Apple tries to circumvent European anti-monopoly law – 02/02/2024 – Tech

After 15 years of dictating how apps are distributed on iPhones, Apple has been forced to take orders from European regulators. A new law to strengthen technological competition required Apple to open its devices to competing app stores and payment alternatives.

App developers, however, say Apple’s response to the law, which aims to give consumers and smaller businesses more choices, is a false compensation.

Built into the company’s plan, they argue, are new fees and rules that make it prohibitively expensive and risky to make the changes the law was intended to bring.

The backlash is the latest chapter in a long fight between Apple and app developers.

Apple says it needs to maintain strict control over the App Store to ensure quality and security, while developers say the company rules with an iron fist and abuses its power to charge fees and frustrate competition from its own services like Apple Music and Apple Pay.

European regulators largely sided with programmers in drafting the Digital Markets Act, a 2022 law that requires Apple to offer developers alternatives for apps to sell to iPhone and iPad users.

In response to a March deadline for compliance, Apple told developers last week that they essentially had three options in the European Union, home to approximately 450 million people.

They could continue with the current App Store system and continue paying Apple a commission of up to 30% of all sales. Alternatively, they could reduce their commission to 17% and pay a new fee of 50 euro cents (R$2.67) for each download over 1 million annually. Or they could avoid Apple’s commission by distributing through a competing app store but still paying Apple’s download fee.

After doing the math, many developers said Apple was offering a worse alternative. Several pointed out that a maker of a free app with 10 million downloads per year that chose to distribute through a competing app store would owe Apple around US$400,000 (R$1.97 million) per month because of new rate, according to a rate calculator released by Apple. This essentially guaranteed that they would stay with the existing App Store model where they can distribute for free rather than selling through alternative marketplaces.

Spotify, the music streaming app that filed an antitrust complaint against Apple in Europe, said it may abandon plans to add credit card payments for audiobooks and subscriptions due to fees.

Fortnite maker Epic Games, which sued Apple in 2020, said it had major doubts about its plans to launch a new game store because Apple’s plan would give it the power to evaluate and approve competing app stores. And Hey.com, an email and calendar service, said the proposal had derailed its plan to distribute software directly to users, which Apple is not making possible.

“This cannot be what the European Commission intended, because it doesn’t change the fundamental dynamics,” said David Heinemeier Hansson, one of the founders of Hey.com. “Apple has made the provisions so harmful and the standard so high that it’s clear no one should use it.”

The growing criticism will test how aggressively the European Union will enforce its major new digital policy. Executives from dozens of app companies have already called on EU regulators to reject Apple’s proposal.

Apple said the policies comply with EU law while limiting potential risks to users. “Apple’s focus remains on creating the most secure system possible within the requirements of the DMA,” the company said in a statement.

Andreas Schwab, a member of the European Parliament who helped draft the Digital Markets Act, said the commission will have to evaluate Apple’s proposal after March 7, when the rules come into force. If the European Commission opens a formal investigation, it could trigger a protracted legal battle between EU regulators and one of the world’s biggest technology companies.

“It’s all about money,” Schwab said. “Those who complain would like to make more money, and Apple wants to make money from its own App Store.”

A spokesperson for the European Commission, the executive branch of the 27-nation bloc, said it would not comment on Apple’s policy changes before the March deadline. He noted, however, that Apple and other major technology platforms were urged to review any changes they planned to make to comply with the DMA with the most affected companies, to ensure the changes did not create new anti-competitive issues.

Apple said it spoke to several developers before rolling out its plan, but Apple has not extended its reach to some of its fiercest critics, such as the Coalition for App Fairness, a Washington trade group that has nearly 80 members, including Spotify and Match Group, maker of Tinder.

“If they were truly committed to complying with the law, they would have done this and tried to get people on their side for the ad,” said Rick VanMeter, executive director of the Coalition for App Fairness.

Apple said it has reached out to more than 1,000 developers following the release of the new policy last week and will hold sessions to answer their questions. The company said 99% of developers in the EU will “reduce or maintain” the fees they owe and pointed to support from people like Justin Kan, one of the founders of game streaming service Twitch. “Apple is making big concessions and game developers have more freedom now than ever before,” he said on X, formerly known as Twitter.

On the other hand, Andy Yen, CEO of Proton, a Swiss company that provides encrypted email and internet services, said that Apple was offering a false alternative to the App Store’s existing fee structure. He said the new option was financially prohibitive, especially the 50 euro cent technology fee, and that “no one in their right mind will choose it.”

Apple’s new system could revolutionize the business models of many developers. According to Data.ai, an app economics research firm, more than 260,000 apps use a model called “freemium,” where users pay nothing to download an app but have the option to purchase premium features.

Developers claim they could not afford a 50-cent fee for each download since only a fraction of subscribers pay for content or products.

Apple also included terms in its new policy that prevent developers from reversing their decisions. Once a company like Spotify or Proton decides to adopt Apple’s new fee structure, there is no going back.

“It’s designed in such a way that choosing the new system is a huge risk for your business,” Yen said. “It’s a huge deterrent.”