App Store & Play Store: Apple and Google's Playgrounds for Impunity
Apple's recent $2Bn fine and Google's lawsuit loss are proof that the world is waking up to their anticompetitive practices.
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In 2007, Apple launched the iPhone. This was a revolutionary moment in technology. The device, through its proprietary App Store, changed the way we interacted with the internet. Google quickly followed suit via their Android Play Store and apps became the medium of choice for web programs to reach their users. This distribution was invaluable, and today over a trillion dollars flows through these app stores yearly. Despite this, recent lawsuits, fines and corporate controversy suggest that Apple and Google are engaging in anti-competitive practices aimed at taking advantage of the developers and companies who serve them.
When Apple began to allow developers to sell apps and in-app-purchases on their stores, they demanded a 30% commission on all sales. Google also settled on 30% for their Play Store. At the time, not much was thought of this figure, as the software was still nascent and it was unclear how valuable that distribution would be. Today, it has become a major point of contention, especially because it affects how much developers such as Netflix and Fortnite can charge consumers for these apps. So much so that various companies have taken the matter to court.
In the last 5 months alone, three distinct lawsuits against Apple and Google have had rulings; Apple vs. Epic Games. Apple vs. Spotify and Google vs. Epic Games. Epic Games and Spotify are amongst the largest platforms that rely on these digital stores for distribution. One could argue that their dissatisfaction mirrors what other, smaller developers on these platforms are feeling. In this blog post, I’ll go over the three distinct lawsuits, give you a breakdown of the grievances, as well as the viewpoints of Apple and Google and where the digital app market stands today.
Spotify vs. Apple
In 2019, Spotify filed an antitrust complaint over the 30% Apple “tax” with the European Commission (EC). In a detailed blog post entitled “Consumers and Innovators Win on a Level Playing Field”, Spotify founder and CEO Daniel Ek spoke passionately about the grievances that his company had with Apple’s App Store model. He argued that Apple’s 30% tax would force Spotify to raise their subscription prices for their consumers, an issue that Apple’s competing product, Apple Music, does not have to deal with. Moreover, if Spotify opts to circumvent this 30% fee by making its customers subscribe off-platform (which they do), Apple engages in restrictive and friction-inducing practices for the consumer. These practices include:
Preventing Spotify from showing discounts and marketing campaigns to customers on iOS.
Preventing Spotify from informing iOS users within their apps about the price differences between in-app subscriptions sold through Apple's in-app purchase mechanism and those available elsewhere.
Barring Spotify from showing links that would allow customers to subscribe off the app.
Preventing Spotify from contacting their own newly acquired users, for instance by email, to inform them about alternative pricing options after they set up an account.
Over the course of the investigation, the commission honed in on App Store rules that prevent developers from telling their users about alternatives to Apple’s own payment options. In February 2023, the commission said its “preliminary view” was that Apple’s “anti-steering obligations” represent “unfair trading conditions” and argued that its App Store policies were “neither necessary nor proportionate,” could result in users paying more, and limited consumer choice.
Therefore it came as no surprise last week when Apple was slapped with a $2Bn fine by the European Commission over “abusive App Store rules for music streaming providers”. This was a landmark fine, four times higher than the $500m that industry experts were expecting. It is still a drop in the bucket for the company, representing just 0.5% of their yearly turnover. Apple has appealed the fine, but will still have to pay it before the appeal is resolved.
In response, Apple posted a strong worded press release where they feign their innocence. The company argues that they have been a major part of Spotify becoming a dominant player in the music streaming business and yet “Spotify wants more”. This display of hubris has become par for the course for the company, who believe that their distribution efforts should allow them to inhibit consumer choice. For the sake of free markets, thank goodness the European Commission disagrees.
Epic Games vs. Apple
Epic Games, the maker of Fortnite - one of the most popular video games on Earth - as well as the game development tool Unreal Engine, has had a storied relationship with Apple. The saga started in 2020 when Epic Games intentionally broke App Store rules by allowing users to make in-app-purchases on their Fortnite iPhone & iPad game off-platform. Offering the option enabled Epic to skirt App Store rules that demanded payments go through the App Store payment system, paying a 30% fee in the process. Apple quickly banned Epic from its iOS App Store and Epic filed a lawsuit in response, claiming the App Store — and Apple’s overall walled-garden approach to iOS — violated US antitrust laws.
The complaint from Epic took an accusatory stance, declaring Apple had become a "behemoth seeking to control markets, block competition, and stifle innovation. The suit also went as far as to alleged Apple's size and reach "far exceeds that of any technology monopolist in history."
An important part of the suit was that it isn't attempting to argue whether Epic was abiding by App Store guidelines but instead fought against the guidelines themselves. Its objections to the policies primarily included Apple's "exorbitant" 30% commission for in-app purchases. It also argues that the same policies are anti-competitive by forcing developers to use the App Store. If the rules weren't there, Epic states it would have released its competing app store. Epic currently runs the Epic Games Store, which is restricted to PC.
At the same time as it filed the lawsuit, Epic Games attempted to raise support in the court of public opinion by releasing a video parody of Apple's famous "1984" Super Bowl commercial. In this version, a Fortnite character smashes a screen displaying a cartoon talking apple, complete with a worm. While the original framed Apple as the breaker of the aging oppressive IBM's grasp on computing, the parody had Apple in IBM's place, with Epic instead being the breaker of Apple's App Store control.
As of the end of the dispute in January 2024, people had viewed the video 8.5 million times. Epic was also attempting to get the social media hashtag #FreeFortnite trending.
In response, Apple made an offensive move against Epic, which was revealed to the public by Epic over Twitter. Epic alleged that Apple had informed Epic it would be terminating all developer accounts and cutting Epic off from iOS and Mac development tools. To Epic, the removal of developer tools extended far beyond Fortnite, as the company provides the Unreal Engine to thousands of developers for use in their games. By not using developer tools to maintain the macOS and iOS elements of the game engine, it effectively cannot provide support to third-party developers who licensed the technology. The lawsuit declared, "Apple is attacking Epic's entire business in unrelated areas."
The trial ran from May 3 to May 24, 2021. In a September 2021 ruling in the first part of the case, Judge Yvonne Gonzalez Rogers decided in favour of Apple on nine of ten counts, but found against Apple on its anti-steering policies under the California Unfair Competition Law. Rogers prohibited Apple from stopping developers from informing users of other payment systems within apps. Epic appealed the ruling to the Supreme Court in July of 2023. Apple also filed an appeal of the ruling. In January of 2024, the Supreme Court denied the full appeals of both Apple and Epic in the case, leaving the case primarily a victory for Apple but still requiring them to allow developers to include notices of alternate payment systems in apps.
Epic Games vs. Google
Remember Epic’s Fortnite alternative payment stunt that forced them to be kicked off the App Store? Well they did it on the Play Store as well. Epic sued Google in 2020 after a fight over in-app purchase fees, claiming the Android operating system’s Google Play store constituted an unlawful monopoly. It wanted Google to make using third-party app stores, sideloaded (downloaded from outside the Play Store) apps, and non-Google payment processors easier — while Google said its demands would damage Android’s ability to offer a secure user experience and compete with Apple’s iOS.
In December 2023, a jury decided that Google has an illegal monopoly with its Google Play app store, handing Epic Games a win. But Epic wasn’t the only one fighting an antitrust case. All 50 state attorneys general settled a similar lawsuit in September, and we recently learned what Google agreed to give up as a result: $700 million and a handful of minor concessions in the way that Google runs its store in the United States. Google will need to let developers steer consumers away from the Google Play Store for several years, if this settlement is approved.
Why did Google lose when Apple Won?
Despite seemingly similar cases, Google lost their antitrust lawsuit against Epic while Apple won theirs. I’ll explain the reasoning behind this conceived inconsistency.
Market Definition
There are the two key things that need to be true for any anti-trust violation - the company should be a monopoly in a specifically defined market ("relevant market") AND the company should have engaged in anti-competitive conduct to maintain their monopoly position. It is not illegal in the US to be a monopoly, but only to maintain that monopoly through anticompetitive conduct.
Epic Games argued that there are two relevant markets - the Android app distribution market, and the Android in-app billing services for digital goods & services transactions market. The market definition often ends up being a contentious issue in antitrust cases - in Epic Games v. Apple, the judge did not accept the same definition of a relevant market and argued that the market should be a broader digital gaming transactions market. However, in this case against Google, the jury agreed with the market definition (more on judge vs jury in the next section) and agreed that Google is a monopoly in this market.
In the end, the jury decided to go with Epic’s chosen market definitions: Android app distribution and Android in-app billing services. From there, it was a lot easier to agree Google had monopoly power.
Nature of Antitrust Violations
Apple prides itself on its closed ecosystem. They sell Apple products and it is always their way or the highway. In contrast, Google provides Android for free to mobile manufacturers such as Samsung and Motorola and prides itself on its open nature. The jury rules against Google for practices that diminished this openness and suppressed competition. Practices like:
-Android Developer Distribution Agreement prohibited third party payments was ruled unlawful.
-Google's "Project Hug" paid hundreds of millions of dollars to 20+ top developers to keep them away from potential competitor app stores.
-Google's agreements with device manufacturers, which Google v. DOJ showed were fairly onerous to these companies, were also extended to heavily incentivize them to not compete with Google in return for significantly better revenue share.
All of these were ruled unlawful anti-competitive practices that unreasonably restrained trade and that they helped Google maintain their monopoly position.
These revelations were quite egregious. Large apps like Spotify and Netflix got preferential treatment so that they would continue to process payments on Google Play Billing. Spotify pays Google nothing to get almost all the benefits of the Google Play store while a competing subscription service might pay 11 percent of its revenue if it’s even allowed to use its own payments system at all. Google also offered Netflix a sweetheart deal to pay just 10 percent of its earnings via Google Play too, at a time when 15 percent was the norm. (Netflix refused and decided not to stop offering in-app purchase on Google’s store entirely.) This trial destroyed any notion that Google treats developers fairly and equally.
Apple & Google’s Arguments
Apple argues that it has actually cut software developers a break. Tim Cook, Apple’s chief executive, suggested to Congress that when software was still sold in brick-and-mortar stores, 50 percent to 70 percent of the retail price went to middlemen. “In the more than a decade since the App Store debuted, we have never raised the commission or added a single fee,” he told lawmakers. “The App Store evolves with the times, and every change we have made has been in the direction of providing a better experience for our users and a compelling business opportunity for developers.”
Apple & Google also argue that the streamlined consumer experience they can offer customers, reliable payment systems and privacy protections are worth the 30% commissions they charge.
My Take
This made sense in 2008. In 2024 however, there are tools that developers can use to offer customers all of these benefits themselves on alternative app stores. App stores which Apple or Google either don’t allow them to run or severely inhibit by making using them a stressful and fruitless endeavour for customers. As a result, I don’t think the value of that 30% is still relevant.
Epic has also shown that running a profitable app store is possible with a lower commission. It runs its own online marketplace for other developers to distribute their games on desktop computers. In that store, it takes 12 percent of sales — and still makes a profit of 5 percent to 7 percent.
Furthermore, I believe users should get agency over their own devices. They should be able to use or download whichever products they see fit and pay for them on whichever platform they see fit.
Idk if you listen to the All in Pod but they dedicated a whole segment to Apples headwinds. They even had a chart showing that Warren Buffets growing bearishness on the company