Entertainment

Apple has turned its walled garden into a labyrinth

At stake are its App Store revenues, which mostly come from games.

Apple has turned its walled garden into a labyrinth

And it may drag out its App Store fight for years to come.

Image: Apple

Apple has been waging a policy war against regulators around the globe to defend the App Store’s 30% commission, and last week it took a particularly ugly turn in the Netherlands. It was Apple’s most brazen attempt to defend against an anticompetition challenge to the App Store to date, and it illustrates the extensive lengths to which the company will go to defend the iPhone’s walled garden.

This fight is about dating apps, but the implications are universal. After the Dutch competition regulator, the Authority for Consumers and Markets, began slapping Apple with weekly 5 million-euro fines for its failure to comply with a new law that allows in-app payment alternatives for dating apps, the iPhone-maker proposed a new solution.

  • Instead of a 30% commission, Apple would take one that’s 27%, but it would make the process of qualifying and implementing that lower commission so onerous that it would effectively cost an app-maker the same, if not more, than sticking with Apple’s built-in option.
  • “You can just feel how much they despise having to do any of this. They’re making non-App-Store payments as painful, expensive, and clunky as the regulators will tolerate,” wrote app developer Marco Arment, who said Apple’s solution here provides a roadmap to how it will likely try to skirt similar regulations in other markets for more than just dating apps.
  • Outspoken Apple critic and developer Steve Troughton-Smith called it “absolutely vile,” adding, “Everybody on their executive team should be ashamed, and some of them should not be here when it’s all over. We all see you.”

Dating apps are lucrative, but mobile games are the gold mine. Apple has steadfastly defended its App Store policies and restrictions for years, and it’s done so more publicly of late in the antitrust lawsuit from Epic Games and in the many small concessions it has made to keep regulators at bay in the months since the Fortnite trial last May. At stake are its App Store revenues, which mostly come from games.

  • Apple paid out roughly $60 billion to developers last year after taking somewhere between 15% to 30% of all in-app spending on digital goods. According to Sensor Tower, mobile gaming makes up roughly 67% of all in-app spending, with Apple generating close to double what Google does in store revenue.
  • Apple has cited security concerns and privacy risks for its rules against sideloading and its restrictions on allowing alternative payment options. But Tim Cook, during his testimony in the Fortnite trial, also characterized Apple’s approach as a way to recoup R&D investment and help it maintain control over the iOS app ecosystem.
  • Although Apple largely won its case against Epic, the company proceeded to successfully fight a court order that would force it to loosen restrictions on alternative payment systems. The order is now on hold pending ongoing appeals.

Apple may drag out App Store fights for years. The Netherlands and South Korea have so far attempted the most direct strikes against the App Store model to date, and Apple has responded by trying to circumvent regulations and make the lives of developers more difficult.

  • South Korea is still awaiting a proposed solution from Apple, and Dutch regulators said they were “disappointed in Apple’s behavior and actions.” The ACM will continue to fine the company weekly until it comes up with a solution it deems compliant. (Meanwhile, Apple is appealing the ACM’s decision.)
  • The U.S. is trying its own form of app store regulation with the Open App Markets Act and the American Innovation and Choice Online Act, both of which seek to limit Apple and Google’s power over in-app purchasing and other restrictions on third-party developers.
  • Apple responded to the Open App Markets Act by sending a letter last week to the Senate Judiciary Committee saying the bill, which would permit sideloading, would allow social media companies to violate user privacy and security.

You may be wondering why a company that earned almost $100 billion in profit last year is fighting so vigorously for what is one of the smaller parts of its business. But as the Fortnite trial made clear, Apple sees the App Store and its control over the iOS app ecosystem as paramount to the iPhone experience and a vital sector of its services business, which has become one of Apple’s fastest-growing and most profitable divisions. Central to those healthy margins is the Apple Tax, which the company seems more determined than ever to defend to the death.

A version of this story also appeared in today’s Entertainment newsletter; subscribe here.

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