Context: In 2022, the European Union enacted the Digital Markets Act (DMA) (European Commission website) designed to counterbalance gatekeeper power and, among other things but arguably as the highest priority, open up mobile app distribution. The transitional period during which the EU Commission decided on gatekeeper designations (which Apple is contesting on partly reasonable grounds) is drawing to a close. As of March 7, 2024, gatekeepers will have to comply.
What’s new: Yesterday (Thursday, January 25, 2024), Apple announced (press release) a variety of new app distribution rules that will apply in the EU in response to the DMA (and can already be tested by developers using iOS 17.4 Beta). The linchpin of the rules is that app makers can choose between continuing to offer their iOS apps on Apple’s pre-DMA terms and opting into the new rules, under which Apple still exercises far-reaching control and imposes substantial fees on developers. Apple argues that 99% of app developers will be better off in the EU now, but 99% of app developers means that the 1% that account for most downloads and for the bulk of the revenues will have to stick to Apple’s old terms. It’s a misleading percentage.
Direct impact: The net effect of those rules, when considering the market situation and well-known dynamics, is that
- direct installs of any app (pejoratively called “sideloading“), contrary to what practically all media reports have said so far (many even in their headlines), are actually still not allowed based on what Apple published yesterday, with the sole exception that alternative app stores will be installed via the web;
- alternative in-app payment systems or links to external payment options (websites) are theoretically possible, but will not be economically viable; and
- alternative app stores are theoretically possible, but Apple’s rules are designed to make it highly unlikely that they will be able to overcome the Power of Default that will keep users locked into Apple’s own App Store, as developers and users will be hassled if they try to avail themselves of rival app stores and there won’t be enough of an opportunity for rival stores to give developers and users strong incentives to come on board.
Wider ramifications: In the EU, this means the DMA is effectively dead for the next few years, as any measures to force Apple to make adjustments to the rules that would truly loosen its death grip on the iOS app ecosystem would take years. We’d be talking about years of litigation and/or new legislation. It is now reasonably likely that UK users will experience effective competition in iOS app distribution before the situation improves in the EU: while the UK with its DMCC legislation is behind the EU, enforcement by the Competition & Markets Authority (CMA) is likely going to make it far more effective. And even in the United States, where no legislation has been passed or is on track to be enacted soon, the nationwide permanent injunction under California Unfair Competition Law (UCL) that Epic Games has won could, if leveraged and enforced with the right strategy, make more of an impact in the coming years than the EU’s DMA (games fray article on how to leverage Epic’s injunction). There will be an initiative in Japan this year that could also prove more effective.
It would take more than one article to discuss in detail all of the known issues plus some of those that are not known yet, but could surface, in connection with Apple’s new EU app rules. The purpose of this one is to provide a high-level overview and to demonstrate that virtually all of the media coverage out there is based on Apple misleading the world and capitalizing on the complexity of the issue, which is at the intersection of legal, technical and business considerations.
Just like in other jurisdictions (most recently, the United States after the Supreme Court denied a petition and Epic’s injunction entered into immediate force), Apple is doing an end-run. They’re playing the game of doing just enough that they can claim in a court of law to have complied (to claim doesn’t necessarily mean to be right) while doing everything they can to prevent the emergence of actual competition in iOS app distribution and in-app payment systems.
This is now likely the first article to debunk some popular misbelief in detail, followed by some brief initial explanation concerning the other items, which will be discussed on future occasions.
It’s PLAIN WRONG that Apple’s new EU rules allow sideloading of regular apps
So why is virtually the entire mainstream and tech media saying the opposite? Because Apple says in its Q&A that it is allowing sideloading in the EU, but one has to analyze Apple’s new rules very carefully, and must then compare them to the applicable EU statute, to find out what’s really going to happen.
Here’s a screenshot of the relevant passage from Apple’s Q&A, followed by an explanation of what it really means, which is the opposite of what it seems to say:
What Apple says is that
- sideloading means “downloading iOS apps outside of an official app marketplace” (which in Apple’s case is its own App Store),
- “and in the EU, users will have the option to download alternative app marketplaces that offer apps for download.”
Nowhere does Apple say in its press release or in the Q&A that sideloading the way it is commonly understood will be enabled. There is a common understanding and that’s what it means on Android. Android users do have the technical option (though it’s not a commercially viable solution for various reason) to
- download apps from the web (as a so-called APK file) and
- to install those packages right from the phone’s local storage (if they go through various steps that Google requires, which most people in the end don’t).
Apple does not mean “sideloading” the way it works on Android. What they mean is that you can sideload an alternative app store, and then all app downloads have to go through an alternative store.
Apple’s unique interpretation (that apparently no public commentary figured out prior to this article here) is that anything that doesn’t go through its own App Store is by definition “sideloading”: it’s besides/outside the App Store.
If one reads that entire Q&A section carefully with the above in mind, it’s clear that Apple exclusively refers to “marketplaces”: app stores. Never once to web downloads of apps.
And that position, whether one likes it or not and whether one agrees with Apple’s legal position or not, can be argued to comply with the DMA. The applicable statute is Article 6(4) of the DMA. Here’s the full text, but one actually just needs to focus on the very first sentence:
The gatekeeper shall allow and technically enable the installation and effective use of third-party software applications or software application stores using, or interoperating with, its operating system and allow those software applications or software application stores to be accessed by means other than the relevant core platform services of that gatekeeper. The gatekeeper shall, where applicable, not prevent the downloaded third-party software applications or software application stores from prompting end users to decide whether they want to set that downloaded software application or software application store as their default. The gatekeeper shall technically enable end users who decide to set that downloaded software application or software application store as their default to carry out that change easily.
The gatekeeper shall not be prevented from taking, to the extent that they are strictly necessary and proportionate, measures to ensure that third-party software applications or software application stores do not endanger the integrity of the hardware or operating system provided by the gatekeeper, provided that such measures are duly justified by the gatekeeper.
Furthermore, the gatekeeper shall not be prevented from applying, to the extent that they are strictly necessary and proportionate, measures and settings other than default settings, enabling end users to effectively protect security in relation to third-party software applications or software application stores, provided that such measures and settings other than default settings are duly justified by the gatekeeper.
Far be it from games fray to by sympathetic to Apple on this one, but in a legalistic sense, Apple can’t be accused of acting against a 100% clear-cut legal rule by saying that apps should go via rival app stores and not web downloads. It’s (at best) a matter of interpretation. The law just says that app stores and apps must be “access[ible] by means other than the relevant core platform services of that gatekeeper [here, Apple].” Nowhere does the law say a web download must be offered.
The linguistic issue here that can give rise to a dispute is that someone could argue the statute means that no restrictions on alternative installation methods must be imposed. But the same statute also allows Apple to take all sorts of measures. So Apple is not flagrantly violating the law here. One may or may not agree, but they have a point.
For apps, Apple argues that if you can download them from a rival app store, that is a means other than Apple’s core platform services. The app store apps, in order to comply with that statute, will indeed be distributed via sideloading. But given that there are exacting requirements, only a very few companies could even offer an alternative app store, while millions of apps can’t be sideloaded.
If you don’t believe it, here’s further proof:
Apple published an addendum to its app distribution terms (“Alternative Terms Addendum for Apps in the EU”) (PDF). Its section 4.1(A) defines what constitutes a download that would give rise to a once-per-year download fee. You can find the original rule in the PDF mentioned before, but to make it easier to understand, here’s a reformatted version with bullet points added to the relevant sentence:
A “First Annual Install” is the first time in a twelve-month period that an Apple account (Apple ID or Managed Apple ID) installs Your Application on iOS in the EU. This installation may occur after a download, redownload, or update of an Application distributed through
- the App Store [= Apple’s store],
- TestFlight [= Apple’s beta version distribution system used by developers at the testing stage],
- an Alternative App Marketplace (EU) [= a non-Apple store],
- as a Custom Application [= an enterprise app; this is nothing new and consumers don’t get apps that way], or
- through Your website if You are distributing Your Alternative App Marketplace (EU).
The last bullet point is the key one: yes, an app can be installed “through Your website,” but not just any app: only the app that you must distribute to people so they have a frontend to access an alternative app store.
Nowhere does the rule talk about downloads of just any app from the web.
Quick explanation of other issues that will be discussed in more detail in other games fray articles
After focusing on the popular misbelief that was easiest to debunk, just a few more things about the other issues. There will be other games fray articles to elaborate.
For alternative in-app or out-of-app (by way of links) payment systems, the issue is the same as with Apple’s response to Epic’s U.S. injunction (not the only example, but the most recent one): there’s no money to be saved.
Apple will charge the same minus 3% as if one uses Apple’s IAP. The 3% will be eaten up by an external payment service such as Stripe. Therefore, there’s no way that app developers could offer users an incentive to use an alternative payment method. In that regard, the situation in the United States is potentially better now: prior to Epic’s injunction, Apple already allowed app makers to just promote web purchases of digital items, and so far hasn’t disallowed consuming those digital items (such as virtual currency or decorations) in iOS apps. In those scenarios, no app tax is levied, at least for now, and if Apple changed it, it would face the problem that it would clearly tax transactions that weren’t taxed before, but now from a position of market power it didn’t have in the early years of the iPhone.
As for rival app stores, the hurdle is also that they can only get traction if users have a reason to use them. That will require those app stores to have an attractive app offering. To get that, they need developers to join. Developers, however, will want to know how this actually benefits them. An alternative app stores could theoretically benefit in the following ways:
- The rival store can operate at a much lower margin. In that case, the developer could simply make more money or pass along all or some of the savings to end users. Consumers would always benefit: even if the developer just made more money, some of that would go into the development of the app someone actually uses, as opposed to just being a monopoly rent for Apple.
- The rival store could make app discovery easier. But that won’t work here because everyone will use Apple’s App Store, and even if a given app was easier to find on a small app store, being a big fish in a very small pond isn’t helpful. The app discovery part would be a benefit, but only if the system worked as a whole and brought competition to iOS app distribution.
- The rival store can allow things Apple wouldn’t allow (for instance, content that Apple deems objectionable). However, Apple still retains app review control even over apps that are offered via rival app stores. If Apple’s “notarization” was limited to security issues in a strict sense, that would mean an end to censorship, but one needs to see how Apple actually excercises its app review power. And it may not really matter if no one can actually offer a rival app store on a basis that makes any economic sense.
Apple has also put all sorts of road blocks in the way. It’s unclear at this point how easily users can actually install and activate, or even make their default store, any rival store. It’s unlikely to work smoothly and easily. Apple will complicate the process in some ways. Then there also all sorts of things that rival app store providers must do to be approved by Apple. While Epic Games has announced its iOS app store for the EU and games fray hopes it will work, it appears more likely that Apple will point to the outcome of the U.S. litigation, according to which Apple lawfully terminated Epic’s developer agreement, and reject any request by Epic to be accredited as an app store provider. Apple would likely also point to some unrelated matters that came up in a recent footnote in a U.S. court filing by Apple (the FTC’s Epic case).
All things considered, games fray predicts that it will take years before the number of app downloads on iOS in the EU that go through anything other than Apple’s App Store will exceed 1%. Litigation and potentially even new (in terms of amended) legislation will take years.
There will be more games fray articles on the DMA, and those may elaborate more specifically on the other issues. At this point it hopefully helps people to understand that Apple’s approach is not what they’d have everyone believe and what one generally reads on the internet. Just look at all the headlines that celebrated the arrival of sideloading, which is essentially a hoax.