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.
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“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.”
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.