It is no secret that Microsoft has charted a rather different course compared to Apple and Google when it comes to ex ante regulation – a course aiming to embrace, rather than fight, regulation (see for example, this May 2021 blog post where Microsoft in principle voiced its support for the EU Digital Markets Act). It is also no secret that Microsoft is at odds with Apple’s (and, to a lesser extent, Google’s) app store policies, with the Seattle-based software company recently filing an amicus brief in support of Epic Games’ appeal before the Ninth Circuit against the ruling of Judge Yvonne Gonzalez Rogers. As discussed below, to some extent this reflects the starkly different approaches of Microsoft and Apple to cloud gaming, with Microsoft heavily investing in cloud gaming with its Xbox Cloud Gaming, and Apple “block[ing] the emergence of cloud gaming on iOS”, as the CMA found (see the excellent post of our colleague Stijn Huijts on this issue).
It is thus with great interest that I saw yesterday Microsoft’s Brad Smith announce a set of “Open App Store Principles” in what he describes as a proactive move to adapt ahead of regulation. Specifically:
- Grounded in existing or forthcoming legislation: The Open App Store Principles are said to be grounded in app store legislation currently being considered across the world, including the US (this is presumably a reference to the Open App Markets Act, recently voted by the US Senate Judiciary Committee), the EU (the DMA), the Republic of Korea (see here), and the Netherlands (presumably this refers to the Dutch Competition Authority’s decision mandating Apple to allow dating app developers to use alternative in-app payment systems; as I explained earlier this week, Apple refuses to comply, begging the question of whether it is a threat to the rule of law).
- Scope: According to the blog post, the Open App Store Principles shall apply to “the Microsoft Store on Windows and to the next-generation marketplaces [Microsoft] will build for games”. Some of the principles will also immediately apply to the Xbox console store, with Microsoft committing to close the gap on the remaining principles over time (more on this later).
- Content: The announced principles are said to reflect Microsoft’s commitments in four areas:
– Quality, safety, security, and privacy (principles 1-3): Microsoft commits to continue protecting user security and privacy, and allow developers to access its app store as long as they meet reasonable quality and safety standards.
– Accountability (principles 4-5): Microsoft commits to hold its own apps at the same standard it holds rival apps, and not to use non-public information from the app store to compete against rivals (this reminds me of Article 6.1(a) of the DMA)).
– Fairness and transparency (principles 6-7): Microsoft commits not to unreasonably self-preference its own apps and to be transparent about rules for promotion in its app store.
– Developer choice (principles 8-11): In what I consider to be the most interesting part, Microsoft commits to, among others, (i) allow developers to use their own in-app payment processing system, and not disadvantage them if they do so; and (ii) allow developers to communicate directly with their users inside the app on, inter alia, pricing terms.
– Operating systems: Finally, Microsoft commits to (i) continue allowing developers for Windows to make their apps available through alternative app stores or sideloading; (ii) continue providing such developers with timely access to interoperability information; and (iii) enable Windows users to use third party app stores and apps, including by changing defaults.
- Needless to say that some of these principles – especially those on developer choice and operating systems – are in stark contrast with Apple’s App Store policies. Recall that Apple has got itself in trouble with regulators over its policy of mandating app developers to use its In-App Purchase (IAP) system, and prohibiting them from promoting off-app payment options (to the detriment of consumers, as the CMA found in its Interim Report on its Mobile Ecosystems market study) – while at the same time regulatory initiatives such as the DMA aim to open iOS to alternative distribution channels.
- At a both practical and symbolic level, therefore, Microsoft has further distanced itself from Apple and Google. This may in turn make it increasingly hard for Apple and Google to justify their practices before regulators. In effect, all Apple and Google will be able to do is to point to each other as a reason for maintaining their policies. But this is not sustainable in the long run (and raises suspicions about the relationship between Apple and Google – a point which I may discuss in future posts).
- What about the Xbox store? Apple and Google have criticized Microsoft for its advocacy, pointing out that the Xbox console store also charges a commission fee to developers (of 30%, although recently slashed to 12% for PC releases). Apple has also frequently pointed to the fees charged by console makers such as Microsoft, Sony, and Nintendo, to claim that its 30% commission is industry-standard. But this is simply wrong. As I have explained in a co-authored article, Apple is comparing apples with oranges. The Microsoft blog post makes the point, insofar it notes that console makers sell hardware to consumers at a loss, which they then recover through commission fees. This is completely different from the iPhone, which Apple sells at sky-high prices. Apple also has numerous ways to monetize iOS (iPhone sales; $ 99 developer fee; App Store commission; advertising), hence any comparison to gaming consoles is misguided. In any event, it is interesting to note that Microsoft committed “to close the gap” for the remaining principles (those on developer choice and operating systems) over time also with respect to the Xbox store.
- As hinted above, Microsoft’s approach reflects its different incentives with respect to cloud gaming, a point made clear in the blog post. Microsoft’s vision is to propel cloud gaming, which at its core is device- and platform-agnostic. As Stijn explained in the above-mentioned post, cloud gaming removes the restrictions of a phone’s storage and processing capabilities, hence it is less important for consumers to have a top-end mobile device to be able to play the best games on a mobile device. Yet for this vision to succeed, it requires open platforms with open app stores. Microsoft’s blog post notes that currently there is “too much friction” between creators and gamers, and this friction is an obstacle to the development of cloud gaming. And Apple has been a key source of friction, as it basically prohibits cloud gaming services on the App Store – relegating them to web apps, whose functionality is limited (among others because of restrictions in WebKit, Apple’s browser engine which all browsers on iOS have to use). As Stijn explained, the CMA found that Apple may have an incentive to restrict cloud gaming to (i) protect its hardware revenue; and (ii) shield its market power in app distribution. Put simply, cross-platform functionality (as enabled by cloud gaming) is a threat to Apple’s walled garden.
- The link with Activision Blizzard: Microsoft’s blog post is equally about its proposed acquisition of Activision Blizzard for almost $ 70 billion, which regulators around the world are preparing to scrutinize. Microsoft links this acquisition with its investment in cloud gaming and its vision for open platforms/app stores. Interestingly, Microsoft took the chance to commit it will continue making successful Activision titles such as Call of Duty available on Sony’s competing platform, in a bid to alleviate concerns over the proposed merger (under EU competition law, this would be a concern over input foreclosure of the post-merger entity).
All in all, I think Microsoft’s Open App Store Principles could be a game changer, although only time can tell. While I do not expect any seismic shifts to happen overnight, it seems it gets harder by the day for Apple to defend its App Store policies.