Developers say Apple and Google are running app store monopolies

Ceding control to Apple

Kelli Fairbrother, co-founder of audiobook app Xigxag, said she made the choice early on to use the Apple App Store because, as a new business set up in early 2020, she wanted to focus on creating an “exceptional experience for our customers”, and as an app-based company it made sense to keep the entire experience in-app.

However, she said existing on the Apple App Store means ceding a significant amount of control of her business to the tech giant.

“We really don’t control pricing. We can only price the way they want us to price. That’s a critical strategic control dimension of a business,” said Fairbrother. “We have 50,000 titles in our app, and the App Store payments architecture prevents us from being able to set individual prices for those products… that restricts our strategic flexibility to optimise pricing at an individual product level.”

Xigxag and other businesses are also prevented from signposting customers to their own websites, stopped from being able to offer customers refunds without sending them to Apple first, and provided with zero visibility over purchase flows.

Fairbrother added that, on top of preventing Xigxag and others from exercising control over key aspects of their business, Apple also pushes them to develop a native iOS app – “which is just really impossible to justify for a small bootstrapped company like ours” – while providing extremely limited documentation on its architecture and technical standards.

“There are just really big gaps in it, and that’s exacerbated by their lack of support,” she said. “The way you interface with something that’s going to a shared architecture is different than the way you interface with a native app, so there’s a lot of trial and error in the development. That’s wasted development basically, because Apple doesn’t tell you exactly how to do it.”

Compliance with Apple’s terms and practices, Fairbrother added, is a high-stakes game for small businesses. “They can basically eliminate half our revenue overnight, so we have to really adhere to the letter of the law,” she said.

Apple contends, however, that it offers a comprehensive library of technical and design documentation, and that members of its Apple Developer Program have access to a range of free technologies and services to help them build, test and distribute their apps.

From competition to control

On the other end of the scale, large multinational firms such as music streaming giant Spotify are also demanding major changes to Apple and Google’s app store practices. Spotify is involved in ongoing legal claims against Apple over alleged anti-competitive issues, having first filed a complaint with the European Commission in 2019 to open an antitrust case.

According to Gene Burrus, director of global competition policy at Spotify, when the company joined the Apple App Store in 2008, there was actual competition in the mobile app space, with the likes of Nokia, BlackBerry, Apple, Microsoft and Google all trying to lure developers to their platforms in a bid to become the go-to ecosystem.

“It was a very nice place to be for developers at that point, in 2008, [but] it began to turn sour over the years,” he said, adding that by 2010, Apple’s approach started to change as many competitors fell by the wayside. “As Apple’s market power increased, their restrictions increased, and their desire to extract from developers rather than attract developers became apparent.”

One aspect of Apple’s hardening stance towards developers, Burrus said, is the “completely opaque” app reviews process, which is judged against a set of rules that Apple can change the interpretation of at any time.

“It feels quite arbitrary at times. There’s no recourse – if you feel like you’ve been wronged or that they’ve misinterpreted their own rules, there’s no one you can appeal to,” he said. “Quite frankly, Spotify probably has it better than a lot of small developers, who probably can’t even get an answer to their emails – we probably can, after some effort, but even for a developer as big as Spotify, it’s opaque.”

Burrus said the situation was not dissimilar to Microsoft’s dominance in the late 1990s, which Apple benefited from at the time. “Just as Apple was initially very open to developers and trying to attract developers, that was the Windows business model back in the 1990s,” he said.

“Not only that, they [Apple] literally owe their existence to Microsoft being constrained by the antitrust enforcers… because they could install iTunes on Windows computers and address the hundreds of millions of potential customers who were using Windows devices instead of being limited to Mac customers.”

He added: “That depended on running reliably on Windows without Microsoft taking 30% of Apple’s revenues and without Microsoft constraining what Apple could do with iTunes.”

Crippling commission

Burrus said Apple introduced its in-app payment system around 2011, which came along with the 30% commission “for the privilege of using it”, as well as restrictions on directing customers from the app to Spotify’s own site.

While Spotify is entering new markets in audiobooks and podcasts, the core of its business remains in music streaming, where it splits revenues with rights holders so they receive 70 cents of every dollar.

“If we pay Apple 30% of every dollar and rights holders 70% of every dollar, we’ve got nothing left to pay employees or anything else,” said Burrus.

He added that Spotify’s relationship with Apple is further complicated by the fact “they are our single largest competitor for music streaming services, and in their own music streaming service, which has roughly the same cost structure… they conveniently don’t have to pay themselves a 30% tax on that.”

Like Xigxag, Spotify is also prevented from signposting its customers towards its own website, as well as from offering special promotions or deals, from within the Apple ecosystem.

Burrus said when Spotify has tried to find new ways of communicating with its customers, Apple app reviewers have said it is not allowed under Apple’s rules and consequently threatened to kick them out of the store. “We are in a position where our single largest competitor gets to dictate many aspects of what our app and our customer experience look like,” he added.

“If we pay Apple 30% of every dollar and rights holders 70% of every dollar, we’ve got nothing left to pay employees or anything else”

An Apple spokesperson said the company has no issue with reader apps adding audiobook content to their apps, linking users out to websites to sign up for services, or communicating with customers externally about alternative purchase options.

“The Spotify app was rejected for not following the guidelines regarding including explicit in-app communications to direct users outside the app to make digital purchases,” the spokesperson said. “We provided them with clear guidance on how to resolve the issue, and approved their app after they made changes that brought it into compliance.”

Regarding the “app tax”, Fairbrother clarified that Xigxag is paying a 15% rate because it is yet to hit Apple’s $1m annual revenue threshold for the 30% commission, but pointed out that alternative payment platforms still have much lower commission rates.

“We could be paying Stripe 3%. So 15% versus what we would call a market rate of 3% feels completely egregious,” she said, adding that while providers such as Stripe will pay Xigxag its own revenue within seven days, Apple can take up to 60 days or more. “For a customer who bought something from me, from my app, on 1 January this year, I won’t be paid until 9 March. As you can imagine, for a small business, cash is painfully important.”

Fairbrother said this also “impacts our ability to show healthy unit economics”, which is something investors of consumer-facing businesses such as Xigxag have become increasingly concerned about since interest rates started climbing around a year ago. “We need to have a story [for potential investors] about how we how we’re going to get over and around a 30% hit on our revenue, off the top, from a payment solution,” she said. “If something doesn’t change, we’re going to have to move our customers to a web-based purchase solution because we won’t be able to afford [the 30%] when it comes.”

Apple said 85% of apps do not pay any commission at all, and that for the minority of apps that do, it has improved the service over time through its Small Business Programme, which offers around 95% of developers the reduced 15% commission rate.

Fairbrother said her experience with Apple also rings true of her experience with Google, although she noted the search giant was demonstrably better with the technical documentation it provides. While Google now charges a lower 15% commission for small businesses as well, Fairbrother said this only happened after “a tremendous amount of pressure”.

A Google spokesperson said all developers pay 15% on their first $1m in annual revenue (which resets each year), and directed Computer Weekly to a blog post by vice-president of government affairs and public policy at Google, Wilson White, who said that “just around 3% of developers are subject to a service fee and 99% of those developers qualify for a service fee of 15% or less”.

The spokesperson further added that Google Play should not be compared to payment processors like Stripe because Google’s fee also supports its distribution, development and security services for developers.

Spotify, on the other hand, has had a different experience with Google, signing a “user billing choice agreement” in March 2022, although details are confidential and Burrus said he was not at liberty to discuss them.

“At least with us, they have been more willing to negotiate a business deal that makes sense for both sides, as opposed to Apple laying down the law,” he said. “So our experience has been different. That said, I know that other developers don’t feel as lucky with Google in that regard.”

He added that Google characterising the agreement as a pilot “suggests they may be considering opening up terms like it to a broader audience, but we haven’t seen that yet, and that’s up to them”.

On whether Google intends to create similar agreements with other firms, a spokesperson said Spotify was only the first partner, and that other developers such as Bumble have since signed on to participate. They added that user choice billing was now an option for all developers globally.

Legal challenges and regulatory changes

These issues are currently playing out in court cases. In a legal claim filed in May 2021 in the UK, Apple was accused of deliberately shutting out competition in its store and “charging excessive and unfair prices” by forcing people to use its own payment processing system, which sees Apple take a 30% cut of most purchases.

Google, meanwhile, is facing similar legal action from CAF member Epic Games over alleged abuses of power in the Android app market, including commissions on app sales and in-app purchases, as well as the level of control Google has over Android app distribution generally.

The issue of competition in digital markets is also being looked at by policymakers. In Europe, for example, the proposed Digital Markets Act aims to prevent “gatekeepers” from imposing unfair conditions on businesses and end users by ensuring the openness of digital services, while in the UK, Parliament is set to introduce a Digital Markets, Competition and Consumer Bill some time in April.

Under this legislation, the UK government will look to give the Digital Markets Unit (DMU) statutory powers to enforce a “pro-competition” regime, with the aim of rebalancing the relationship tech giants have with consumers and businesses.

“One thing we know is true about these mobile app monopolists – Apple and Google – is that they are not going to cede control over their respective app stores until and unless policymakers and regulators demand competition in the ecosystem,” said Rick VanMeter, executive director of the Coalition for App Fairness. 

Referring to the Dutch Authority for Consumers and Markets fining Apple $5.5m every week for 10 weeks over its failure to comply with an order to allow dating apps to use alternative payment methods, CAF added that any new regulatory measures introduced would need to have teeth to be effective.

“Apple said, ‘Great, that’s fine, that’s a cost of doing business for us, oh well’. Because the fine was not significant enough, it didn’t change their behaviour and they were willing to be not in compliance with the law,” he said.

“These mobile app monopolists – Apple and Google – are not going to cede control over their respective app stores until and unless policymakers and regulators demand competition in the ecosystem”

“The Digital Markets Act in the EU includes very serious remedies, including 10% of global revenue, and then 5% of daily revenue thereafter [for non-compliance in both cases]. It’s the seriousness with which competition authorities are taking the remedies that will actually change the behaviour of these gatekeepers.”

However, policymakers creating regulation for app stores also need to be aware of accidental loopholes.

Pointing to the example of South Korea, which passed the first piece of legislation in the world specific to app stores in August 2021, CAF said while Apple and Google were forced into providing alternative payment systems, they circumvented it by charging a 26% fee to developers for the use of third-party payment processors.

“Generally speaking, processing fees range from 3% to 6%. Back-of-the-envelope math – three to six plus 26 – you’re paying more to use a payment processing system outside of the existing app store ecosystem,” he said. 

“It’s safe to assume these companies, with nearly unlimited resources, will do their level best to skirt whatever laws are implemented. Only serious, meaningful remedies will deter anticompetitive practices and change these mobile app gatekeepers’ behaviour.”

Asked by Computer Weekly whether it would like to respond to the claim that it made it more costly to use a non-Apple payment system in South Korea, an Apple spokesperson provided a link to a developer support page which said: “Apple will charge a 26% commission on the price paid by the user, gross of any value-added taxes.”

Responding to questions about the South Korean legislation, a Google spokesperson directed Computer Weekly to another blog post by Wilson White. “Service fees for distributing apps via Android and Google Play will continue to be based on digital sales on the platform,” he wrote. “We recognise, however, that developers will incur costs to support their billing system, so when a user selects alternative billing, we will reduce the developer’s service fee by 4%. For example, for the vast majority of developers who pay 15% for transactions through Google Play’s billing system, their service fee for transactions through the alternate billing system would be 11%.”

Fairbrother said the likelihood of the situation changing without regulatory intervention was “zero”, adding: “They’ve been very belligerent in their approach – it doesn’t feel very customer-centric, it doesn’t feel developer-centric at all, and they’re just trying to make as much money as they possibly can.”