Another Antitrust Investigation Into App Store Practices
On the 9th of February 2023, the Japanese Fair Trade Commission (FTC) identified that Apple and Google may be in breach of Japan’s antitrust laws for their app store policies.
Apple and Google make up over 99.9% of the mobile operating systems on Japanese devices. Therefore, most app developers are confined by the rules set by the two companies. Users on Google’s ‘Android OS’ can sideload apps (a process which involves users downloading apps from outside the official Google Play store). Apple bans this practice. However, if developers refuse to subject themselves to Apple’s rules, and enter its user market, they miss out on 46.6% of the Japanese consumer base.
Apple’s supporters argue that the rules yield benefits for end users. These include unifying apps into one; easy-to-find location as well as enabling strong content moderation against inappropriate content or malware downloads. Yet, the cuts taken by Apple and Google for any in-app purchases range from 15% to 30% - a charge which developers cannot currently circumvent. The FTC fear that if they force the two companies to allow third-party payments, or reduce the margins, the companies will retaliate by giving preferential treatment to their own apps in their respective app store.
This has led the FTC to recommend a series of changes. The recommendations are designed to allow greater developer freedom and suggest the integration of third-party payment systems into applications.
Action beyond Japan
This is not unfamiliar territory for the two tech giants. In 2020, Epic Games filed US antitrust cases against both Apple and Google. In the case against Apple, the developer of Fortnite relied on Apple’s behaviour alongside its high market share. Epic Games also threatened to remove their apps from Apple’s store until they meet their demands regarding lower percentage cuts and third-party systems.
In 2021, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California ruled in favour of Apple. Nonetheless, Apple was found in breach of anti-steering laws due to its ban on advertising external third-party methods of payment outside of the apps. This included platforms such as the developers’ websites. Apple has since appealed the ruling. Epic Games counter-appealed, claiming that it failed to present all of its evidence during the first hearing. The appeal process began in November 2022 and remains ongoing.
Across the Atlantic, the EU is implementing the Digital Markets Act. The Act contains laws which are designed to counteract the power of online ‘gatekeepers’ such as Apple and Google. They aim to prevent companies from becoming their own rule-makers due to the size of their market share.
What does this mean going forward?
Whilst the Japanese FTC’s findings and recommendations are not legally binding or enforceable, they reflect the global sentiment against the duopoly. Moreover, it is likely that the FTC will take further investigatory and regulatory action.
As of 2022, Google responded by allowing the use of third-party payments in non-game apps. However, this must be assessed against the fact that in 2021, gaming apps made up 67% of Google’s total app revenue. Apple is yet to make any compromises.
Despite Apple’s approach, the ongoing growth of the $130bn app industry is likely to attract regulatory scrutiny. As a result, developers and app publishers can expect greater levels of freedom within app stores and a fairer share of revenue.
By Samuel Axford