App Store Bill Focuses On Competitors Rather Than Consumers

In April, the Senate Judiciary Committee held a hearing on app stores where Spotify, Tile, and Match Group were able to air their grievances about their competitors directly to lawmakers. Last week, the Open App Markets Act (S. 2170) was introduced by Senators Amy Klobuchar (D-MN), Richard Blumenthal (D-CT), and Marsha Blackburn (R-TN). This legislation purports to “level the playing field” and address competition problems in the app store market. However, this legislation places an outsized focus on boosting competitors, rather than protecting consumers and fostering competition.

This legislation would apply to a “covered platform,” defined as any person controlling an “App Store'' with more than 50 million U.S.-based users, which would likely apply to just Google and Apple. In a press release, Senator Blumenthal states that these two companies “exclusively dictate the terms of the app market.” However, the app store market is both larger and more competitive than advocates of S. 2170 claim. There are over 300 app stores worldwide, giving developers more options on where to take their products and consumers more choice. Even the so-called “Freedom Phone,” billed as an anti-Big Tech phone, claims to come with its own app store and preloaded apps. Besides app stores, users can also access certain services and products directly from a company’s website or through browser extensions.

The Open App Markets Act would also require these covered companies to allow users to download third party apps or app stores through other means than the covered company’s app store, also known as “sideloading.” Sideloading is the ability to download an app without using the app store’s operating system. This is a change more squarely aimed at Apple than Google, as Android phones already allow users to sideload. However, this provision seems to be based on the assumption that Apple and Google are working in tandem to “control” the app market, rather than fiercely competing both with each other and with other app stores.

Simply put, differences in business practice among technology companies give users more choice, and consumers view these competitors as substitutes. Consumers, especially the less tech savvy among us, may choose Apple because of the privacy and streamline features. If a user doesn’t use a large number of apps, sideloading likely doesn’t add much value. Meanwhile, Android, which allows sideloading, allows consumers to access a wider variety of apps or app stores. Consumers are not alone in viewing Apple and Google as substitutes rather than a duopoly. A working paper from the American Enterprise Institute finds that businesses similarly view these competing stores as substitutes offering differentiated services. Lawmakers should not attempt to enforce a singular standard, and instead trust consumers to make choices based on what's best for them.

Sideloading can offer additional options, but also comes with additional risks. Even with Apple’s “walled garden” approach which restricts sideloading, consumers are able to circumvent these protections. “Jailbreaking” a device can allow users to skirt the security features that restrict certain apps or features. However, this also exposes users to increased malware and cybersecurity risks. Sideloading may seem like an easy answer to increase competition, but the accompanying risks may not be in the best interest of all consumers. Retaining consumer choice between more secure and flexible operating systems increases competition and benefits consumers.

The “fee” charged by app stores, competitors claim, is anticompetitive and warrants Congressional action. Currently, Apple charges a 15 percent fee for the first $1 million generated per year, which then increases to 30 percent for additional revenue. Google similarly collects a 15 percent commission on the first $1 million per year followed by a 30 percent fee on additional revenue. These fees are only collected on paid and in-app purchases.

A report from the House Judiciary Committee’s Subcommittee on Antitrust claims that Apple and Google collect “supra-normal” profits from developers. However, the fees charged by app stores are not “supra-normal” and are in fact in line with the industry standard. Not only do these fees likely account for a relatively small percentage of profits for these companies, they also allow for a more vibrant app ecosystem. App stores also provide a service to download, distribute, and vet millions of free apps. As the Progressive Policy Institute notes, this would be like Walmart providing free shelf space to millions of goods owned and sold by other companies.

This legislation, according to advocates, would supposedly benefit “small” startups. While competitors pushing for these changes would have you believe they are “small” companies fighting against “Big Tech,” this is not the complete picture. These competitors might be comparably smaller, but billion-dollar companies are not what most consumers would consider “small” startups. The App Association, representing small technology companies concurs, saying, “mandating an entirely new business model in the app ecosystem will only benefit big companies like Spotify, Epic Games, and Tile while also potentially freezing out small businesses.” Consumers, not lawmakers, should be the ones picking winners and losers in the marketplace.

While unfortunate, it is far from unheard of for competitors to attempt to leverage public policy to advance their own interest over competitors. The consumer welfare standard, focused on harm to consumers and competition, accounts for this and should remain the lodestar of antitrust enforcement. A vibrant and rapidly growing app market is an economic boon and greatly benefits consumers. Consumers are not crying out to make their phones less secure. Consumers choosing a product or service, even overwhelmingly so, does not greenlight lawmakers to replace market dynamics. Heavy-handed government interference will not create a better online ecosystem for consumers.