Thursday, February 29, 2024

India need not follow EU regulations on Apple’s App Store and Google’s Play Store

Considering Apple’s compliance with the EU regulation, should competition authorities in India also mandate the company to accept the installation of alternate app stores and non-Apple payment gateways? Probably not.

A more sensible approach would be to accept Apple’s App Store and Google’s Play Store as natural monopolies in their spheres and regulate the tariff, without compromising the security and integrity of these platforms.

The European Union’s Digital Marketing Act, designed to identify gatekeepers to the digital economy and specify dos and don’ts for these gatekeepers, came into force on 1 November 2022. Its provisions, however, became applicable on 2 May 2023. 

Designation of gatekeepers took place on 6 September 2023, and application of the obligations arising from being identified as gatekeepers will kick in from March 2024. The time the European Union gives regulators and the regulated to acquire clarity on what precisely compliance means is noteworthy, especially in India, where some magical thinking is not uncommon on the time it takes for new regulation to take hold.

Apple and Google levy a 30% commission on paid apps, subscription apps (the rate falls to 15% after the first year), and the purchase of digital content on these apps, the so-called in-app purchases. There are concessional charges for small businesses, whose definition varies from app to app (and region to region, in some cases). Samsung’s app store charges 30%, while several Chinese app stores charge anything between 50% and 60%.

The initial justification for such hefty commissions had been that it cost Apple and Google, the app store developers, a lot of money to develop these platforms, and they have to keep spending money to ensure their security by screening and testing the ever-larger streams of new apps admitted to the stores. However, the app stores generate tens of billions of dollars of revenue for Apple and Google, and must be seen as revenue and profit centres, in their own right.

There is a case for Apple and Google to charge a fee for letting app developers access the millions of consumers who use their respective app stores, providing a ready market for the app developers. A retail chain takes its cut for products displayed on and sold from its shelves around the land. A similar commission is not unreasonable for Google and Apple.

However, for the iOS and the Android operating systems, owned respectively by Apple and Google, their app stores are virtual monopolies for their consumers. The clout this monopoly status vests on them to fleece the app store developers must not be abused. How can this be ensured? One method is to insist on enabling competition. Forcing Google and Apple to sideload apps, that is, let Android and iOS phones install apps from third-party app stores. Another is to cap the commission they can charge.

Installing apps from app stores that are not integral to the original operating system is fraught. The risk of malware being embedded in apps from third-party app stores, which get past the gatekeeping done by these third-party app store developers, is significant. 

Apple has, in Europe, announced a special fee per user per year per app download or update, to cover what it calls the cost of screening the third-party apps. This would impose a significant cost on the app developer, who prefers to be hosted on a third-party app store. Now, the EU regulators could crack down on such a fee. But Apple does have a strong case for recovering the cost of screening third-party apps that could potentially compromise other software on its phones, tablets, or computers. How much that ought to be is a matter for negotiation, if not a protracted court battle.

Would it not be simpler to regulate the charges levied by Google and Apple, treating them on par with local monopolies? An airport or a train station is a natural monopoly within a geographical area. Power or telephone cables that are laid to a home do not constitute a monopoly, but duplicating them for another provider entails a waste of resources. Capping the tariff or mandating open access is the sensible solution, in such cases.

An important consideration in preferring a regulatory cap on the commission Apple or Google can charge to mandating sideloading of apps is the potential Cambrian explosion of new varieties of malware that attends on the arrival of artificial intelligence as a mainstream source of software creativity. 

Giant companies such as Google and Apple can devote the resources required to build strong defences against this likely threat. It would be better for the consumer to place the onus for keeping their app stores sanitised against malware in the apps they offer for download on the digital device operating system owners, who also own major app stores, rather than give them a reason to blame third party app stores for such contamination as might take the place of the system integrity of digital devices.

The 15% commission that Apple charges small businesses for accessing its App Store is a reasonable cap for any app store to charge anyone.  Concessions made to small businesses should be compared to this cap. A reasonable upfront payment for software integrity is likely superior to the risk and chaos that cheaper alternatives potentially represent.

 

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