Context: For reasons games fray explained (March 5, 2024 games fray article), Apple has a strong motivation not to enable effective competition in the mass market for iOS app distribution in the EU, despite the Digital Markets Act’s objectives. Today is “DMA Day”: the day on which all designated gatekeepers’ compliance reports will be filed.
What’s new: EU competition chief and European Commission Executive Vice President Margrethe Vestager made statements to Bloomberg TV that indicate a potential enforcement priority on mobile app store issues (March 5, 2024 Bloomberg article). And Apple announced limited changes to its EU app rules (March 5, 2024 Apple Developer news), which solve a problem that can occur in a scenario games fray was likely the only media outlet to identify and explain: small app makers choosing the new terms for distribution via the App Store could find it costly or even ruinous if an app with low per-user revenues was suddenly downloaded millions of times.
Direct impact: If the DMA’s app store part was hard and fast, we would soon see attractive offerings for the mass market, such as Microsoft or Amazon app store. It would then still take time for the incumbent’s 100% market share to erode, but at least there would be a substantial opportunity for new entrants despite network effects (March 3, 2024 games fray article). But there are many impediments, and the end game will be primarily about FRAND (March 4, 2024 games fray article). In the short term, games fray believes there are some enforcement opportunities for the EC, but some issues are unlikely to be resolved short of a legislative amendment.
Wider ramifications: It is important for the EU to take all measures, including (where necessary) new legislative measures, to prove that cooperation with regulatory measures is also the right business strategy, even for the largest companies.
Just like Apple has its reasons to be unhappy about the DMA, the EC and private-sector stakeholders can’t be happy about Apple’s new EU app rules, which effectively create opportunities only in niche markets and for content that Apple declines to carry in its own App Store (such as adult content or smoking/vaping apps).
A March 5, 2024 Financial Times article notes that some stakeholders are frustrated about gatekeepers focusing on the letter, instead of complying with the spirit, of the law. That is an understandable feeling, but there is no reason why there would have to be a discrepancy between the letter and the spirit of the law. If there is one, it means that something went wrong during the legislative process, but that is not Apple’s responsibility.
In this situation and overall climate, games fray‘s commentary is meant to constitute constructive criticism and, with a view to some stakeholders’ and lawyers’ rather ambitious enforcement vision, constructive skepticism. The number one editorial priority for games fray is a high hit rate when predicting litigation outcomes. That goal may conflict with other ideas, but you will never see an intentionally too optimistic (or too pessimistic) prediction on this website and the related social media accounts.
A landscape in which the rest of the economy directly or indirectly depends on Apple to reach the vast majority of the world’s richest billion or two billion people is unsustainable. For medieval feudalism, there is no place in the 21st century. The DMA was and remains a laudable initiative to address that problem (as well as issues concerning Google’s Android mobile operating systems, though those problems are only a subset of the ones concerning Apple’s tightly-walled garden). Apart from a minor amendment to South Korea’s Telecommunications Business Act, the DMA is the first legislation on (inter alia) app stores in the world. It is, however, not working out yet and not likely to achieve its objectives in its present form.
EVP Vestager has rightly identified mobile app stores as an area in need of more competition, and as what will apparently be the first DMA enforcement priority. On this DMA Day, games fray would like to thank Mrs. Vestager for this prioritization.
It is not just about a 30% cut, but ultimately about a greater diversity of business models. It is not only in the interest of app makers, but by extension it also has to do with how many other companies, including many small businesses, get access to and transact with customers.
While we’re on the subject of small businesses, games fray would also like to thank Apple, and to be clear, this is not ironic. It has to do with one of the last-minute rule tweaks announced yesterday.
The part that is not overly important (though also small business-friendly) is that a €1 million letter of credit is no longer required if a member in good standing of the iOS app developer community that has at least had a million installations of an iOS app applies. That’s a good thing, but it’s also obvious that effective competition in the mass market will require major players who can get a €1M letter of credit anytime they need it.
The really nice part for which Apple deserves credit is this:
App developers who distribute their apps via Apple’s App Store and use its payment system (in this context, we’re not talking about alternative app stores or alternative payment options) have the choice between the old terms (30%, or 15% if one is in the small business program) and the new ones with a €0.50 per-install per-year fee above 1 million installs, but reduced percentages (20%, or 13% in the small business program). At first sight, that would make it a no-brainer for those who are comfortably below 1 million units, and even for many who may be near 1 million, but generate enough lifetime revenue per install that they’d rather take the lower percentage and pay for a limited percentage of their installs.
However, under the rules Apple proposed in January, that would have been risky. As games fray explained in its January 28, 2024 article on the €0.50 charge, an app could experience a sudden surge, such as because a famous YouTuber mentions it on their channel. In that case, an app maker who didn’t anticipate reaching high levels of downloads, and who doesn’t have a strong monetization model in place, could end up being charged for millions of downloads without sufficient revenues to pay for that. In that article, games fray devoted a multi-paragraph section with its own subhead (Even for the little guys, the per-install per-year fee is risky) to that one scenario.
To games fray‘s best knowledge, no other media outlet or commentator raised that particular issue. Maybe someone mentioned it to Apple directly, but apparently not in public.
Apple, to its credit, has acknowledged and addressed that problem, and games fray thanks Apple for it. In yesterday’s announcement, Apple wrote:
“Switching back: To help reduce the risk of unexpected business changes under the new terms, such as reaching massive scale more quickly than anticipated, or if you simply change your mind, we’ve created a one-time option to terminate the Addendum under certain circumstances and switch back to Apple’s standard business terms for your EU apps.”
Like games fray, Apple discusses the risk of unexpected business events and mentions the possibility of a sudden surge of downloads. Given that only someone with a small-developer perspective and a focus on app store regulation would identify the problem, the probability of Apple having taken note of games fray‘s criticism, either directly or because someone read about it here and talked to them about it, is realistically not low. Regardless of how Apple came to that realization, it did the right thing here.
Some will say they should allow switching back and forth between the two term sets, but games fray does not believe one can reasonably expect that.
This changes nothing about games fray continuing to demand more effective competition in this space and wants Apple to open up the market in various ways. It does show, however, that the right approach is to analyze the issues, stay true to the facts and also to recognize and respect that Apple has certain rights under the law. Apple has to comply with the law as it stands, not a different law that many of us would prefer. Spotify has been trying for a decade to portray Apple in a certain way, and has now submitted a modified version of its app for the EU (March 5, 2024 The Verge article), which may either be optimized for quick approval or may be designed to provoke a rejection and start an enforcement dispute. Spotify’s Apple-bashing may have contributed to the push for a DMA, but Spotify knows that Apple’s new EU app rules improve its situation.
There are “attack vectors” that may very well lead the EC and subsequently the EU judiciary to hold Apple in violation of the current DMA. But games fray does not consider it appropriate to accuse Apple of downright lawlessness here. There are issues worth investigating, yet they fall short of lawless behavior. They play hardball.
For instance, Apple’s rule (March 5, 2024 9to5Mac article) that alternative app stores will stop working (and stop updating apps downloaded from them) when someone leaves the EU for more than a “grace period” is, if that grace period also covers long vacations, justifiable, even though it constitutes yet another disincentive from using alternative app stores. And no matter how hard it is for those who push for more open markets, Apple’s interest in having a unique product design must be respected wherever it is not largely pretextual, as yesterday’s article already noted toward the end.