Testimony from:

Wayne Brough, Director of Technology and Innovation, R Street Institute
In OPPOSITION to Bill H 140, “An Act Promoting Competition Among App Stores,”
October 27, 2021

Joint Committee on Advanced Communications Technology, the Internet and Cybersecurity

Chairs Finegold, Campbell, and Members of the Committee,

My name is Wayne Brough, and I am the program director for technology and innovation at the R Street Institute, which is 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 in many areas, including the technology and innovation sector. That is why H 140 is of special interest to us.

We are concerned that H 140 has the potential to fundamentally reshape the market for applications downloaded to smartphones and other devices in ways that will harm both consumers and app developers. Specifically, H 140 adds, among other things, significant restrictions on distribution platforms:

An App Store for which cumulative gross receipts from sales on the App Store to customers in Massachusetts are in excess of $10,000,000.00 in the previous or current calendar year shall not:

(1) unreasonably restrict the ability of an app developer to select an alternative mode of accepting payments from users to download a software application or purchase a digital or physical product or service through a software application; or

(2) retaliate or take punitive action against a developer for choosing to use alternative App Stores or in-app payment systems. [1]

This legislation challenges perhaps the most widely used business model for the distribution and purchase of apps, such as Google Play or the Apple App Store. These platforms provide consumers with a wide range of choices while offering developers an effective and trusted platform for product sales. In fact, such platforms facilitated the transition from cell phones to smart phones, providing tremendous value to consumers who rely on these devices for everything from email and directions.

All of this has been made possible through easy access to applications that are quickly downloaded. Apple pioneered this approach with its App Store, which launched in 2008. Since that time, the number of apps available for purchase has increased from 500 to more than 2 million. [2] A large part of this growth is due to the App Store’s new strategies for selling software, which eliminated the need to go to a brick-and-mortar store or scour the web for applications. Direct downloads from the store are convenient, and—just as importantly—safe and secure. [3]

Given the standards established by the App Store, consumers can download with confidence. All of the available apps are examined by Apple in an effort to eliminate malware and minimize any cybersecurity threats. The App Store has also created a secure payment system to avoid fraud and protect consumers’ financial privacy.

At the same time, the App Store offers even the smallest developers a global reach. In fact, the App Store has a customer base of 1.5 billion users, with 500 million visits weekly. [4] It provides storage for apps and the technology to deliver the app to consumers. With quality and security measures, the App Store has created an expansive global market that makes it easy to reach new customers. In exchange for these benefits, the App Store collects a service fee of 30 percent of sales revenue (this drops to 15 percent for annual follow-on sales) as well as a service fee on microtransactions within an app. [5] It should be noted that these fees only apply to apps that are sold; the thousands and thousands of free apps do not pay these charges. Importantly, these fees are voluntary: they are part of the private contracts entered into by app developers who choose to use a particular distribution platform.

Platforms such as the App Store or Google Play provide far more than just a payment system. There are a host of benefits that developers would otherwise need to supply on their own. None of these are costless, and developers, like any business, choose the strategies that provide the greatest return. Yet Bill H 140 would disrupt this ecosystem by allowing alternative payment systems that would enable developers to sidestep the fee sharing established by contracts with the distribution platforms. These changes may generate adverse impacts for both consumers and software developers. For example, consumers may face higher prices as the distribution platforms attempt to recover the costs of the services provided by the platform. Likewise, revenues lost to alternative payment mechanisms would likely be replaced by higher prices on those remaining in the system. Alternatively, the bundle of services provided by the distribution platforms could be reduced, pushing costs back to developers to provide the services themselves. Either way, such alternatives introduce inefficiencies into a market that has worked remarkably well for distributing applications to billions of consumers across the globe.

This raises another concern about Bill H 140. Namely, the internet is inherently global in scope. As such, state level regulations can be problematic, particularly when legislation imposing new regulations on distribution platforms has been introduced in a number of states. Imposing state level regulations on a business model that operates at a much larger scale will increase compliance costs while providing few, if any, benefits for consumers. Concerns over the economic characteristics of distribution platforms are more appropriately addressed at the federal level.

For these reasons, we oppose H 140, “An Act Promoting Competition Among App Stores.”

Thank you for your time.

Wayne T. Brough
Director, Technology and Innovation
R Street Institute
[email protected]

[1] Bill H 140, “An Act Promoting Competition Among App Stores,” 192nd General Court of Massachusetts. https://malegislature.gov/Bills/192/H140/Cosponsor.

[2] Mansoor Iqbal, “App Download and Usage Statistics (2020),” Business of Apps, Oct. 30, 2020, updated Sept. 22, 2021. https://www.businessofapps.com/data/app-statistics.

[3] Wayne T. Brough, “The Online App Store Ecosystem,” The R Street Institute, April 2021. https://www.rstreet.org/wp-content/uploads/2021/04/Final-App-Store-Explainer.pdf .

[4] “Overview,” Apple Developer, last accessed Oct. 28, 2021. https://developer.apple.com/app-store/features.

[5] Ian Carlos Campbell and Julia Alexander, “A Guide to Platform Fees,” The Verge, Sept. 22, 2020. https://www.theverge.com/21445923/platform-fees-apps-games-business-marketplace-apple-google.

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