The Open App Markets Act would raise app store prices and decrease security
Big Tech remains in the spotlight as the cascade of antitrust bills continues in Congress. This week the “Open App Markets Act” is front and center. Introduced by Sens. Richard Blumenthal (D-Conn.), Amy Klobuchar (D-Minn.) and Marsha Blackburn (R-Tenn.), the bill takes aim at the two largest app stores, the Google Play Store and Apple AppStore. While primarily focused on app store practices such as sideloading and restrictions on the use of third-party payment systems, the Open App Markets Act goes well beyond these practices to include considerable new mandates on self-preferencing, as well as interoperability requirements that would substantially restructure online digital markets. All told, this legislation would impose new restrictions on Google and Apple that can be just as sweeping as the broader American Innovation and Choice Online Act marked up earlier this month; it also poses the same problems that would harm consumers, hurt businesses and limit innovation.
Fundamentally, the bill seeks to rewrite the rules for application distribution platforms, first pioneered by Apple in 2008 and adopted by Google and others since then. App stores provide a convenient market that has proved efficient and safe for both consumers and app developers. The number of apps available for download has grown from 500 in the original store to more than 2.2 million apps in today’s AppStore and 3.5 million in Google Play, the vast majority of which are free to download. Altogether, there were more than 218 billion app downloads globally in 2020.
How App Stores Work
App stores created a new means of distribution that allowed even the smallest developers to reach a global market while providing consumers with a convenient and trusted source for new apps. To participate, all developers pay a small annual fee to register with the app store. Developers also pay a commission on any sales made through the platform. For large app developers, the commission is 30 percent in both the AppStore and Google Play, while smaller developers pay a commission of 15 percent. For apps that are free, no commission is paid, and in both the major app stores, well over 90 percent of downloads are free.
Contrary to misguided attacks, the commission is not simply a “tax” paid to the app store. All retail stores charge a fee for products sold in stores, too. Rather, the app distribution platform provides an ecosystem that includes a host of services as well as access to customers across the globe. App stores invest in building, maintaining and improving the platform as well as providing developers with what they need to build apps for the platform, including software development kits, application programming interfaces, compilers and other tools. The app stores also test apps for functionality and malware, as well as providing developers with analytics that can be used to market or upgrade their products. It also cannot be understated how important it is that app stores are currently one stop shops for app distribution, communications to users, bug reports and reviews, among other things, that streamline the user experience.
Absent app stores, developers would be required to find alternative ways to bring an app to market. This would entail app developers providing many services currently offered by app stores, from testing for malware to ensuring their products function seamlessly across devices. It would also entail developers building out business plans to reach their customers, something that, by revealed preference, many developers prefer to contract out to app stores.
At the same time, consumers are drawn to the convenience and security provided by app stores. Knowing that products have been vetted for malware and functionality, and knowing that payments are secure, builds trust in app store products that allows consumers to shop with greater confidence. Few users think twice about clicking an install or buy button since they know these ecosystems are curated and monitored. App stores provide consumers a quick and easy way to shop for literally millions of apps. With billions of apps downloaded annually, it is clear that the app store ecosystem has become the preferred option for acquiring new apps by most consumers, even if they have their issues.
Pushback against the App Store Business Model
Some large app developers have challenged the current structure of app stores, claiming the commission is the result of anticompetitive practices that unfairly benefit the platform owners. A group of large, billion-dollar app developers have been working both at the state and federal level to introduce legislation that would force app stores to host their apps while bypassing the app store payment and safety systems, undermining app stores’ ability to collect fees and keep their users safe. Companies such as Spotify, Epic Games, the Match Group and others are attempting to use legislative intervention as a means of redrafting the terms of their agreements with the app stores.
In short, these companies are seeking ways around the 30 percent commission required to sell items in app stores. Federal and state legislative proposals include two key provisions to avoid the commission. The first is allowing “sideloading,” or the ability to load apps from other sources, such as an alternative app store. The second is a prohibition against requiring app developers to use the in-app payment system established by the app store. These changes would allow developers to sidestep an app store altogether or provide an alternative payment system that would not trigger the app store commission.
Yet both of these provisions are problematic, posing real concerns over functionality, privacy and security: avoiding an app store’s in app payment exposes user information to third parties, while sideloading allows unvetted apps. Additionally, not all app stores or mobile ecosystems are designed the same; sideloading is already allowed on Android phones, which make up over 70 percent of the mobile operating systems globally and about 40 percent in the United States. In comparison, iPhones only allow apps to be downloaded from the Apple AppStore. However, for most iPhone users, this is likely a feature, not a bug.
While sideloading provides greater flexibility, it’s indisputable that it also creates vulnerabilities. Sideloading allows apps onto smartphones and tablets that may not be properly vetted for operationality and security risks. In fact, the National Telecommunications and Information Agency has warned that improper sideloading can “make a mobile device extremely vulnerable to attack.” This means that apps can enter the ecosystem without being vetted for malware and security risks, which can pose consequences to others in the app environment. The wonder of our current regulations is that both systems can exist: users who want greater flexibility and control can pick Android phones, while users who prefer simplicity and security can choose iPhones. Everyone wins.
The proposed Open App Markets Act would alter this app store ecosystem, redefining it in ways that reduce the trust and security that have made app stores successful. App stores have struck a voluntary balance between the needs of consumers and developers. The market may well require that that balance is adjusted going forward, but heavy-handed app store legislation would change this balance, allowing potentially malicious apps into the ecosystem at the cost of consumer privacy and security.
Federal legislation proposes app store regulation
Unfortunately, the federal legislation being marked up this week goes even further, including provisions that prohibit self-preferencing, and limiting the ability of app stores to use information acquired on its platform to serve consumers better. If there’s ever a question why a certain show on Netflix appears in one’s recommendations, or Target suggests buying one of their own products over another brand, this is a similar, albeit separate, issue.
These measures would use the tools of government to lower the overall level of competition forcibly in order to lift up specific developers and companies, something that would leave consumers facing higher prices and fewer choices in the marketplace. Finally, these changes would also hamper innovation. App stores invest a considerable amount to maintain and enhance their platforms. However, if the new rules proposed by the Open Apps Market Act make it more difficult to recoup the benefits of those investments, the incentives for future enhancements will be reduced.
App stores have demonstrated their efficiency and popularity, creating a global market with billions of consumers and millions of apps. Meddling in these markets for the sake of a handful of disaffected corporations may significantly harm consumers.
