Testimony from:
Wayne T. Brough, Program Director for Technology and Innovation, R Street Institute

Informational Comments on House Bill 7401, “An Act Relating to Commercial Law – General Regulatory Provisions – Deceptive Trade Practices” and House Bill 7564, “An Act Relating to Commercial Law – General Regulatory Provisions – Deceptive Trade Practices”

March 22, 2021

House Committee on Innovation, Internet and Technology

Chair Ruggiero, Vice Chair Handy, Vice Chair Carson and honorable members of the Committee,

My name is Wayne Brough, and I am the program director for Technology and Innovation for the R Street Institute (RSI), a nonprofit, nonpartisan, public policy research organization. Our mission is to engage in policy research and outreach to promote free markets and limited, effective government. This is why House Bills 7401 and 7564 are of particular interest to us, as they would fundamentally reshape the market for digital application distribution platforms, commonly known as app stores. The adjustments these bills propose would harm both consumers and developers.

H 7401 and H 7564 would require that app stores allow developers to offer consumers payment methods alternative to those in the app store itself. Furthermore, H 7401 stipulates that app stores are prohibited from requiring developers to distribute their apps exclusively via a device’s app store. [1] H 7401 applies to app stores with more than $10 million in annual revenue in Rhode Island, while H 7564 applies to app stores from which there are more than 1 million app downloads in Rhode Island. [2]

The Benefits of the App Store Model to Consumers

While H 7401 and H 7564 approach the issue differently, both would fundamentally alter the conventional business model for the distribution and purchase of apps used by Google, Apple, Amazon, Samsung, Sony and others. These platforms provide consumers a wide range of choices they can trust. In fact, app stores facilitated the transition from cell phones to smartphones, providing tremendous value to consumers who rely on their devices for accessing email; watching videos; getting step-by-step directions to virtually anywhere in the world; staying in touch with friends and family; and much more.

All this has been made possible through access to easily downloaded smartphone applications. Apple pioneered this approach with the 2008 launch of its App Store. [3] Since that time, the number of apps available for purchase has increased to over 2.2 million. Much of this growth is due to the App Store’s novel strategy for selling software, which eliminated the need to first go to a brick-and-mortar store or scour the web for applications. For consumers, direct downloads from the store are not only convenient, but also safe and secure. Apple examines all available apps to reduce the possibility of malware and minimize cybersecurity threats, an approach since employed by other app store distribution platforms. Furthermore, these stores create a secure system to avoid fraud and protect consumers’ financial privacy.

These heightened security measures, including consistent monitoring for malware threats, has financial costs, which distribution platforms pay for through commissions on app purchases. While many critics have pointed to a 30 percent commission that developers are charged for in-app purchases, the commission reduces by half after just one year. [4] For developers with revenue under $1 million, the ordinary commission starts at 15 percent, a change made by Apple made in 2020 and adopted by Google. [5] These fees are part of the voluntary, private contracts between app developers and the platforms that distribute them. Importantly, such commissions only apply to developers that charge for their products: in the Apple App Store, nearly 89 percent of apps are free, and in Google’s equivalent, Google Play, 97 percent are free. [6]

The Benefits to App Developers

Under these contracts, developers also ensure their products have a global reach. The Apple App Store has a customer base of over 1.5 billion users, with 500 million visits weekly. [7] Google Play, meanwhile, featured 108.5 billion downloads in 2020—an increase of over 30 billion in just two years. [8]

App stores also provide necessary services that developers would otherwise have to pay for or contract out, including storage for billions of apps and the technology to deliver them to consumers quickly all over the world. Coupled with quality and security measures, the App Store has created an expansive global market that makes it easy and efficient to reach new customers.

Potential Market Disruptions under H 7401 and H 7564

H 7401 and H 7564 would disrupt this mutually beneficial ecosystem. By allowing developers to use alternative payment systems that sidestep the fee-sharing established by their contracts with app stores, this legislation would generate adverse impacts for both consumers and software developers.

Consumers may face higher prices as the distribution platforms attempt to recover the costs of the services provided by the platform. Revenues lost to alternative payment mechanisms would be replaced by higher prices on those remaining in the system. Additionally, the bundle of services provided by the distribution platforms could be reduced, pushing costs back to developers to provide these services themselves. Worse, some services, such as those related to cybersecurity, may not be provided at all, putting consumers’ personal and financial information at risk. Such alternatives introduce inefficiencies into a market that works remarkably well for distributing applications to billions of consumers across the globe. We urge the Committee to consider these concerns as they determine whether this legislation is best for Rhode Island developers and consumers.

Respectfully submitted,
Wayne T. Brough
Program Director, Technology and Innovation
R Street Institute
(202) 365-7794
[email protected]

[1] House Bill 7401, “An Act Relating to Commercial Law – General Regulatory Provisions – Deceptive Trade Practices,” State of Rhode Island In General Assembly, introduced Feb. 9, 2022. http://webserver.rilin.state.ri.us/BillText/BillText22/HouseText22/H7401.pdf; House Bill 7564, “An Act Relating to Commercial Law – General Regulatory Provisions – Deceptive Trade Practices,” State of Rhode Island In General Assembly, introduced Feb. 18, 2022. http://webserver.rilin.state.ri.us/BillText/BillText22/HouseText22/H7564.pdf.

[2] Ibid.

[3] L. Ceci, “Number of apps available in leading app stores as of 1st quarter 2021,” Statista, Jan. 27, 2022. https://www.statista.com/statistics/276623/number-of-apps-available-in-leading-app-stores.

[4] Ian Carlos Campbell and Julia Alexander, “A Guide to Platform Fees,” The Verge, Aug. 24, 2021. https://www.theverge.com/21445923/platform-fees-apps-games-business-marketplace-apple-google.

[5] Stephen Nellis and Subrat Patnaik, “Apple lowers App Store fees for small developers, critics see little impact,” Reuters, Nov. 18, 2020. https://www.reuters.com/article/us-apple-app-store/apple-lowers-app-store-fees-for-small-developers-critics-see-little-impact-idUSKBN27Y1CF.

[6] Ishan Gupta, “Latest App Store Statistics for 2021 & Predictions for Beyond,” RipenApps, Oct. 6, 2021. https://ripenapps.com/blog/latest-app-store-statistics; L. Ceci, “Distribution of free and paid Android apps in the Google Play Store as of March 2022,” Statista, March 14, 2022. https://www.statista.com/statistics/266211/distribution-of-free-and-paid-android-apps.

[7]  Michael Potuck, “Apple hits 1.5 billion active devices with ~80% of recent iPhones and iPads running iOS 13,” 9to5 Mac, Jan. 28, 2020. https://9to5mac.com/2020/01/28/apple-hits-1-5-billion-active-devices-with-80-of-recent-iphones-and-ipads-running-ios-13; “Apple’s App Store ecosystem facilitated over half a trillion dollars in commerce in 2019,” Apple, June 15, 2020. https://www.apple.com/newsroom/2020/06/apples-app-store-ecosystem-facilitated-over-half-a-trillion-dollars-in-commerce-in-2019.

[8]  Avinash Sharma, “Top Google Play Store Statistics 2021 You Must Know,” Appinventiv, Aug. 6, 2021. https://appinventiv.com/blog/google-play-store-statistics.