This is just the start of the wars between Apple and Google over app stores

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Newsletter: #techFT

Apple often describes the App Store as the democratization of software. As of 2008, developers around the world can use Apple’s code to create new smartphone apps, and users can find and try them out there, knowing the company has verified the offerings.

Now the App Store and its rival Google Play are under attack as relentless monopolies that put the competition at a disadvantage and extract unfair commissions. Last week, South Korea enacted the world’s first law allowing cellphone users to bypass tech groups and pay app developers directly. In a recent settlement with the Japan Fair Trade Commission, Apple was forced to create payment bypass for certain subscription apps. The EU and India are also surveying app sales and Australia could get started.

Meanwhile, an American judge is considering Fortnite-Maker Epic Games claims Apple’s 30% commission on app sales and in-app purchases is an illegal monopoly. Epic’s lawsuit against Google is ongoing, and U.S. Senators are waiting with a bill that allows developers and customers to bypass official app stores.

Big Tech complaints aren’t new, so why has this issue caught on fire? Simplicity is one of them. Rather than new legal issues, the fight against app sales is all about the money. Powerful and well-funded opponents help advocate for change. Epic chief executive Tim Sweeney fought the App Store for years before filing a complaint, and Brussels’ interest was sparked by a 2019 complaint from streaming group Spotify.

There is ample evidence of the financial benefits of commission billing. In 2019, Google’s parent company Alphabet made around 20% of Play’s operating profits, even though it only made up 10% of revenue. Apple groups the App Store into “services,” a category that accounts for one-fifth of revenue, one-third of gross profit and almost all of margin growth, says Joseph Evans of Enders Analysis.

Regulators, lawmakers and judges are also on familiar ground when examining whether Apple and Google are unfairly using app store control to exclude competitors and extract rents from developers. The bundling claim – using the dominance of one type of software to gain an advantage over another – was at the heart of the 1990s case to dismantle Microsoft. Although the company eventually made a deal, the pressure is often attributed to creating a space for Google and Apple to thrive.

High-end department stores offer a parallel. Luxury brands like Chanel or Hermès often enter into concession agreements with them. Although terms vary, the brand provides the product while the store provides the real estate and sales staff, and typically takes a 25-40% discount.

With that in mind, the 30% app commissions seem hard to justify. Apple and Google provide the underlying code, sales platform, and curation that encourage users to download apps. But their costs are much lower than a store because the selling process is automated and they sell phones rather than renting or buying real estate.

Claims that Google and Apple need control of the App Store to protect users also appear selfish. Epic Test Papers Show Apple Reviewers Spent On Average 13 minutes on each application. No wonder scams have sneaked in on several occasions. Curation is another income opportunity: Apple sells the first position after a search. Ask for the Ringo parking app and you get Uber. Put on Lyft and you see Bolt.

This may explain why Google and Apple do not hesitate to retreat strategically. Both companies have already reduced commissions to 15% for small developers. Apple has avoided a fight with Amazon by exempting the Prime app from paying a commission on video sales. Over the past two weeks, it has relaxed global payment rules for some small developers as well as Netflix, Spotify and other “player” apps that allow subscribers to access content across multiple platforms. Notably, these concessions exclude Epic and other big game developers who account for most of the app’s revenue. Spotify called them insufficient.

Google insists that app payments allow it to keep the Android operating system free, while Apple contends that letting users “load” apps purchased outside would lead to lawlessness. Big Tech may have conceded a few battles, but it remains rooted in a long war.

brooke.masters@ft.com

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