South Korea made history this Tuesday (31). The country just passed the world’s first law requiring major app stores, such as Apple‘s App Store and Google‘s Play Store, to allow alternative payment systems for in-app purchases, which means, made within apps. What would an ecosystem of apps look like with this rule in effect?
The South Korean law was dubbed by lawmakers and the local press as the “Google Abuse of Power Prevention Act,” as it directly impacts a lucrative and relatively easy business for tech giants. On Android and iOS, users can only buy digital items within apps using Google and Apple‘s payment systems, respectively. These systems retain a 30% fee for purchases and are the only ones allowed. In other words, Google and Apple are exploring, alone and with massive margins, a billion-dollar market.
Reports unveiled by the US Court showed that Alphabet/Google had revenues of $ 11.2 billion with the Play Store in 2019, with an operating profit of $ 7 billion, which represents a margin of 62%. Apple does not disclose specific App Store billing. Analysts estimate that its profit margin in this segment, in the same year, was even higher, at around 78%. As for the revenue generated, Sensor Tower estimates that, in 2020, Apple generated twice as much revenue as Google with applications — $ 72.3 billion against $ 38.6 billion.
In addition to breaking exclusivity, the South Korean ruling prohibits major platforms from delaying publication or deleting apps from stores without reasonable justification. In case of non-compliance, they could be fined up to 3% of their billing in the country.
The app store model, established by Apple‘s App Store in 2008, has been among us for more than a decade. We become used to it, with its advantages and obvious problems. No wonder that in many parts of the world there are bills and lawsuits, trying to replicate South Korea’s new law.
In a press release, sent after the new South Korean rule, Apple said the new arrangement “puts at risk users who buy digital items from other sources, makes it harder to manage their purchases, and features like ‘Order to Buy’ and parental controls [for minors] become less effective”.
Is that true? It’s not as if, before the App Store, selling software by other means was impractical — a detail that Apple pretends to ignore. And I’m not even referring to physical retail. Digital sales have been a reality since at least 2003, as Brent Simmons, a veteran apps developer, recalls. “It was very easy. Easier than dealing with the App Store,” he says. Today, with the evolution in the payment methods and the education process that a large part of the population has gone through in the last two decades, it is even easier to make an online purchase.
Banning alternative payment systems in apps on the grounds of “risk of fraud” is irritating paternalism and alludes to the false reality that the App Store is scam-proof. There are still frauds and successful scams cases involving applications distributed by the App Store reviewed and approved by Apple itself.
The same app review and approval system can be used to mitigate the risks raised by Apple, the lower effectiveness of resources destined to underage cell phones. As the distribution of apps would remain concentrated in the App Store, it would be the case of forcing the apps to use this kind of APIs — with the obvious exception of “Order to Buy”. Apple has that power. Within a few months, thousands of popular apps adopted “Sign in with Apple,” for instance.
Apple‘s best argument in this dispute is a mere convenience: purchasing and subscription management. As it is now, you can restore past purchases within — literally — one tap and subscriptions are concentrated on one screen and can be canceled with — again — one tap. Anyone who has gone through the hassle of canceling a hostile service/subscription, like the one of The New York Times, appreciates this facility.
On the other hand, the subscription to the New York newspaper is much more expensive on the app than on the website. Which one to choose? I don’t know, but I believe that decision is up to the consumer, not Apple.
The same goes for apps. We are not proposing to eliminate the “in-app” payment systems of the platform owners in favor of those of third parties, but rather to open up this possibility. Add, not replace. Nothing would change for developers who benefit from outsourcing this part of the business to Apple — a complex and expensive part — or who feel that the cost of 30% of gross revenue in acquiring new users is compensated by the tools offered.
Apple is the one taking the heat — with good reason — by its app store’s strict rules. And it is feeling the pressure. In recent years, it started making small concessions. On Wednesday (1), to avoid yet another antitrust lawsuit, this time in Japan, Apple announced that in 2022 it will allow “reader” apps, an arbitrary category created to accommodate apps like Spotify and Netflix, may have a link to their websites, for users to create and manage their accounts. These are modest advances. It’s not enough.
The “Apple tax” is real and weighs heavily on developers and users. At the same time, it generates exorbitant profits for the owners of these large platforms. To give you an example: the subscription to health app Down Dog, when made directly on the website, has a 33% discount. This percentage is no coincidence. What we have here is a typical case of monopoly. And monopolies, everyone knows, are mean to be broken.
(Translated by Tiago Alcântara)