Yesterday, the Korean National Assembly passed a bill that amends the country’s Telecommunications Business Act to prevent app market business operators (i.e., Apple and Google with respect to their app stores) from requiring app developers to exclusively use their in-app purchasing systems (IAP in the case of Apple and GPB in the case of Google). The bill also bans app market business operators from unreasonably delaying the approval of apps or deleting them from the marketplace — hence protecting app developers from retaliation.
By way of reminder, Apple requires apps selling “digital” goods or services to use IAP to accept user payments and pay a related commission of up to 30% on the transaction. Last year, Google “clarified” its payment policies so that apps on Google Play would be subject to a similar obligation (see here), but this policy change has yet to take effect.
The Korean bill will become law once signed by President Moon Jae-in, which is expected to happen very soon as his party supports the law. The Korean bill could have profound consequences across the world. While the Korean market may represent a small portion of the App Store and Google Play total revenues, the Korean Assembly has set an important precedent that could stimulate the adoption of similar legislation in the rest of the world.
Regulatory initiatives that would constrain the market power of Apple and Google’s app stores, including their ability to mandate the use of their in-app payment solutions, are already under way in the EU with the Digital Markets Act and in the U.S. with the Open Apps Market Act (see here for a post comparing the two legislative initiatives with respect to app store-related obligations). These app stores may also be subject to codes of conduct under the DMU regime in the UK, and the CMA is already running a market study into mobile ecosystems, which I expect to inform its future work on the DMU regime. Apple’s app store practices are also investigated by the European Commission, the UK CMA, the German Bundeskartellamt, the Dutch ACM and the Russian Federal Antimonopoly Service. In the US, Google has been sued by the Attorneys general for Utah and 36 other U.S. states or districts over alleged antitrust violations with the Play Store. Things are increasingly looking bleak for Apple and Google.
While Apple and Google may claim that these regulatory initiatives and investigations may disrupt their ecosystem, depriving them of the revenue they need to maintain and further invest in their respective app store, this claim fails to convince. For instance, in response to yesterday’s news, Google issued a statement saying that its “service fee helps keep Android free” and its model “keeps device costs low for consumers and enables both platforms and developers to succeed financially.” In that respect, it suffices to note that according to its own internal calculations, Google could break even with just a 6 percent commission fee on Google Play. In any event, one should not forget that Google has more than one way of monetising Android (even if it does not sell devices, with the exception of Pixel phones); Android is an endless data mine, which Google monetises through highly-lucrative advertising (its main source of revenue, running in the tens of billions).
Apple on its part has argued that IAP is an integral part of the App Store and the only way to collect their commission on the sale of digital goods or services by developers. But for reasons we have explained elsewhere, this claim does not make sense. Surely, Apple can find alternative ways to collect its commission, rather than forcing app developers to use its own in-app payment system (e.g., apps could use APIs that would inform Apple in real-time each time a user made a purchase).
In this respect, once it enters into force, the Korean bill will offer an interesting natural experiment. If Apple’s claim that IAP is the only way to collect its commission is true, then this commission should disappear – to the great relief of app developers in Korea. But I am confident than now that the mandatory use of IAP is banned in Korea, Apple will suddenly find another way to collect this commission. If they do so, their claim that the mandatory use of IAP is needed for them to collect their commission will lose any credibility.
It is thus interesting to note that in an emailed statement to The Verge commenting on the Korean bill, Apple did not raise this point at all (namely that IAP is necessary for it to profitably operate the App Store). Instead, it tried to portray the issue as one of payment security and privacy, saying that the bill “will put users who purchase digital goods from other sources at risk of fraud, undermine their privacy protections, make it difficult to manage their purchases and features like “Ask to Buy” and Parental Controls will become less effective.” As we have explained elsewhere, this claim is meritless. The idea that IAP is the only way to have a safe and secure payment is contradicted by the fact that users have for years made mobile purchases using solutions like PayPal or Stripe – including on apps considered as selling “physical” goods or services like Lyft. And in fact, IAP poses major problems when it comes to managing subscriptions, since the customer has to contact Apple for billing issues (e.g., refunds, cancellation requests) for a service or product that is rendered by the developer.
The lingering question is whether Apple and Google will do the right thing and voluntarily end the imposition of IAP and GPB in the rest of the world or will try to delay the inevitable by fighting antitrust investigations and regulatory initiatives country-by-country. While I hope for the former, I fear the latter.