Apple May Finally Have to Answer for Its Unfair App Store Policies

An antitrust investigation in the EU combined with controversy over a new email app spell trouble for the tech giant

Photo: picture alliance/Getty Images

Just days before Apple’s annual developer event, the European Union hit the company with a bombshell: It’s beginning an antitrust investigation into Apple’s App Store rules. Spurred on by Spotify, which has publicly called for scrutiny of Apple’s anti-competitive practices, the investigation will focus on whether the App Store’s payment rules are fair.

For years, developers big and small have expressed concerns about Apple’s rules around in-app purchases and subscriptions. While developers can distribute their apps on the App Store for free, Apple requires that in-app purchases and subscriptions use its own billing tools, which demand a 30% cut of revenue.

Apple’s rules also forbid developers from sending their users to a website to pay instead, which would allow companies to use their existing payment mechanisms and dodge the fee. Services like Amazon’s Kindle and Netflix don’t use Apple’s payment services, so they must leave it up to users to figure out what to do to get access — they aren’t allowed to mention the requirement to manually subscribe outside of the app.

This is further complicated for companies that directly compete with services offered by Apple.

In the case of Spotify, for example, if the company used Apple’s payment system, it would find itself competing with Apple Music while being forced to allow the company to take a slice of its revenue when it loses users to Spotify. Instead, Spotify has joined companies like Netflix in forgoing Apple’s payment services.

Proponents of Apple’s approach argue that the company created the App Store platform on its own, and that it should be able to charge whatever it wishes for other companies to use it — which seems like a fair point when you consider that Apple incurs costs for running the platform in the first place.

But that’s an oversimplification of what’s actually going on here, because the many rules Apple enforces make it difficult for other developers to compete — especially when Apple is a direct competitor in a given category, as with Apple Music versus Spotify, Apple TV+ versus Netflix, and so on.

It’s largely been this way ever since the App Store launched. The absurdity of Apple’s rules was first exposed in 2011, when Apple demanded Amazon remove a link to the Kindle web store from the Kindle app:

  • Amazon runs the Kindle platform, which distributes books, creates physical hardware, and maintains its store — which Apple has no part in.
  • Apple demanded that Amazon pay 30% of each sale of a book within its iOS app, despite Amazon having its own payment service and store.
  • Amazon could offer its app as a reader on its own, but it is forbidden to mention the existence of the store on the web, leaving customers to connect the dots.

In the end, Amazon chose to keep the Kindle app available on iOS, without offering any way for consumers to buy e-books.

In recent years, however, Apple has become emboldened to go after revenue that originates outside of its platform in the first place. Email platform Hey, created by the team behind project management tool Basecamp, found this out firsthand on the day the EU investigation was announced.

David Heinemeier Hansson, one of the creators of Hey, said on Twitter that Apple demanded the use of its payment APIs for Hey’s subscription service. In a rejection letter from Apple’s App Store review team, the company specifically points to the pricing page on Hey’s website and says that “customers must be able to purchase access to features or functionality in your app using in-app purchase.”

For Hey, the choice will be between losing any potential customers who use an iPhone — no doubt a gigantic number — or begrudgingly accepting that it needs to give up a large chunk of its revenue simply to exist on iOS. It’s not as if it could allow users to side-load the app from outside the store, given Apple doesn’t allow that, either.

This example is probably the most egregious, and it also explains why this case is important: It demonstrates that Apple is demanding a cut of unrelated, off-platform software-as-a-service revenue that it does not contribute to in any meaningful way. It also shows how the rules are applied inconsistently; Slack, for example, offers a paid tier for business customers similar to Hey’s subscription service, but Apple does not require in-app purchases from that software. Should every app that connects to a paid website be subject to Apple’s fees?

That revelation has led to a flurry of app developers saying that they’ve noticed Apple has started pushing this angle aggressively, demanding they add in-app purchases despite following guidelines that had applied in the past, like in Amazon’s case. Match Group, the owner of Tinder and Hinge, as well as Epic Games, the company behind Fortnite, have also spoken out against these practices.

In its defense, Apple has said that the investigation is “advancing baseless complaints from a handful of companies who simply want a free ride, and don’t want to play by the same rules as everyone else.” But Apple’s statement misses the point: Those rules are fundamentally unfair and unevenly applied.

How to fix the App Store

There are many potential routes Apple could take to make the App Store more competitive. The first, most obvious route would be to allow sanctioned third-party payment gateways in the App Store, as Google has with Android. Apple could still require developers to pay a lower percentage of their revenue to recoup costs, and its own payment service would remain competitive, as it demands much less engineering effort to implement versus a bespoke option.

In cases where Apple competes in a category, such as music or streaming TV, it should lower the fee to zero, or allow apps to link out to their own websites to avoid the 30% cut if they desire, in order to level the playing field. In some cases, Apple does strike special deals with developers like this; earlier this year, Apple quietly allowed Amazon to use its own payment services for its streaming video app, Prime Video, demonstrating how the rules are opaquely applied at Apple’s whim.

An even simpler solution would be loosening the rules that ban app developers who are not adopting Apple’s in-app purchase tools from telling users to sign up on the web. If Apple worries about security with this approach, it could disallow direct linking while allowing developers to at least mention outside options in text.

If, as Apple has argued in the past, the company feels that it is providing its services for too little in these scenarios — storage space and network bandwidth aren’t free — it could ask developers that choose to use their own payment gateway to pay per-use fees, as all popular cloud platforms already do.

The App Store is one of the largest platforms in history, with staggering reach, giving the company an unprecedented amount of control over any industry it pleases — with little oversight.

Boiling the debate down to whether or not consumers would demonstrably benefit from more developer choice, it seems obvious: If Apple weren’t allowed to exert such end-to-end control, the price of apps and subscriptions in the App Store would be likely to drop, and Apple’s own tools would be forced to get better in order to compete.

If the European Union finds that Apple has abused its dominant position to its benefit, it will be a defining moment for the technology industry, as companies like Google and Facebook may find themselves scrutinized in a similar way. What it decides is unfair (if at all) will define the way platforms are built for decades to come, not just for Apple.

Those running platforms may find themselves needing to carefully watch their backs, and prove that they’re not abusing their positions exclusively for their own gain constantly. And frankly, if the European Union forced technology companies to compete fairly, we’d all be better off.

Developer, accidental wordsmith. OneZero columnist trying to debug the why behind tech news. Follow: Blog:

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