The App Store's monopoly rents deter brands from mobile innovation

Let me start with two stats:

1: Apple’s share of the European mobile phone market is 33%.

2: Globally, consumers spend an average of three hours and 46 minutes daily on their phones.

Therefore, iPhones are a critical means by which brands can reach customers, especially those with spending power (iOS users are typically higher earners and wealthier than Android users).

Businesses have two non-exclusive options for engaging consumers using owned properties on these devices - a mobile web experience or a native app. While the former minimizes friction and helps discoverability, apps let us do a raft of cool things that are harder or impossible to do on a website. If you want interactivity, push notifications, deep personalization or offline access - and, crucially, are confident you can get your customers to download and use one - then you’ll want to build an app. Some businesses entirely rely on them: think game developers, dating services, content creators, and publishers.

To date, the only route to get an app on your customers’ devices is via Apple’s App Store. Doing so means agreeing to Apple’s terms, which include paying a 30% commission on download fees and a 30% commission to use its proprietary in-app payment solution for any ‘non-tangible’ services. Alternative payment technologies are banned. As is directing users to web-based payments. Apple also restricts the use of the iPhone NFC chip to its own apps.

App developers have been fighting for regulators to open this ecosystem up to competition for years. Epic Games, Spotify and Match.com have all filed lawsuits or complained to the authorities. The Coalition for App Fairness represents dozens of smaller firms and representative bodies harmed by these rules. Apple’s response has been extremely combative. While the other big tech players, where possible, work in concert with regulators and try to nudge and cajole, Apple is brazen in its non-compliance. In the Netherlands, in a case concerning dating apps, it chose to pay 10 fines rather than comply with the regulator’s ruling.

In some senses, it can afford this kind of approach. While Google and Meta are facing regulatory investigations and action across a wide number of domains - including online harms, which often breaks through into the public consciousness - Apple is not. And it can hide behind fallacious arguments around security and privacy (NB I can sideload on to my MacBook).

Dispense with this bullshit, and you can see what’s really happening here: Apple is aggressively defending the 19% of revenue that comes from ‘services’ (the vast majority of which is from the App Store). That 19% of revenue is delivered at a whopping 70% margin (which should be something of a red flag for competition authorities in itself) versus 36.5% for products. Services contribute around a third of overall profits.

Let’s be clear: this high-margin revenue is a tax on businesses and consumers. Sure, the App Store is slick. And it vets apps that have value (but not when it fails). But would it really be able to command a 30% commission if there was an alternative? And would it be able to charge 30% for payments if developers could choose from different technologies? The answer to both is blindingly obvious. And that’s before we get to the more esoteric arguments about stifled innovation.

The EU has passed new legislation to try and improve competition in digital markets. In the case of mobile apps, the DMA is intended to ensure mobile operating system owners allow sideloading of apps, alternative app stores and other payment technologies. Apple’s compliance plans are, frankly, a joke.

It proposes giving developers a choice between a new, DMA-compliant regime and the existing rules. The rub comes in that the new regime while featuring reduced commissions, includes a newly invented ‘core technology fee’ of €0.50. This is levied annually each time an app is downloaded (once that app hits a million downloads). This functions (and plainly appears designed to function) as a disincentive for developers to take the new rules. For large developers, because even an app update counts as a new download, it would have the effect of being an annual tax on users. And for small developers because they would live in fear of an app going viral and having a giant liability. That’s hardly creating the right incentive.

The European Commission needs to reject this proposal and do so at pace. Its handling of Spotify’s original complaint has been rumbling on for almost five years and was narrowed earlier this year to just the question of directing users to alternative payment options. The ruling that was leaked this week appears to apply only to music services. European businesses and consumers deserve better. Step up, Brussels.

David is an independent media and marketing consultant and director. His views are his own, not his employer’s. Continue the conversation with him on LinkedIn.

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