Press Release | Legislation for in-app purchases is extremely critical for growing the start-up ecosystem in India: Lessons to be learned from South Korea, US & EU
ADIF and CAF hosted a roundtable on the impact of in-app purchase policies on the Indian and global digital startup ecosystem
A panel discussion was organized by the Alliance of Digital India Foundation (ADIF) and the Coalition for App Fairness (CAF) to understand the concerns of the app developer community with the policies of Google and Apple who are the dominant gatekeepers of the mobile ecosystem.
Policies such as steep commissions (up to 30% on all in-app purchases), mandatory use of Google and Apple’s proprietary payment systems, and opaque review processes adversely affect business viability and consumer interest. The unilateral imposition of such policies is indicative of abuse of dominant position and reeks of rent-seeking behaviour.
Lack of competition in the market as well as the app stores’ practice of bundling of services like app review, content moderation, and transaction processing, makes it difficult to determine the ‘fair’ charges for these services.
Apple and Google are pushing developers towards an ad-based business model.
Finally, the panel deliberated on the limitations of the current legal and regulatory frameworks in dealing with such digital markets and touched upon the need for specific legislation such as the one enacted in South Korea, and currently under consideration in the US and EU, to correct the power imbalance between app store operators and developers in the Indian context.
New Delhi, February 24, 2022: The Alliance of Digital India Foundation (ADIF) in partnership with the Coalition for App Fairness (CAF) organized a roundtable with industry experts on ‘Regulating App Stores in India’. The panellists included Hannah Ricketts (Deputy Director, CAF), Dr. Vikas Kathuria (Associate Professor, BML Munjal University | Affiliated Research Fellow, Max Planck Institute for Innovation & Competition), Mark Buse (SVP, Head of Global Government Relations & Policy, Match Group), Sijo Kuruvilla George (Executive Director, ADIF), and Jai Vipra (Senior Resident Fellow, Vidhi Center for Legal Policy). The session was moderated by Rohit Kumar, Founding Partner, The Quantum Hub (TQH).
Google and Apple, with a combined market share of 99%, currently dominate mobile operating systems and act as gatekeepers to the app ecosystem. The discussion focused on understanding if this dominance is leading to app store policies that are negatively impacting app developers and consumers. The panel touched on some policy recommendations that can be considered by Indian regulatory agencies:
Unbundling services and enhancing choice in payment systems
By forcing app stores to unbundle all the services that they provide (app review, content moderation, transaction processing, etc.), it would be easier to determine fairer rates for individual services. This will also increase control for developers on the choice of service they wish to avail themselves.
Payment choices for users can also be enhanced by legislating the removal of anti-steering provisions in the app store policy. These regulations can be modelled around the recent South Korean regulations which sought to achieve the same goals.
Ensuring a fair app review process
The lack of oversight on the imposition of app store policies leaves too much power in the hands of Google and Apple. Hence, regulations that prohibit unfair delays in review and those that hold app stores liable for wrongful removal of apps are needed to ensure a fair and transparent review system.
Penalties and Liabilities/ Government Oversight
Indian policymakers have been keen on developing open digital infrastructure, like UPI for payments, and have been averse to monopolies and private control of critical digital infrastructure on which other innovation hinges. In this context, the gatekeeper status enjoyed by Google and Apple for its app stores (which can be considered digital infrastructure), with minimal regulatory oversight, would be against the larger goals of developing interoperable and accessible base digital infrastructure that would help Indian startups innovate. Hence, some form of governmental oversight is required to ensure that the app stores do not stifle the growth of developers.
Developing algorithmic standards for app stores
The panel also felt that one of the least disruptive regulations would be bringing in greater transparency in algorithms and setting standards for app stores. This would increase trust and prevent app stores from using their power to unfairly suppress apps.
Of particular concern to the experts was the high commission fee (up to 30%) charged by Google and Apple on app purchases and in-app purchases (IAP). The panel believed the lack of competition in the market as well as the app stores’ practice of bundling of services like app review, content moderation, and transaction processing, makes it difficult to determine the ‘fair’ charges for these services.
The panel noted that app developers worked on small margins and these high commission rates can make businesses unviable forcing them to offload these costs onto the users - thus increasing the cost of access to service. In this regard, the executive director of ADIF, Sijo highlighted an example, stating that, “In India, the dating app Truly Madly is priced 30% higher on iOS than on Android because the 30% commission hasn’t been enforced on the Google Play Store as yet, highlighting how the high commission is passed onto consumers.”
Additionally, app store policies that prevent the developer from offering alternative payment systems (also known as anti-steering policies) were noted as being anti-competitive as they reduced developer choice and prevented the developer from using payment systems that offer better services/ terms of engagement. Mark Buse, SVP and Head of Government Relations at the Match Group noted, “Unlike transactions made through credit/debit cards, Google and Apple hold on to the payments for upwards of 90 days, limiting the availability of funds for smaller and newer developers. This dampens innovation and depresses new apps from being built”. He also added that by not applying these commissions to advertisement monetization, Apple and Google are pushing developers towards an ad-based business model. The increased data collection that such a shift would cause will only heighten privacy concerns for users.
While the panel was broadly appreciative of the legislative changes being considered in South Korea and the Netherlands along with the ongoing investigations in the US, Europe, and the UK, they were apprehensive of the difficulties in enforcing these regulations. The case of the Netherlands’ competition authority (ACM) finding Apple's app store policy as anti-competitive was highlighted by the panel. Here, despite weekly fines of $5.7 million, Apple has not made changes to its policies that the ACM deems necessary. Hannah Rickets, Deputy Director of CAF noted that “While the ACM has fined Apple €25 million till now, Apple might view it as just a slap on the wrist and the cost of doing business. In the end, it will be the customers who pay for such non-compliance by Apple.”
The other issue of concern raised by the panel was the not-so-transparent app review process. Developers in the past have complained that there was no clear explanation of why an app violated a certain rule and that no guidance was provided. This forced them to act without adequate knowledge. The panel also questioned the role of Apple and Google as quasi-regulators in the sector and expressed concerns about them cementing their power over developers and formulating restrictions that might not be in the best interest of the consumer. This power could also allow them to stymie competition and remove apps without due process.
Based on the learnings from the international regulations, Dr. Kathuria, Associate Professor of Law at BML Munjal University highlighted that “Contestability, fairness, and trust are the three underlying principles of digital markets and should be the defining features of any regulations drafted in India and across the world.” He also added that the current competition framework is not suitable for dealing with the issues we are seeing in digital markets and a rethink is desirable. This view was supported by Jai Vipra, Senior Resident Fellow, Vidhi Center for Legal Policy who added, “Any regulations drafted must be comprehensive and detailed to ensure that the app stores don't find loopholes to circumvent them”.
Sijo Kuruvilla George hoped that instead of an adversarial approach, Google and Apple will adopt a more collaborative approach and work to address the concerns of developers, before enforcing unilateral policy decisions in India.
About Alliance of Digital India Foundation
The Alliance of Digital India Foundation (ADIF) is a think tank for India’s digital start-ups formed to fully capitalise on the sector’s promise with the objective of its long-term prosperity in mind. ADIF's mission is to transform the Indian startup ecosystem into among the best in the world. ADIF is now an alliance with 486 members.