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Will Congress’ app competition bill really change the game?

February 4, 2022, 6:03 PM UTC

When the Senate Judiciary Committee, evenly split between Democrats and Republicans who rarely agree on anything, votes 20-2 in support of a bill attacking a foundational piece of your company, something has gone wrong.

Committee members near-unanimously backed a bill Thursday that aims to curb the power of app stores controlled by Apple and Google, both of which made prodigious profits off tightly controlling their smartphone app markets. The Open App Markets Act would, among other things:

  • Force Apple and Google to let users download third-party apps and app stores—commonly known as “sideloading”—on their respective iOS and Android mobile operating systems.
  • Allow developers to collect in-app revenue using payment systems operated by companies other than Apple and Google.
  • Prohibit Apple and Google from punishing developers that offer their apps or in-app purchases for less money elsewhere.

The 10-page bill marks a moment of well-deserved comeuppance for two of the world’s three largest companies—even if the impact may be smaller than chest-beating legislators perceive.

Apple and, to a lesser extent, Google rake in eye-watering profits from their app stores, milking developers for fees that typically reach 30% of all app-related revenue. The two app stores have near-total control over the mobile app market, due to their inherent tie-in to the dominant Apple-owned iOS and Google-owned Android smartphone operating systems.

Apple laughably claimed during the recent Epic Games lawsuit that it doesn’t know its App Store profit margins, but a judge overseeing the case deemed an expert witness’ estimate of roughly 75% to be reasonable. CNBC estimated that Apple earned about $64 billion in App Store revenue in 2020, meaning Apple likely reaped multiple tens of billions of dollars in profit. 

That kind of astronomical margin on such a widely used product will naturally attract legislative and regulatory scrutiny.

And yet, it’s unclear whether the bill as written will change much. While the promise of third-party app stores portends greater competition and lower prices, it also requires the emergence of an app marketplace that users know and trust. 

Apple and Google already have loyal customers who have been conditioned for years to reflexively seek out their stores. Apple, in particular, also benefits from a strong reputation for privacy and security, two important traits given that sideloading could heighten the risk of users downloading malware through apps.

The provisions related to third-party payment processing also lack some bite. While Apple and Google would have to let outside vendors collect payment, nothing in the proposed law stops those two companies from recouping those fees. 

Apple, for its part, has already telegraphed that it won’t let developers off its 30% hook. During last year’s Epic Games trial, CEO Tim Cook said his company “would have to come up with an alternative way of collecting our commission” if a developer used a third-party payment processor. 

That’s exactly what Apple plans to do in The Netherlands, where a recent court ruling forced Apple to let dating apps use third-party payment processors. TechCrunch reported Friday that Apple has notified those Dutch developers that they must submit reports detailing how much revenue they derived from apps hosted in the App Store. In turn, Apple will send a bill equal to 27% of revenue.

It’s unclear whether this well-intentioned bill will make it to the Senate floor or pass the U.S. House this year. If it does reach the president’s desk, however, there’s no guarantee that it’ll be the game changer that legislators envision.

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Jacob Carpenter

NEWSWORTHY

A little extra for Prime. Amazon announced Thursday its first Prime subscription price hike in three years, bumping the annual cost from $119 to $139, as the company faces higher labor and shipping costs. The price increase came as Amazon announced record quarterly revenues of $137.4 billion despite supply chain and logistics challenges during the holiday season. Amazon’s stock jumped 14% in mid-day trading Friday, largely on the back of strong growth in its ad business and cloud division.

Bet Mark dislikes this. Meta lost about $232 billion in market value Thursday, the largest single-day decline in U.S. history, following an abysmal quarterly earnings report that left investors fearful about the company’s growth prospects, CNBC reported. The value loss eclipsed the prior record of $182 billion, set by Apple in September 2020. Meta’s selloff bled into Friday, with its stock down another 1% as of early afternoon trading.

On the flip side. While Meta’s woeful quarter sent shareholders running, its stagnant user growth figures could help its fight against regulators and lawmakers who argue the company has become too powerful. The earnings report suggested Meta is facing stiff competition from social media rival TikTok, which company officials could cite in their battle to stave off a Federal Trade Commission lawsuit aiming to break up the Facebook and Instagram parent. FTC officials have argued TikTok doesn’t represent a direct competitor to Meta from a legal perspective.

A dramatic reversal. Snap and Pinterest surprised Wall Street on Thursday evening by posting better-than-expected sales and earnings for the holiday quarter, pushing aside concerns that recent changes in Apple’s privacy protocols would deal major blows to both companies. Shares of Snap traded 52% higher early Friday afternoon after the company posted its first-ever profitable quarter, helping mitigate a 24% loss in regular trading Thursday that stemmed from investors’ fears that the Apple tweaks would weigh down ad revenue. Pinterest shares were up more than 30% during after-hours trading Thursday, though the stock leveled off before Friday’s opening bell and traded up 6% by early afternoon.

FOOD FOR THOUGHT

The metaverse building blocks. Why did Microsoft decide last month to spend an eye-popping $68.7 billion to buy video game developer Activision Blizzard? Because video game technology will serve as the bedrock of the world’s next big computing platform, Microsoft CEO Satya Nadella predicts. In his first interview since the Activision Blizzard acquisition announcement, Nadella tells The Financial Times that the company’s goals for the metaverse, a still-amorphous mix of augmented and virtual reality, rest in part on developing technology that mirrors the work already done by video game developers.

From the article:

The Microsoft chief also claimed that boosting its game-building capabilities was close to the company’s original business of creating software tools for developers.

That would enable it to “democratize game building, which today is only done in the context of entertainment”, he said. In future, the same techniques would “bring it . . . to anyone who wants to build any space, and have essentially people, places, things digitized”.

IN CASE YOU MISSED IT

Elon Musk’s brain-implant startup Neuralink may have misled regulators about Musk’s leadership role, by Jeremy Kahn

Meta’s historic stock drop cost Mark Zuckerberg $31 billion in net worth. Only Elon Musk has lost more, by Eamon Barrett

As rivals close in on Facebook, Zuckerberg pins hopes on Meta’s new TikTok rival, by Christiaan Hetzner

Rockstar Games confirms it’s working on new ‘Grand Theft Auto’ title, by Chris Morris

Tech bulls roar back ahead of what’s expected to be an ugly jobs report, by Bernhard Warner

This NFT collector who says he has art worth millions thinks the market is about to crash—but notes he’s not in it for the money, by Tristan Bove

BEFORE YOU GO

Not even a little chance? It’s fair to say Sandbox chief operating officer Sébastien Borget isn’t a fan of Meta. In an interview Thursday with CoinDesk, the Sandbox executive, whose division develops an eponymous metaverse video game, seemed to take pleasure in swatting away rumors of an acquisition by the Silicon Valley giant. “I hope it will never be happening,” Borget said. “I don’t see any compatibility here with what we are doing.” To Borget, Sandbox is about fun and user ownership of the game, while Meta is all about controlling customers’ data and identities. But other than that?

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