UK Finds Apple and Google Compete Unfairly in Mobile

Posted on June 12, 2022 by Paul Thurrott in Android, Apple, Google, iOS, Mobile with 20 Comments

An extensive year-long investigation by regulators at the UK Competition & Markets Authority found that Apple and Google compete unfairly in mobile and with their respective app stores. And its recommendations are worst-case scenarios for both firms: Apple and Google should be required to open their mobile platforms to third-party app stores and should be forced to lower their in-app fees to much lower levels.

The resulting report is both damning and comprehensive, and it should be studied by anyone interested in—or confused by—how competition works in the mobile market. Here, I’ll just summarize some of the key findings, but I will likely have more to say about this report, especially its take on game streaming and mobile.

“Apple’s and Google’s control over their respective mobile ecosystems allows them to influence competition in downstream app markets throughout the entire process of app development and distribution,” the report explains. “In the case of Apple’s mobile devices, both firms’ app stores, and Google’s search advertising services, the prices charged are all above a competitive rate.”

“We have significant concerns that both Apple and Google are not facing effective competition to or within their respective mobile ecosystems,” it continues. “This is causing harm to consumers and businesses in the UK, as well as potentially to the economy and society more broadly. These harms are important, even if not always immediately obvious to consumers.”

Bingo.

After establishing that Apple and Google have a de facto duopoly of the mobile market, the UK determines that both firms also have “substantial and entrenched market power in mobile operating systems,” with no other competition or market barriers.

“Absent intervention, the lack of effective competition faced by Apple’s iOS devices and Google’s Android devices allows Apple to charge above a competitive rate for its devices and/or supply a lower quality of operating system and devices and allows Google to supply a lower quality of operating system,” the report notes. “Given Apple’s business model, this conclusion relates to its devices and operating system in combination.”

With regard to mobile app stores, the UK found that both Apple and Google face no strong competitive restraints and can thus behave unfairly to developers and customers. There are no competing app stores on either platform, so prices and fees remain artificially high. The respective presence of app sideloading (or not) does not impact either company in the slightest. And web apps place only “a very limited constraint on the App Store,” the UK concluded. Basically, the new app stores also constitute a duopoly.

Looking at the fees that Apple and Google charge to developers, the UK found that while Apple and Google have very publicly promoted that they lowered fees from 30 percent to 15 percent for the smallest developers, this change hasn’t impacted the most popular apps in the stores at all, and that, as a result, both firms still collect average fees of 25 to 30 percent. In other words, this was a marketing move aimed at currying public favor.

“We do not consider this to be a material reduction,” the UK explains. “Moreover, there is no clear evidence that there has been a change in competitive pressure to prompt these discounts since 2016 and as outlined above there is limited effective competition between Apple and Google.”

As to whether the fees are fair—i.e., based on what one would expect in a competitive market—the UK concluded, rightly, that they are not. And the extravagant fees are not based on the cost of operating the stores, it notes, nor do they contribute to the quality of the stores. “The lack of competition faced by the App Store and Play Store allows them to charge above a competitive rate of commission to app developers,” it explains. “If other distribution channels, such as sideloading or alternative app stores, were effective constraints on Apple’s and Google’s app stores, we would expect to see lower commissions and/or better quality of app stores.”

The UK also examined whether Apple’s and Google’s business practices with web browsers constitute a restraint of trade. Both companies bundle their own web browsers in their platforms, but Apple, notably, “bans” the use of competing browser engines on iOS. In doing so, Apple “restricts competition” in the web browser market by limiting what competing browsers can do, and this decision by Apple was “likely [made] to impede the more widespread adoption of web apps.” Apple argued that its restriction is for security reasons, but the UK found that to be false.

The situation on Android is more complicated. Google does allow browser engine competition on its platform, but the vast majority of alternate browsers use its Chromium base, limiting differentiation. And despite being installed as the default on less than half of Android devices sold, Google’s Chrome is still dominant on that platform, in part because of Google’s dominance in search. Google also pays Apple billions of dollars each year to keep its search engine the default on iOS.

“Absent intervention, Apple and Google are highly likely to retain this market power within their respective ecosystems for the foreseeable future, raising developers’ costs and hindering innovation,” the report concludes of web browsers.

The UK also examined how the firms interact with developers and the lengthy and often arbitrary review processes they must endure to post or update their apps in the app stores, especially with Apple.

“Apple’s operation of the app review process for the App Store, in particular its inconsistent interpretation of rules and lack of clear explanation of reasons for rejections, creates uncertainty, costs and delays for app developers,” it noted. “This in turn is liable to hinder innovation and may be used to the advantage of Apple’s own apps.”

The most important finding, perhaps, regards the in-app fees that both Apple and Google collect from developers. The UK determined that most app store revenues come from games, which helps explain why Apple prevents Microsoft from putting Xbox Cloud Gaming in its app store. “The majority of Apple’s and Google’s app store revenues are derived from payments for one-off in-app features or content, such as a particular item purchased within a game experience, rather than for ongoing subscriptions,” it says.

“There would be viable alternative methods for Apple and Google to collect a commission for their app stores, while also allowing developers to choose alternative in-app payment mechanisms,” the report concludes of the firms’ in-app payment policies. “Interventions designed to require a level playing field for app developers could result in significant benefits to consumers.”

So, now what?

The UK says that it is now investigating Google’s Play Store rules for in-app payments, and the report recommends that new investigations into Apple’s game streaming restrictions and Apple’s and Google’s web browser restrictions.

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Comments (20)

20 responses to “UK Finds Apple and Google Compete Unfairly in Mobile”

  1. scovious

    I'm surprised it took governments this long to notice such obvious abuse. I'm excited to see the fate of these companies who take pleasure in wielding their market power against other companies and consumers in general.

    • wright_is

      Noticing the abuse isn't the problem, it is setting up the committee to investigate, gathering actual facts, as opposed to opinions and sound-bites, and getting the report written. That takes time, unfortunately.

  2. jimchamplin

    the solution to these governmental decisions had better be opt in.


    I don’t want my phone open to whatever damn software wants to install itself. I want it to keep working how it already does.


    If the US Government starts making noise like it’s going to force iOS to be “open” by default, I’m going to be writing to my congressional representatives in both the house and Senate.


    I DO NOT WANT THE CLOSED SYSTEM TO BE OPEN. My most personal communication device is not the same as my desktop PCs, and I hate that someone would dare to tell me how to use my fucking hardware. Double if it’s the goddamn government.


    I will make voting decisions based on candidates views on whether they feel they have a right to choose what I run in my pocket.

    • wright_is

      They are talking about evening the playing field by allowing other stores and other payment methods (Holland) etc.


      Nobody is forcing you to use them, but users should have the option, if they so wish.


      The problem will be exclusives on other stores that might mean having to have multiple stores - E.g. if you play Fortnite, it won't be in the Apple Store, so you would have to install the Epic store, for example, or you have to go without, if you don't want to use those apps.


      I like the single market on the iPhone for its simplicity and its relative safety, but it is a long way from being perfect. Either they will be forced to lower their percentages and/or allow apps to use alternative payment providers - why should I pay Apple 30% for an eBook or Audiobook on Amazon, when I already have a relationship with Amazon and the purchased product doesn't even touch Apple's infrastructure?


      In Holland/The Netherlands, they have said the dating apps can use other payment services, but they still have to pay Apple their 80% profit on the transaction (they have to pay 27% of the cost of the transaction to Apple, even if Apple does absolutely nothing in terms of facilitating the transaction, and it is alleged over 80% of the income from the App Store is pure profit.


      I don't begrudge Apple taking some money to cover the costs of running the App Store, but 80% profit for doing sweet FA? It is a "little" steep and is pure greed, it has nothing to do with improving the ecosystem. If the money really was being funnelled purely into improving the service, I'd be happy with that. If they were making a modest profit, I'd be okay with that as well. But over 80%?


      The same goes on the Google and Facebook sides of the fence for their advertising and data gathering, as well as the Google Play Store.

    • Bart

      As nobody will force you to install an alternative app store, or different browser engine, or use a different payment system, absolutely nothing will change for you. You can keep your walled garden if you like.


      But at least there will be choice, hopefully competition, and as end result more secure and better user experience.

    • navarac

      At least you can vote either way with governments - not that we achieve much in the process. With big companies,, well......

  3. randallcorn

    I remember phones with alternative OS on them with different app stores. Didn't last long. Nobody would develop for them. Not enough devices out there I guess to develop on them. Anyone remember when Jobs said the iPhone would not have apps, it would be web apps. Then the apps came supposedly temporarily. Oh well let's go back to when a phone was just a phone.

  4. red.radar

    I agree with the UK's assesment. Sideloading has negligible impact on competition. I am curious to what the actual solutions will be. It seems like a well written report that details the problem and its scope but the solutions don't seem immediately obvious.


    Seems like the thought is web technologies and apps should have been allowed to replace app stores. I think its a fair point and like to explore that further. Maybe the problem is the app stores, but the solution is in the web browser?



  5. nbplopes

    The truth is that software companies and digital services backed these companies ventures with no requirements on the table.


    Apps, are the fundamental thing of a digital economy. Without it, nothing can be provided. By fully controlling the installation and distribution of apps across billions of users, each can tie to it whatever they want. From grocery charges and dating to money transaction fees … to games.


    The abuse is one of tieing multiple business tiers to one single ability.

  6. johnh3

    To bad Windows Phone is gone. Was a nice alternative. But now we only got 2 players.

    And they take advantage of the situation.

  7. Daekar

    So... I have used other app stores on Android whenever I want to. I don't understand how they lumped Google into the same category as Apple there.


    If allowing 3rd party stores to be installed isn't good enough, what is? Do they have to include every store that wants to be included?

    • wright_is

      With Google, it was more Android licensing.


      Want to make an AOSP handset? Fine, but you can't make any Google Android handsets ever again.


      Want to make a Google Android handset? Fine, but you can't make any AOSP devices.


      This goes for the OEMs as well, the companies that make the handsets for the actual companies. If they are making Google Android handsets (E.g. Nokia, Motorola, Acer etc.), they can't also manufacture AOSP handsets for other companies. There was a case around the 2014 time frame, I think, where a manufacturer wanted to make an AOSP handset and they found it difficult to get it manufactured, because all the big names, like Foxconn and Quanta, were already making Google Android handsets for other companies, so they couldn't take on the contract for the AOSP device.

  8. nigelsmith

    I’m fairness let’s see a story about the healthy competition in gaming consoles and their app stores . After all they’ve been around much longer than phone app stores. Where is the 3rd party App Store? Why don’t you start with your beloved Xbox…

  9. sharpsone

    It's about time, we need change for the better.

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