Legislation and litigation threaten Apple and Google’s profits

WHAT DONE do you have to master two of the biggest companies on the planet? A coalition of Swedish music streamers, South Korean politicians and Dutch dating apps, apparently. They seem to be succeeding where the US federal government has failed: forcing changes to how Apple and Google run their app stores.

Listen to this story.
Enjoy more audio and podcasts on iOS Where Android.

Your browser does not support the

20220402 WBC817

App stores are big business, with combined sales of $133 billion last year, three times the total five years earlier (see chart). Apple and Google are taking a cut of up to 30%, which would contribute one-fifth of the operating profits of Apple and Alphabet, Google’s parent company. The 30% tax started in Apple’s iTunes music store and was copied to its iPhone app store, which launched in 2008. As people came to use their phones for games , streaming and many other things, it evolved into a tax on digital activity. Sign up for a service like Disney+ on your phone and Apple or Google get a discount off your subscription forever. The apps had to use the tech duo’s payment systems and couldn’t tell users about other ways to sign up. Reproaches from app developers have forced only minor concessions: Last year Apple said it would let them link to external payment pages and Google slashed its subscription fees. Now, however, the dam is bursting.

Last summer, South Korea banned app stores from forcing developers to use a particular payment system. In December, Dutch regulators issued a similar ruling against Apple, after a complaint was filed by dating app developers. On March 23, the trend went global. Google has announced a deal with Spotify, a vocal critic of App Store fees, to let the music streamer manage its own billing. Google will reduce its commission rate, likely in line with the four percentage point cut agreed in South Korea. He says other deals are in the works.

Google’s magnanimity anticipates laws that may require greater concessions. A bill before the US Congress would force app stores to allow payment alternatives and let apps advertise other ways to sign up. A bigger threat comes from the EU(AMD), approved in draft form on March 24. The colossal bill covers various aspects of digital marketplaces, including app stores. the AMD, which is set to go into effect next year, would force mobile platforms to allow third-party app stores and the “sideloading” of apps directly from the web, which Google allows, but not Apple. Violators face fines of up to 20% of global revenue and acquisition bans. Break open walled gardens, the AMDsay it will increase competition.

Apple boss Tim Cook has warned that sideloading will “destroy the security of the iPhone”. That’s a bit much: Apple allows sideloading on its desktop computers without calamity. But Apple’s much larger share of the mobile market could make the iPhone a juicier target for malware. And the company negotiates a lot about privacy and security. Despite what the authors of the AMD Seems to believe, writes Benedict Evans, a technical analyst, that you can’t “pass laws against compromise.”

For more expert analysis of the biggest stories in economics, business and markets, sign up for Money Talks, our weekly newsletter.

This article originally appeared in the Business section of the print edition under the headline “Store wars”

Leave a Comment