Over the last several years, regulators, Congress, and most recently state legislatures, have been taking a hard look at “big tech” companies, the relationship they have with small businesses, like our members, and have raised concerns about competition in the digital market.
We also have concerns. Real-life concerns that transcend political donations or complicated, misleading language found in legislation in statehouses across the United States. When we look at legislation like Rhode Island’s HB6055, we see through what seems to be well-intentioned legislation and understand the way it will impact the lives of developers, consumers, and the app economy at large.
In this blog series, we’ll be discussing those concerns, breaking down the policy, and laying out the risky, everyday scenarios we could all find ourselves in if this kind of bad policy goes into effect. Our first blog in this series detailed the wide range of harms consumers could face if these bills were to be enacted, and our second blog breaks down the potential harm these bills could have on developers in the app economy, specifically our small business members.
A little over a decade ago, if a developer wanted to create computer software, it required a considerable amount of time, effort, and most importantly, capital. These pre-app economy entrepreneurs not only wrote code for their products, but they were also responsible for things like hiring third parties to handle financial transactions, contracting with distributors to promote and secure consumer trust in their product, employing legal teams to protect their intellectual property, not to mention marketing their product and getting it on shelves of brick-and-mortar stores. This economic environment meant that creating software was extremely expensive, and unless there was an existing customer base or well-known brand identifiers, a major risk with no guaranteed return.
Since July 10, 2008, online marketplaces, like Apple’s App Store and the Google Play store, have fostered an accessible environment for innovation through lowered overhead costs, built-in customer trust, and wider distribution and market access for app developers. These online platforms go beyond just connecting developers to their customers, they help ensure developers continue to provide their customers the best apps through new APIs and stay secure through increased privacy and safety features.
Unfortunately, the purposeful work done by online marketplaces to keep business costs low and consumer trust high could quickly unravel and lead to some seriously threatening scenarios due to legislation under consideration in a number of states. But how did we get here? What are the potential policies putting you at risk?
Legislation aimed at mobile marketplaces is popping up in legislatures across the United States with similar themes that claim to “protect consumers” from perceived harms of big players in the app ecosystem. However, many of these offer differing standards for consumer protection, carving out their own caveat for your customers’ security. Below, we’re breaking down some of the most worrisome aspects of one of these bills and explaining clearly what this means for app developers.
Rhode Island- HB6055
What it says
A “proprietor of a digital application distribution platform” (defined as a mobile app store and its accompanying operating system) “may not: . . . require a developer to use an in-application payment system as the exclusive mode of accepting payment from a user . . ..”
The bill also provides that an app distribution platform may not “[r]etaliate against a developer for choosing to use an alternative application store or in-application payment system.”
What it does
As written, the bill would 1) prohibit a software platform from disallowing the use of ANY third-party payment option (including potentially fraudulent ones); and 2) prohibit a software platform from “retaliating” against sideloaded apps by removing them from a device (again, including potentially fraudulent ones or malware). Together, the provisions offer a false promise of greater choices at the expense of important layers of security protecting consumers from all kinds of threats, which are more numerous and sophisticated in the mobile context than on laptops or desktop computers.
Financial Harms
You develop an app called “Let’s Read: For Fun!” a subscription-based book app that costs $0.99 to download. After a few months of your app’s release, you notice downloads have rapidly decreased after being consistently high and realize it’s because your intellectual property has been stolen. That’s right, a copycat app has been created and users are downloading the pirated version of your app. Not only are you missing out on valuable revenue with every download and subscription, depending how this fraudulent app handles customer data, it could also be doing significant damage to your business’s reputation as a whole.
What are software platforms doing about this today?
Both Apple and Google (and all software platforms generally) take action against bad actors by removing them from their respective platforms. They are able to do this because they only allow vetted and compliant apps to be downloaded. Even when Google allows users to sideload apps, it retains the ability to remove or restrict the access of those apps if they engage in an illegal or suspect activity. The platforms are also able to prevent the copycat app from profiting from stealing your app by stopping their payments. The legislation would remove these essential gatekeeping functions.
Privacy & Security
As a developer, you rely on APIs, toolkits, and platform-provided features to create safe software and apps for your customers. And your customers assume that when they download an app from an app store, there are protections in place to preserve their privacy. The text of HB6055 threatens features that range from the new App Tracking Transparency feature on Apple’s iOS to being able to manage payment options or parental controls safely and securely. With mandated sideloading and third-party payment processors, the level of privacy and security typically associated with online marketplaces goes away. One result of HB6055 is to put the onus on consumers to figure out whether they should trust software makers. This result would be highly disruptive to your prospects; in general, consumers are not familiar with small app makers, which do not have the built-in consumer trust large, established brands have. If consumers can trust the app stores and operating systems to prevent malware or apps that violate privacy protections, consumers are much more likely to download software from a company they’ve never encountered. Conversely, consumers may generally stop downloading software from unknown companies if they are unable to rely on the app stores and operating systems to prevent and remove malware. What developers actually want from platforms is a continued investment in the privacy features they offer. Legislation like HB6055 would do the opposite.
What are software platforms doing about this today?
App companies compete on privacy. As it stands, platforms give developers the tools they need to easily implement strong privacy protections and standards into their apps at the initial design stage through toolkits, APIs, and developer guidelines and program requirements for the operating systems. Both platforms and developers are constantly working to meet and exceed consumer expectations while balancing the compliance requirements of federal, global, and platform-level privacy rules and structures. Developers also benefit from consumers having access to platform-level privacy controls, which the bill would likely prohibit. For example, operating systems typically enable consumers to manage which apps can access which categories of their sensitive personal data at the platform level. This bill would remove those platform-level controls by outlawing the platforms’ role in restricting access to an app maker’s customers’ data. The intent is clearly to address problems with platforms playing keep-away with an app maker’s business data, but the effect is much broader than that and is several steps back for privacy. Policymakers should be requiring companies to honor consumer privacy rights, not prohibiting them from doing so. User-friendly controls that operate across all the apps someone has on their device helps app makers by keeping consumers coming back to the app stores. The platforms’ role in privacy and security is critical to foster a trusted ecosystem in which app companies operate.
Consumer Trust
Consumers are skeptical of downloading apps from unknown brands and sources. Instead of downloading an app from an unknown development studio or software platform, consumers tend to trust larger, well-established brands. Over time, an ever-anxious consumer may inadvertently give more money, downloads, and control to larger corporations, squeezing out smaller dev shops, like our members. That’s why the curation process of software platforms is so critical— platforms have a “checklist” for things like fraud, usability, etc., an app goes through before it even hits the store. Previously developers either spent a lot of financial and human resources on marketing to assure customers their software was legitimate and safe. Today that review process saves developers both time and money.
What are software platforms doing about this today?
App stores proved to be a place where innovation is born and thrives; a place where up and coming businesses have a level playing field when it comes to competing against some of the biggest companies in the world. The features platforms provide like IP and fraud protection, privacy standards, seamless payment features, searchability, and equal footing allowed the app economy to grow over the last 10 years. By lowering the cost for development, more ideas, innovations, and solutions to daily problems have found their way onto the app stores in a way that cannot happen if we force platforms to lower their standards for apps and payment systems allowed on their platforms.
On the surface, legislation like HB6055 seems to “liberate” app developers from the 30 percent fee charged by the platforms. But when you dig deeper, these bills do much more harm than good. Eighty-four percent of app makers are paying zero to 15 percent commission on digital goods and services to the platforms. For that commission, developers get lower overhead costs, access to data through APIs, built-in consumer trust, developer tools, and wider distribution and market access. As written, bills mandating sideloading and third-party payment processors threaten consumer safety and trust. If this trust erodes, it will threaten not only the small businesses who serve as the backbone of the app economy but the next decade plus of the app ecosystem.