Evaluating Antitrust Proposals for Software Platforms and Apps

The state of competition in app stores is a hot topic in Congress and state legislatures as they evaluate proposals to remedy issues arising from a perceived lack of competition in app store markets. At the federal level, the Senate Judiciary Committee’s Subcommittee on Competition Policy, Antitrust, and Consumer Rights recently held a hearing on “Antitrust Applied: Examining Competition in App Stores.” (Check out our blog that includes our statement for the record here.) Meanwhile, at the state level, we’ve seen the proliferation of bills targeting the so-called 30 percent “cut” of developer revenue from the sale of certain digital goods and services retained by app stores in exchange for hosting developers’ apps.

The courts are active on competition policy too: the Epic v. Apple trial began this month, rehashing the drama of last summer where Fortnite, a game produced by Epic Games, was removed from both Apple’s App Store and the Google Play store following Epic’s implementation of its own in-app payment system in the game—a practice forbidden by Apple and Google’s developer guidelines.

To touch on these fraught topics, ACT | The App Association and Engine cohosted a webinar on “Evaluating Antitrust Proposals for Software Platforms and Apps” in late April. Featuring Kate Tummarello of Engine, who moderated the discussion, Graham Dufault of the App Association, Sarah Richard of Developers Alliance, Dr. Mark Jamison of the University of Florida Warring College of Business, and Alec Stapp of Progressive Policy Institute, the panel focused on the state of competition for platforms, incentives around network effects, and the government’s role in regulation of these markets. A summary of the event follows* and you can watch the full conversation here.

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* = The following exchanges have been edited for clarity and do not constitute a transcript of the entire event.

Kate: The reason we’re here today is to talk about the kind of competition proposals in the software platform and app space. There is a lot of attention being paid right now to issues around competition in the tech sector. And a lot of that attention is really laser focused on a handful of companies, but something Engine has noticed and really tries to center in that debate is the fact that the tech internet ecosystem is so interconnected, and sometimes policies aimed at one or two companies can have downstream effects that are anti-competitive and harm innovation.

Sarah: Yeah, given the changing regulatory landscape, we recently reached out to developers to get their take on how they view competition in this space. In short, what they told us was that tools are important and developers want to be heard. We know that the large platforms offer developers an abundance of services. We found that almost half of developers relied heavily on technical information, SDKs, and other tools to make their products come to fruition. This shows us that large platforms are providing developers with critical tools to get their businesses off the ground and continue to be successful companies. Without developers, these platforms would have significant issues themselves so it really is a symbiotic relationship.

When we probed on developers’ biggest complaints, it was that the platforms need to be more responsive to individual developer’s issues or requests, which is something that platforms absolutely need to work on to keep their developer community happy. In fact, more than 85 percent of developers told us that they believe there should be a cost for the app store services and the benefits—including that they receive answers to their requests—indicating to us that they’re okay paying something, but they just don’t want it to be a lot.

Kate: I think a lot of the competition debate happening in DC really treats questions about competition as if one big tech company changes something and that affects other tech companies. But a lot of the app ecosystem isn’t actually tech companies—there’s obviously overlap, but it’s not 100 percent. When I think about the apps I use—it’s the gym that I now go to virtually because of the pandemic and Sweetgreen because I order their salads way too often—and those aren’t tech companies, right? Those are not companies competing with any of what the platforms and those companies are offering.

Graham: It’s a great way to frame it because most App Association member companies are in industry verticals other than the tech sector, and I think there’s a lot that’s missed when you don’t look at the other industry verticals and the impacts. One member company that illustrates this well is Vēmos in the restaurant and bars industry that provides a bunch of different services including analyzing data about purchasing and ordering habits of customers. It also enables whoever is working the door that night to scan IDs and do ID verification, and then there’s another component that leverages another part of the platform, which is payment processing and allows customers to split the check and pay in a contactless way.

So that’s why I think Vēmos is a really good example because the software platform, which is in the tech sector, has created a springboard for our member companies to problem solve and provide a steady stream of good ideas into these other industry sectors. It’s a pro-competitive result of the entry of software platforms.

Sarah: Absolutely, with every company having an app these days it’s often difficult to differentiate. The digital economy is part of our regular economy—not its own separate economy—and our laws need to be reflective of that, especially as we’re moving into a highly tech-friendly world.

By lawmakers focusing on just a few companies that are being the “big bad players,” we’re being incredibly short sighted to our own disadvantage, especially given how many in the broader tech ecosystem are going to be impacted by legislation. Thousands upon thousands of small companies are linked to these big players, and if we take them down, there will be significant harm to the small business economy.

Kate: Alec, let’s turn to you. You know there’s been a lot of focus on a handful of companies as being the ones that control consumer-facing software platforms. I would argue that the conversation has centered so dramatically on a small number of companies, but does that reflect a real underlying competition problem? For example, my TV also has an app store on it that is curated in its own entirely different way.

Alec: I think it is interesting how it converges on the app store debate with Apple and Google. When you look at it from another lens—not from the platform lens, but from the choices that developers have—you can see that there’s more than one way to reach consumers. The one in the news most often is Epic Games suing both Apple and Google.

When you think about it from a video game developer’s perspective, many games are available on your smartphone device, but they’re also available on console so they can play those games on Xbox, PlayStation, and Nintendo—and those are closed platforms that have their own rules, commission fees, and business models. I’m sure the video game developer is thinking, “how can I reach the end consumer?” and they can do that in a lot of different ways. And then a lot of games are available on websites, so you they wouldn’t even need to go to an app store, and we’re increasingly seeing that a lot of the functionality that was previously restricted to app stores on smartphones are becoming available on progressive web apps on the internet. So instead of needing to download an app from an app store, you can just pin an icon on your home screen at the direct link to a browser homepage, and that browser homepage has a lot of the same functionality that you would only be able to get on an app previously.

Dr. Jamison: People just tend to assume that, if they put their fingers into the business and start rearranging how things are done, they don’t really hurt anything because all this is just free. That is a very, very bad incorrect assumption, but let me get to the importance of network effects. One kind is where the users all like to interact with each other—this is what you’ll see largely on Facebook, and it’s what we had in the telephone industry. There was a really good lesson from the telephone industry in the United States going back 100 or so years where we found that once the government stepped in and told all the telephone companies—who each had their own little ecosystem—that they had to interconnect with each other seamlessly, it dissipated the network effects across the companies and the companies stopped making their investments because they just couldn’t differentiate themselves anymore.

And in the lawsuit between Epic and Apple one of the debates is: what is the extent of these network effects, and who should get them? So, what I really want people to be careful about is viewing these network effects as bad things when actually they make the markets grow. If you look at, for example, the Epic v. Apple lawsuit one of the things that shows up in the lawsuit is the same struggle that Sony had when Epic said, “we want users on the Sony game platform to be able to play with those on Xbox.” Then somebody said, “I’m not so sure I want to do that,” and there’s a good reason for that hesitancy: Sony had built a valuable platform, and then all that value gets dissipated when they have to interconnect. The bottom line is network effects are very positive for investment, very positive for differentiation, and very positive for innovation. And if we treat them as bad things, we’re actually hurting the customers and the small businesses that are relying upon them.

Sarah: You know, the choices are for consumers to decide themselves not regulators. Consumers have changed the market before, and they could again. I think that we’re also getting to the issue of multi-homing. I always think of the meme of the four different photos of essentially the same person with the captions Facebook, LinkedIn, Instagram, and Tinder, and each box essentially shows how one person very clearly presents a different image of themselves across different platforms. To me this just highlights that often users don’t want their platforms connected. There are many different social networking platforms, and they may not all look like Facebook, but that’s because they also have a different purpose and often a different market.

Kate: States are starting to consider legislation that would either allow apps to be side-loaded or change the way the app stores work with apps. Alec, can you talk a little bit about what the goals are there, and whether the legislation that we’ve seen so far would actually achieve those goals?

Alec:  We’re seeing at the state levels the side-loading issue of whether you can have alternative app stores on the same device in addition to Apple’s App Store. It is already the case on Google products—Android already allows you to decide these side-loading things. But the alternative payment processing would apply to both of the two largest platforms saying, “Okay, you can do your own payment processing and circumvent the 30 percent commission.” I think this is intuitively appealing to a lot of people because if you like more choices, why is that bad?

That said, I think the major risk here is that you end up with a top-down regulatory approach determining which business models are successful in technology. iPhone pursued a much more closed ecosystem and environment where they have prioritized trust, safety, and privacy. Android opted for more open approach, to allow side-loading or just to be more permissive with apps that get in their store. But I don’t know if regulators should be selecting the Google approach. I think it’s better to have an environment where consumers can choose, and the legislation like what we’re seeing at the state level would mandate that you only have to go with one. People like to think open sounds better, but they may end up missing the benefits of closed ecosystem, which allows companies to build trust and improve the user experience over time. Like Dr. Jamison talked about—these are really valuable systems because they’ve had billions of dollars invested in them over years and that trust compounds. Legislation like what we’re seeing at the state level would break that.

The value platforms provide—from consumer trust to developer resources—is integral to the app ecosystem as we know it. Although questions of market definition and the competitive effects on small software developing businesses will continue to be debated at the federal and state level, this conversation demonstrates that the app industry remains aligned on the net value of platforms. The App Association hopes regulators will keep this theme in mind as they ponder legislative and judicial remedies.