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Here’s how India can take a cue from US and S. Korea and regulate the app store market

The existing app store policies of Google and Apple have invited criticism from stakeholders while it appears that India has much to learn from other countries addressing these antitrust issues. 

Apple and Google are facing multiple legal and regulatory challenges across the world with respect to their app store practices. The main allegations against these companies are that they charge high commissions and impose unreasonable restrictions on app developers that harm competition. To address this, the US and South Korea have introduced new bills, which if passed, will upend the world of apps and cause a huge dent in the revenues of Apple and Google.

As the largest open market for app developers and as the home to one of the largest communities of app developers, India should take a cue from the proposed legislation and formulate its own regulation for the app store market here.

Current policies of Google Play Store and Apple App Store

Fees and commissions

  • Standard 30 percent: Both Apple and Google currently charge 30 percent commission on app purchases and in-app purchases of digital goods and services through App Store and Play store respectively. Subscription commission falls to 15 percent after one year.
  • Reduced 15 percent: After coming under fire from multiple companies, Apple last November said that it will reduce commissions to 15 percent for developers that make less than $1 million per year. Google followed Apple with a similar, albeit slightly different, announcement saying that it will charge developers 15 percent for the first $1 million they earn in revenue in a year.
  • Exception: Sales of physical goods and services, products sold on the Amazon app, for example, are exempt from commissions.

Are third-party app stores allowed? 

This refers to app stores other than the official Google Play on Android and Apple App Store on iOS.

  • Google:
    • Yes, original equipment manufacturers like Samsung and Huawei have their own app stores.
    • But, as the unredacted Epic Games lawsuit against Google reveals, Google discourages this by coercing phone makers (OEMs) to make Play Store the only app marketplace that is shipped with the phone.
  • Apple: No.

Are side-loading apps allowed? 

This refers to the act of manually installing an app rather than through an app store.

  • Google:
    • Yes, users can download the APK file of the app and manually install the app on their phones.
    • But Google warns against side-loading and the process is not as convenient as downloading from the Play store. As the Epic Game lawsuit revealed: “Leading Google Play executives have acknowledged that directly downloading Fortnite from a source other than Google Play is “an awful experience”, and developers like Epic should “worry that most will not go through the 15+ steps”.”
  • Apple: No.

Is using third-party billing and payment system for in-app purchases allowed? 

  • No: Both Apple and Google require that developers use Apple’s and Google’s own billing and payment system for in-app purchases involving virtual goods and services, subscriptions, additional app functionality, and cloud software and services. Both platforms take a 30 percent cut from sales made using their systems. The much-publicised Epic Games lawsuit against Google and Apple, as well as contentions by platforms like Spotify and Netflix, revolve mainly around this condition.
  • Steering users not allowed: Additionally, both companies disallow developers from leading users to third-party payment methods via app listing or in-app promotion, buttons, links, banners, etc. For example, Netflix cannot ask its iPhone app users to sign up for a subscription on the desktop version of the app in a bid to avoid Apple’s commissions.
  • Exceptions: Developers can use third-party billing and payment systems for sales of physical goods and services like groceries, clothing, air tickets, gym membership, etc, for peer-to-peer payments, and for credit card and utility bills.

What is happening in India?

Sep. 2020, Google clarifies that apps must use its billing system: Google explicitly clarified that it will enforce its billing system on all apps downloaded from the Play Store for in-app purchases of digital goods and services and gave developers until September 30, 2021, to integrate into its billing system. When apps use Google’s billing system, the company will take a 30% cut from the payment. While this cut is not new, Google is now tightening its grip on the situation by ensuring that apps do no use alternate payment systems.

Oct. 2020, Indian start-up founders push back against Google: Multiple Indian startup founders pushed back against Google forcing developers to use its billing system. “How can companies survive by paying 30% Google tax and Apple tax,” one founder asked. The main issues raised by these founders were:

  1. Abuse of dominance: “If you’re talking about 30% billing as compulsory, as being mandatory, else your app won’t be published (on the Play Store), you are forcing companies to use Google’s in-app billing. It’s a monopoly trying to control things,” Matrimony.com’s Murugavel Janakiraman told MediaNama.
  2. Cost factor: For startups, digital advertising is their primary mode of acquisition of customers, and the fact that Google is taking an additional 30% of billing, really hurts. “30% of revenue on advertising. 30% billing revenue on top of that. That’s almost 50% of income going to Google,” Janakiraman said.
  3. The risk of scope creep: This move to charge 30% smells of scope creep to some founders. “Today they mentioned music, video, health tech, education etc. These are digital services. Tomorrow they can widen it to food delivery, companies offering physical services. Literally, Google is taxing startups,” Janakiraman said.
  4. National Interest: “Someone [Google Play] who is not in this jurisdiction, puts restrictions of their own policies on Indian apps”, a VSS added. “It is in the national interest to have viable alternate options for app stores and app billing,” GOQII’s Vishal Gondal said. “Today Google controls 95% of the app ecosystem in India. More than 80% of our traffic is mobile apps,” Janakiraman explained, “almost all of which are through Google. Google controls the Indian Internet ecosystem. How do you ensure that there is fairness?” he asked.

Oct. 2020, MEITY holds meeting with start-up founders: The Ministry of Electronics and Information Technology held a virtual meeting with startup founders across the country, giving them around two weeks to compile a document on issues with Google’s dominance in India, and other concerns around the dominance of large platforms in India.

Oct 5, 2020, Google defers enforcement of billing policy: Bowing to pressure, Google deferred the enforcement of its billing system policy only for India to March 2022. The company said this will ensure that developers have enough time to integrate with the Play billing system and implement UPI payment for subscriptions.

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November 2020, CCI launches investigation into Google Play Store: The Competition Commission of India (CCI) ordered a detailed investigation into Google’s payment policies and alleged manipulation within Play Store. The apex body for anti-trust matters said that there was prima facie evidence that Google may be abusing its dominant position in India, with regards to Play Store’s exclusivity and Google Pay (GPay) services. The CCI ordered an investigation into these aspects of Google’s practices:

  • High commissions 
  • Exclusivity regarding the choice of payment systems for app purchases
  • Preference to Google Pay for payments
  • The advantage gained from data collection

How can India regulate the app store market?

India can model its regulations after the US bill that was introduced earlier in August. Broadly, the regulations should cover the following:

  • Operating systems must allow third-party app stores: Google and Apple must allow users to download third-party app stores through means other than their own app stores and developers should not be disincentivised or penalized for making their apps available in these alternative app stores. Google and Apple must also not disincentivize companies from building such third-party app stores. Users should also be allowed to choose third-party app stores as default and to hide or delete preinstalled app stores.
  • Developers should be allowed to choose their choice of in-app payment system: Developers should not be forced to use the payment systems owned or controlled by Apple and Google for in-app purchases. They should be able to use their payment system of choice and should be allowed to redirect users to this alternative payment system.
  • Pricing for various app stores or in-app payment systems should be determined by developers: Google and Apple should not require developers to price apps to be equal or more favourable on their app stores than other app stores. These platforms also should not be able to take punitive action or otherwise impose less favourable terms and conditions against a developer for offering different pricing in another app store or in-app payment system. This rule ensures that if a developer is able to offer the app at a cheaper rate on another app store because of a lower commission, they can do so without facing any repercussions.
  • Google and Apple should not use non-public data to build competing apps: Google and Apple should not be allowed to use non-public business information derived from a third-party app for the purpose of competing with the app. Recently Tile, which makes tags to find lost objects, complained that once Apple made its own such tags it began making it more difficult for Tile products to work on Apple devices. Other apps have also complained about how Apple launched its own competing apps and pre-installed them on devices, making it harder for third-party developers to survive in the market.
  • There must be no self-preferencing in app stores: Apple and Google should not give more preference to their own or their business partners’ apps and services over third-party ones in app store rankings.
  • Third-party developers must be provided with the same access to developer tools: Apple and Google must give all developers the same access to operating system interfaces, development information, and hardware and software features that it gives to its own apps or its business partners.
  • Exceptions to the above requirement must be clearly laid out: Apple’s main argument for not allowing third-party app stores has been that the security and privacy of its users will be adversely affected. Apple has contended that it has been able to safeguard its users by maintaining a comprehensive app review process and third-party app stores, if allowed, will not operate with the same priorities and values. Any proposed regulation should account for these arguments and provide Google and Apple with exemption to the above rules in certain cases. However, the grounds for these exemptions must be clearly laid out, otherwise, companies can hide behind the garb of privacy and security to justify their actions.

How are other countries addressing antitrust issues in this market?

South Korea – New law allowing developers to use their choice of payment system and list on alternate app stores: South Korea is currently contemplating an amendment to its Telecommunications Business Act that will bar Google and Apple from requiring developers to use their payment systems, effectively stopping Google and Apple from charging commissions on in-app purchases, Reuters reported on August 24. The bill, dubbed as the “anti-Google law,” also prohibits blocking developers from listing their products on other app stores. The bill has been approved by a parliamentary committee and is awaiting a final vote. If passed, the law will be the first such curb on app stores by a major economy. Apple and Google are vigorously fighting the proposed legislation and have sought help from the US government in a last-ditch attempt, New York Times reported. But onlookers are unsure if the US will defend tech companies facing antitrust scrutiny abroad while it applies that same scrutiny to the companies at home, the report stated.

US – New bill targetted at app stores: On August 11, US lawmakers introduced a new bill titled Open App Markets Act that targets app stores for which users in the United States exceed 50 million. “For years, Apple and Google have squashed competitors and kept consumers in the dark—pocketing hefty windfalls while acting as supposedly benevolent gatekeepers of this multi-billion dollar market. […] This bipartisan bill will help break these tech giants’ ironclad grip, open the app economy to new competitors, and give mobile users more control over their own devices,” US Senator Richard Blumenthal said while introducing the new bill.

The UK – Investigation into market power of Google and Apple: In June, the UK government launched an investigation into Google’s and Apple’s effective duopoly over the supply of operating systems (iOS and Android), app stores (App Store and Play Store), and web browsers (Safari and Chrome). The investigation will examine the amount of power Google and Apple have in the distribution of mobile apps and the extent to which there are suitable alternatives to the default app stores. It will also examine if Google and Apple are using their position to launch competing apps and services and if these are favoured over third-party apps when showcased to consumers. The final report of this investigation will be published by 14 June 2022, based on which the government will establish a new pro-competition regulatory regime for digital markets.

EU – Investigation into Apple’s App Store: The European Commission in June 2020 opened formal antitrust investigations to assess whether Apple’s rules for app developers violate EU competition rules. It particularly focuses on the mandatory use of Apple’s in-app purchase system and restrictions on the ability of developers to inform users of alternative cheaper purchasing possibilities. In April this year, the commission informed Apple of its preliminary view that it distorted competition in the music streaming market as it abused its dominant position for the distribution of music streaming apps through its App Store.

Update (27 Aug, 7:05 am): Added information on Apple and Google seeking the help of the US government against the South Korean legislation

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