Regulating app stores: Need for a balanced approach

To unlock India’s digital potential, protecting consumer interests along with fostering competition is vital.

A recent landmark judgment by The Netherlands’ competition authority (ACM) found certain policies of Apple’s App Store anti-competitive and detrimental to app developers’ rights. The problematic policies included “anti-steering clauses” requiring developers to exclusively use Apple’s proprietary payments system for in-app purchases (IAPs) and charging commissions as high as 30 per cent.

To comply with the ruling, Apple announced it would allow app developers to use other payment systems, but reduced the commission by only 3 per cent. It also announced onerous administrative overheads, including asking for creation of separate app binaries for The Netherlands.

Even as there was a widespread outcry against these changes, the ACM found these measures insufficient, and fined Apple another $5.7 million on February 28. This was the sixth such weekly fine levied by ACM since Apple first missed a January 15 deadline to make changes that the watchdog had mandated.

The problem is, however, not exclusive to Apple. Both the dominant app store players — Apple and Google — have sought to impose such policies on developers, reducing flexibility and innovation in operations and affecting bottom lines. They can do this because Google and Apple dominate the mobile operating system (OS) market with a combined worldwide market share of 99.25 per cent, establishing potential siloed monopolies. Since they also own the app stores on their OS, they have become ‘gatekeepers’ that control and dictate terms for app distribution worldwide.

Dominant position

To be sure, app stores provide important services to developers and customers alike. They offer a simple, secure interface for customers to find and download apps.

Developers benefit from customer trust in the store and can use it to reach a global base. Despite these benefits, Apple and Google’s market share has led to concerns that they are using their dominant position to impose anti-competitive policies.

What is at stake is India's digitisation project. If required to pay high commissions, developers will have no choice but to pass these costs onto consumers.

A case in point is the subscription fee charged on ‘YouTube Premium’. Google, which owns YouTube, does not charge any commission for this purchase on Android, while Apple does.

Monthly subscriptions to YouTube Premium are priced at ₹129 on Android, but ₹169 on the Apple App Store (a 30 per cent increase). In a price sensitive consumer market like India, increased costs would make apps less viable and force app developers to adopt other business models like ad monetisation. This can lower the quality of the user experience and incentivise collection and monetisation of users’ personal data, which could be detrimental to user privacy.

The control over app stores also puts Apple and Google in a quasi-regulatory position, because they determine the app review process that decides which services/apps to allow and which are to be removed. In September 2020, for instance, Google abruptly removed Paytm from its Play Store, citing a violation of Google Play’s policy against gambling.

While the store later reinstated the app, Paytm complained that Google did not follow due process before taking such a drastic decision and this led to irreparable damage to its reputation.

While many app store policies are said to have been designed to benefit consumers, it is not clear if all restrictions are imposed in consumer interest. Through the control of the App Store, for instance, Apple has blocked the emergence of cloud gaming. A report by the UK competition regulator notes that a switch to cloud-based applications can reduce dependence on mobile hardware and may make it easier for users to switch away from Apple.

The good news is that regulators and policymakers across the world have taken notice. Anti-trust investigations are currently ongoing in the US, EU, UK, Japan and India, and in August 2021, South Korea became the first country to take legislative action, barring app store operators from mandating payment methods on developers.

Even as we may want the market to self-correct, given the network effects enjoyed by Apple and Google, it is unlikely that imbalances will get corrected through market forces.

Potential solutions that can be considered are allowing developers to use payment systems of their choice, instituting transparent review processes and unbundling services offered by app stores so that it’s easier to determine the ‘fair’ value of each service. Stores could offer users a choice in third-party app stores instead of being directed to default app stores to reduce their dependence on Apple and Google.

India has been a trendsetter in tech regulation and with a strong mobile-first economy, it is imperative that the government take steps that serve India’s start-up and technology ecosystem. A balanced and long-term approach that promotes competition and protects stakeholders’ interests is the need of the hour.

This article also appeared in the Hindu Business Line.