U.S. Department of Justice Poised to Launch Antitrust Investigation over Apple’s ‘Ironclad’ App Store Control

Last week the European Commission announced the launch of two major antitrust investigations against Apple, and now it looks like U.S. lawmakers are making preparations to follow suit, with the focus being on Apple’s “ironclad” control of the App Store, according to a new report from Politico

Citing three people “involved in the discussions,” Politico notes that the U.S. Department of Justice and a coalition of attorneys general from various states have been speaking with a number of companies who are, not surprisingly, unhappy with the restrictions that Apple places on its App Store and how they’re applied very inconsistently.

Of course this comes as no surprise to anybody who has been following Apple, as we see major issues crop up each year when Apple either decides to arbitrarily change its policies or how they’re enforced — often without really telling anybody — or a developer runs afoul of an unusual set of exceptions, similar to what happened with Basecamp’s Hey service last week.

The companies in question, which are not identified in the report, have complained that not only do Apple’s policies lead to “higher prices and fewer choices for consumers,” but have also found that those competing with Apple’s own products and services are often either pushed out or treated unfairly compared to Apple’s own first-party apps, which of course have always gotten special privileges and special placement on Apple’s iPhone and iPad devices.

In fact, this latter point was the crux of Spotify’s complaint against Apple last year, which forms at least one of the pillars of the EU’s current antitrust investigation. While Spotify’s complaints were “spun” a bit in its own favour, the one point that Apple can’t argue with is that it’s in direct competition to Apple Music, and Apple Music gets preferred placement on the iPhone and iPad, with native integration into services like Siri and ancillary devices like the HomePod.

In Europe, the two recently launched antitrust investigations are focusing on the App Store and Apple Pay, and while Apple has managed to avoid the scrutiny that Amazon, Facebook, and Google have had to endure from U.S. regulators over the past couple of years, it seems that its time of flying under the radar may be coming to an end.

Proactively Heading Regulators Off

To be fair, the writing for this has been on the wall for a while, and it shouldn’t come as a big surprise to Apple. A number of developers and accessory makers spoke to the U.S. House Judiciary Committee earlier this year after being invited to testify against various tech giants on whether they wield too much power in the industry, and while the testimonies ran the gamut across all of the big industry players, Apple didn’t exactly come out of it clean.

In fact, perhaps in a sign of things to come, Basecamp’s CTO David Heinemeier Hansson, who was at the centre of last week’s Hey controversy, pilloried Apple’s App Store alongside his comments on Google and Facebook’s anti-competitive behaviours. Popular tracking tag maker Tile also made some very pointed comments about how it already appeared to be trying to push the company out of the running as it prepared to release its own much-rumoured AirTags.

So perhaps it’s as a result of all of the recent smoke being raised that Apple has decided to take some proactive steps to head antitrust regulators off at the pass, or at least ensure that it doesn’t come out of the fight as badly as it otherwise could. This week’s WWDC announcements offered a number of interesting developments that clearly suggest that Apple is opening things up in an unprecedented way, but whether it’s going to be enough or not remains to be seen.

Apple undoubtedly hopes that its decision to create a Find My network open to third-party developers will render Tile’s complaints moot, although it remains to be seen if the implementation details won’t have their own conditions that could still lead to accusations of anti-competitive behaviour, ranging from MFi partner licensing fees to issues regarding control of user data. Still, it’s definitely a step in the right direction toward being more open.

Apple will also now allow the Find My app to be deleted, which seems like a small thing, but actually formed another part of Tile’s complaint, since the competing location tracking tag maker felt that the fixed presence of Find My meant that Apple’s own tags would get a home-field advantage, prompting users to use what works with the app that’s already there instead of going and looking for alternatives.

Similarly, Apple is taking away much of its enforced first-party app placement. iOS 14 (and iPadOS 14) will allow users to choose alternative default mail and browser apps, and the HomePod will offer support for third-party music services like Spotify for the first time ever. While it’s hard to argue that the HomePod itself with its fractional market share should be considered an antitrust issue, but taken as part of the whole it can still be seen as part of a larger problem.

That said, Apple may not yet be going far enough with its defaults, since maps links will still go to Apple Maps, but that’s also arguably a bit more complicated of a problem to tackle, as there’s not yet a unified standard for links into other apps. For example, although some developers offer the option to open links in Google Maps instead of Apple Maps, this is based on specific coding for each platform, rather than using a generic link that could be used anywhere.

App Store Review Appeals

Ultimately, however, these issues are relatively minor compared to the elephant in the room: the App Store.

This is the crux of most of the antitrust complaints that Apple faces, and it also comes from a much wider chorus. While Tile and Spotify have legitimate complaints about how Apple is affecting their own businesses, this still represents a minuscule fraction of the number of developers that are impacted by the way that Apple runs the App Store.

Apple announced this week that it will offer a new appeals process for developers to challenge App Store rules, taking it beyond simply challenging the specifics of an actual review to challenging the actual guideline behind the review. In the past, Apple’s App Review Guidelines were considered inviolable, which means that the only recourse developers had was to prove that their app didn’t break an established rule, but now Apple says developers will be able to challenge the rules themselves in the event that they’re deemed unfair.

Unfortunately, we don’t know yet how much of a “black box” this appeals process may be, since Apple still holds all of the cards. For example, Google has long offered an appeals process against its AdSense related rulings, but there’s absolutely zero transparency to the process, so when a user appeals a decision they believe is unfair, it doesn’t feel like their appeal is being heard so much as the company is just confirming its previous decision.

If it’s not handled properly, there’s a definite risk that Apple’s appeal process could work the same way, with the company basically allowing developers to challenge guidelines as a token gesture, making appeals that ultimately result in Apple just repeating itself.

The Real App Store Problem

Even leaving aside the issues with the App Store guidelines, and Apple’s often capricious application of them, many developers feel that the real problem with the App Store is the fact that it’s the only way to reach the over one billion iPhone and iPad users out there, since it’s not possible to install apps on these devices in any other way, and Apple takes a hefty 30% cut for the privilege — something that developers snarkily refer to as “the Apple tax.”

While Apple’s 30% take may not have seemed as unreasonable back when most developers were selling apps outright, as the industry has moved toward a subscription model — and Apple has continued to take a 30% cut of those — it’s become more of a problem for developers and their bottom lines.

While the sale of physical goods are exempt from Apple’s revenue cut, pretty much all digital goods that are sold through an iOS app must give up 30% to Apple, whether they’re subscriptions to services like Netflix and Amazon Prime or purchases of ebooks, movies, or in-game currencies. Some developers like Netflix and Amazon have been allowed to get around this by avoiding the in-app purchasing system altogether and forcing users to subscribe and make purchases on their websites, while others like Google’s YouTube Premium simply raise their in-app subscription prices to compensate for the 30% cut. In either case, the result is a consumer-unfriendly environment and more hoops for developers to jump through.

Meanwhile, developers like Spotify have raised valid complaints that Apple isn’t subject to this 30% take for its own apps, which places others at a competitive disadvantage. Even if Apple is accounting for the 30% from things like Apple Music subscriptions separately on its balance sheets internally, at the end of the day it all goes into the same profit pool, especially since Apple counts all “services” as one large chunk, whether it’s from its App Store revenue share or its multi-billion-dollar search engine deal with Google.

Apple has arguably avoided some of the antitrust scrutiny due to its relatively small market share — Android is still bigger overall — but as the iPhone grows in popularity that’s been changing, and it also seems that regulators are no longer simply looking at the textbook definition of “monopoly” when trying to consider whether a company is engaging in anticompetitive behaviour.

In fact, in an interview with Politico last week, Microsoft’s President, Brad Smith, obliquely called out Apple, noting that the App Store is far more dominant today than Windows was 20 years ago when Microsoft was accused of being an illegal monopoly.

They impose requirements that increasingly say there’s only one way to get onto our platform, and that is to go through the gate that we ourselves have created. In some cases, they create a very high price or toll.”

Brad Smith, President, Microsoft

Similarly, Spotify continues to wage its own battle against Apple, which began last year, accusing the company of specifically designing “rules to hurt us and other rivals to their advantage.

Comment

There is no doubt that Spotify would be a more successful company today were it not for Apple’s conduct.

Horacio Gutierrez, Chief Legal Officer, Spotify

While Apple seemingly appears to work out many of the controversies around its App Store, this is largely superficial, with Apple making decisions that developers are forced to grudgingly accept, but seldom like, since the App Store remains the only game in town. For example, email service app Hey finally got approved after a heated battle by ultimately making a token gesture that the developers believe called Apple Senior VP Phil Schiller on his bluff, but still failed to really address the bigger picture of the guidelines themselves being inconsistent and unfair. Meanwhile, for every one developer who speaks out on Apple’s policies, there are likely thousands of developers who don’t want to upset the Apple cart, and there’s clearly a groundswell of dissatisfaction with how Apple runs the App Store that’s been waiting to come to a head for a long time.