Who owns the phone in your pocket? This question is at the centre of Apple’s latest dispute with European regulators, and it doesn’t look like it will be resolved any time soon.
On Thursday, the company published its plan for how it intends to comply with the European Union’s Digital Markets Act (DMA). This is a huge piece of legislation designed to break the power of the so-called “gatekeepers”: the giant (almost exclusively American) tech companies that distort entire industries with their size. From our report:
As part of the changes, the US tech company will make a range of browsers available to iPhone users as standard, allow the use of alternative payment systems to Apple Pay and allow the installation of alternatives to its App Store, which could theoretically include the Google Play Store.
However, there is a catch: for the first time, developers using this option will be charged a flat fee per installation, upending free-to-play business models and limiting the types of apps that can bypass the store.
The six companies named as gatekeepers – the five major American companies Apple, Google, Facebook, Microsoft and Amazon, as well as ByteDance – must fulfil a whole range of requirements in the areas in which they are considered dominant. As different as they are – from TikTok’s power in social networks to Google’s monopoly in search engines – the aim is the same: to ensure that control over the services does not lead to control over the world we build on top of them.
But it’s hard to relinquish control. Apple has long argued that its tight control over the iOS platform and the App Store is essentially paternalistic, not authoritarian. It claims that a world in which iPhones function like Macs would be a world with more fraud, viruses and consumer harm. The EU is basically saying, “We’ll take that risk.”
So, the company’s new plans are to be welcomed. When Apple switched the iPhone range to USB-C instead of the company’s own Lightning connectors, the company raved about the benefits the switch would bring – and glossed over the fact that it was mandated by the EU. Not so this time. Apple’s announcement is dripping with resentment at being forced to do something the company loathes:
The DMA requires changes to this system that pose greater risks to users and developers … These include new avenues for malware, fraud and scams, illegal and harmful content, and other threats to privacy and security. These changes also affect Apple’s ability to detect, prevent and take action against malicious apps on iOS and to support users affected by issues with apps downloaded outside the App Store.
So what has changed? Quite a lot. Some of the new rules announced last week apply worldwide, others only in the EU. This gives us an idea of what Apple is upset about having to make changes to, and what it’s absolutely furious about.
In the first category, the company has relaxed its restrictions on video game streaming services (such as Microsoft’s Xbox Game Pass) and no longer requires each individual game to have its own presence in the App Store. The requirement that apps must support Apple’s own “Sign in with Apple” technology has also been lifted (although developers must still offer a “privacy-friendly” sign-in service and not force users to sign in with “Sign in with Facebook”, for example). Developers will also receive new analytics data, according to the company.
The latter category is much more extensive, much more consequential and applies exclusively to users in the EU. At the top of the list is the opportunity for developers to make their apps available outside the App Store for the first time. However, it’s not a complete free-for-all: Apple will require apps to be installed from a comparable marketplace, which may only be operated by large companies (who can prove that they have access to €1 million in credit) and which must (as best they can) be “real” marketplaces. In other words, Facebook can operate an app store, but not if it only offers apps made by Facebook.
Apple will continue to retain a certain degree of control over these app stores and will review the apps offered there for security concerns but will expressly not enforce the company’s content guidelines.
Equally important is the ability for developers to create their own web browsers and contactless payment systems. Apple has long prevented others from doing this for security reasons (third-party browsers on iOS, such as Chrome and Firefox, are just wrappers for Apple’s own rendering engine “WebKit”), and now we’ll see if the trade-off was worth it.
But let’s not get too hung up on questions of principle. The real reason for this flurry of announcements is money. And this is where Apple has thrown a grenade at the status quo.
EU developers are faced with two choices. They can either carry on as if nothing has changed, or they can accept the “alternative terms”. This will see the percentage they pay to Apple for downloads from the App Store reduced from the current 15-30% to 10-17% (depending on the industry), with a 3% surcharge for using Apple’s own payment system. No commission will be charged for payments from alternative app stores (although these stores may charge their own fees).
But these savings are not free. Developers who opt in to the new terms will also have to pay a “core technology fee”, i.e. €0.50 per user per year. And this is where the question of who owns your iPhone comes in.
For the first time, Apple is making an argument it has long danced around: even if you bought an iPhone from Apple, the company earns a fee for letting you use it. The core technology fee, the company says, “reflects the many ways Apple creates value for developers’ businesses.” (Apple already charges developers $99 per year to develop for the platform).
The fee has sparked outrage from some of the companies that were most hoping for the change, including Epic Games (who called the new terms “hot garbage”) and Spotify (who called it “extortion, plain and simple”).
It certainly upends the economics of app development, makes free-to-play development extremely risky, and almost certainly increases the payment many developers would have to make to Apple. Spotify, for example, does not allow its users to sign up through the App Store and therefore does not currently make any payments to the company. This amount would increase to tens of millions of euros per year if the alternative conditions were accepted.
And while most apps get their first million users free thanks to Apple’s generosity, alternative app stores will have to pay the fee starting with user one – meaning they will be economically forced to enforce their own fee structure to avoid wasting money.
Where are the indie developers?
What follows will almost certainly be a lengthy period of haggling. Major European tech companies want the fee reduced or eliminated entirely. Apple, meanwhile, will not want to give in any further but, more importantly, will want to avoid creating the impression that the European experiment is a success. If only a few alternative app stores launch and most developers stick to the conditions already in place, this will strengthen their claim that other jurisdictions do not need to follow the EU’s lead. This probably explains, above all, the persistent attempt to stick to the letter rather than the spirit of the regulations.
Both sides of the large technology companies therefore assume that the new terms will hardly make a difference. But I’m not so sure they’re right.
The technology I want to see flourish is not mega-streaming services that need to squeeze pennies from each monthly user, nor monolithic platforms whose desire for control distorts the culture at large. Instead, I’m excited for a world where indie developers, artists and creators can coexist with the big players. Alternative marketplaces, low commissions and flat fees won’t help Spotify in its battle with Apple Music but could lead to a very different landscape for those developers who just need to find a niche within a niche to feel at home.