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Apple and Google’s app store control is slipping amid Epic Games’ win

Apple and Google make billions of dollars a year funneling users to make purchases through their app stores. A new federal court decision and a spate of new laws from around the world are challenging that — and threatening their ironclad grip on the internet economy.

On Monday, a federal jury in San Francisco found that Google’s app store was an illegal monopoly that the search giant had used to close out competition from other companies. The decision comes just months after Google settled with a coalition of state attorneys general, who also alleged Google’s store was breaking antitrust laws. South Korea and the Netherlands have launched legal challenges against the 30 percent fees Google and Apple charge on app store transactions. And a landmark new digital markets law, which goes into effect in Europe in March, will force Google and Apple to open up their platforms to alternate payment processors and app stores.

It’s unclear what changes the U.S. court cases will lead to, but together with the international efforts, they represent one of the biggest attacks on the companies’ dominance since they became the monarchs of the mobile world.

“The app store question is being dismantled as we speak,” said Yuri Khodjamirian, an investor specializing in monopoly industries at Tema ETFs. “When you have pressure in lots of different places, you just start to change.”

A spokesperson for Apple declined to comment. Google plans to appeal the jury’s decision, Wilson White, Google’s vice president of government affairs and public policy, said in a statement.

For years, regulators, competitors and antitrust advocates have targeted Apple and Google’s app stores, arguing the fees they charge amount to a tax for app developers to reach their customers. Though mobile phones act as fully-fledged handheld computers, app downloads overwhelmingly go through Apple and Google’s stores. This bottleneck allows the companies to make billions of dollars by charging fees as high as 30 percent on sales and transactions. If a company like Epic sells something through a regular website, it only pays single-digit fees to payment processors. But if it sells the same product through a mobile app, it must pay Apple or Google a fee.

So far this year, Apple has made $23.7 billion in revenue from its app store, while Google has made $13.5 billion, according to mobile data research firm

On iPhones, Apple explicitly bans downloads outside of the app store. Google’s Android system is more open, allowing users to install other app stores and download apps directly from companies. But the vast majority of downloads still go through the official Google store, and the company warns its users that downloading directly from the internet, a practice known as “sideloading,” may lead to risks like viruses.

Epic focused on those warnings in the trial, arguing Google was trying to frighten users from straying out of its official app store, where it can charge transaction fees on purchases. Epic presented research showing the Google warnings do dissuade people from downloading outside the app store. In court, Google argued that the warnings aren’t as onerous as its critics make them out to be, and that it’s important for the company to warn users about the risks of computer viruses and malware.

Both Apple and Google say the fees are justified because they vet apps for security risks and provide a working marketplace to connect app developers and customers. Reporting has shown that scam apps still slip through these defenses.

The trial is the culmination of a three-year battle that Epic, a giant among gaming companies and the maker of blockbuster game “Fortnite,” has fought against Apple and Google. In 2020, Epic released a feature letting customers buy in-app purchases directly from the company, a violation of Apple and Google’s rules, which led to the company being kicked out of the two app stores. Epic sued both companies in return. Earlier this year, a judge ruled against Epic in its case with Apple. But the jury in the Google trial went the other way, ruling in favor of the games maker.

Epic joins a cadre trying to dismantle the companies’ control over the app ecosystem. A bipartisan push in the last Congress to pass legislation regulating Apple and Google’s app stores fell apart amid fierce company lobbying, as industry groups warned that the bills would result in harms to consumers’ privacy and security.

“Our fight for fairer competition and rules of the road for mobile app stores and other online marketplaces is gaining momentum,” Sen. Amy Klobuchar (D-Minn.), who co-sponsored the bill aiming to regulate app stores, said in a statement. “Now, we must take the next step in Congress to finally update our consumer laws for the digital age.”

Meta, under pressure from lawmakers to block younger users from accessing harmful content on its apps, has launched a campaign to get Apple and Google to play a bigger role in vetting the age of people who download apps through their stores.

Meanwhile, other jurisdictions have forged ahead with their own App Store laws, which could soon have wide-reaching implications for iPhone and Android users around the world. The European Union recently designated both Apple’s App Store and Google Play as “gatekeepers” under its Digital Markets Act, which seeks to foster greater competition online. The companies have until early March to come into compliance with the law, which requires the companies to allow people to install alternative app stores or sideload apps.

In 2021, South Korea passed the world’s first law to require tech giants to offer alternative payment systems on their apps stores. Apple in 2022 announced that it would allow apps distributed solely in South Korea to provide an alternative payment processing system, but it cut those developers off from other features, such as Family Sharing, which allows users to share subscriptions with other members of their household. In 2022, Apple cut fees from 30 percent to 27 percent in response to a challenge from the Netherlands’ competition regulator.

The opening up of the app stores represents a rare victory for those who have long said the big tech companies are too powerful.

“The major antitrust challenges happening right now in court against the big tech companies — Google, Amazon and Facebook — are still ongoing,” said Katherine Van Dyck, senior legal counsel at the American Economic Liberties Project, a think tank that is critical of Big Tech. This “is a crack or a hole in the dam that has been used to wall off those companies’ monopoly power,” she said.

Epic’s victory against Google bucks a trend of Big Tech winning antitrust challenges. Congress hasn’t been able to pass significant antitrust changes in years, and in July a judge blocked the Federal Trade Commission’s attempt to halt Microsoft’s takeover of video games giant Activision Blizzard. Epic won against Google but lost against Apple, meaning both cases will likely continue getting appealed until the Supreme Court potentially steps in.

Meanwhile, the jury’s decision against Google sends a notice to other tech companies that run large platforms to be careful about how they run their businesses, said Paul Swanson, antitrust partner at law firm Holland & Hart.

“They’re going to have to think twice and look a lot more carefully at that business model,” Swanson said.


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