalition for App Fairness, which consists of Epic Games, Spotify, and Match Group, expressed support of this bill during a meeting with the South Korean Democratic Party.

This spring, the EU accused Apple of antitrust violations as well, and Apple could face billions in fines. In this case, the two main complaints against Apple were its policies toward in-app payments and its high fees for developers. This summer, Epic Games even made progress against Apple in Australia on the same grounds.

When Epic moved against Apple with legal action in Australia, Apple initially filed an appeal. They claimed that any litigation should be done between the companies in the United States since this is their mutual home market. Epic Games countered this and won an appeal to continue legal proceedings in Australia.

However, there is still no word on when the companies will face off in Australian courts.

On top of seeking legal action against Apple in the US and Australia, Epic Games has also done so in the EU and UK.

The US Government vs Google

While all of the headlines revolve around the global legal battle between Epic Games and Apple, there is actually a lot happening with Google in this vein as well.

In July, 37 US state and district attorneys general sued Google. They claimed that Google has bought off competitors and used restrictive contracts to maintain an illegal industry monopoly.

These accusations stem from a country-wide investigation that started in the fall of 2019. It has already resulted in 3 other lawsuits against Google.

According to Google, this is all about boosting the complaints of a few large developers who want preferential treatment.

However, based on internal company documents, the states allege that Google has done things that sound a lot like bribery and conspiracy. Allegedly, Google has paid developers so they don’t support competing app stores and engaged in secret projects to hamper competition.

Utah Attorney General Sean Reyes said in a statement:

“Google Play is not fair play. It must stop using its monopolistic power and hyper-dominant market position to unlawfully leverage billions of added dollars from smaller companies, competitors and consumers beyond what should be paid.”

Final Thoughts

So, what will this mean for the future of developers and app-based businesses? It really has yet to be seen, as many of these cases or government actions are in various stages in different parts of the world.

One possibility we have discussed before on the blog is alternative app stores rising in popularity. Simply put, many people and institutions have issues with the biggest app stores. Developers don’t like them because of their high fees, for example.

At the same time, many consumers take issue with their lack of attention to their safety. The main stores have been found to host a concerning number of scam apps pretending to be normal astrology apps, gaming apps, and more. At the same time, several different governments are taking steps to limit their power and influence.

If these companies are actually stifling innovation to benefit themselves, we may actually see big changes to the app market should they be regulated. If this happens, however, it will not happen overnight. We simply have to wait and see.

What do you think? Are Google and Apple running illegal monopolies via app stores? Or is this simply other companies trying to get around their fees by making it a moral and legal issue? Or is the truth somewhere in the middle?

Comment below.

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