Depending on how you look at it, Apple has a new chance to explain why the fees it charges from the App Store are fair, or regulators have a chance to decide what the future shape of e-commerce will be by defining what constitutes a markup. . in digital sales.
In both cases, these decisions set precedents that can, presumably, be applied to other forms of business and retail trade. After all, if regulators define acceptable profit margins for an industry, they must adopt a consistent approach that can be applied across industries. Right now, Apple seems to believe that for most transactions, the fair number is zero or 15%, and those with the broadest shoulders pay more to support others.
Two versions of each story.
What is happening is that the UK Competition Court of Appeal has decided to allow a Class Action Order (CPO, basically equivalent to a class action) to go to trial.
The action was introduced in May 2021 by Dr Rachael Kent, Senior Lecturer in the Digital Economy and Social Education at King's College London. She argues that Apple engages in unfair business practices by forcing developers to use their own payment systems and charging up to 30% commission. If the deal is successful, around 19,6 million UK customers who have purchased apps from the App Store will receive a share of up to £1500bn. More background information on this case is available on Apple's UK App Store complaints site.
In its simplest form, the accusations are that the company broke the law by excluding competitors and charging an illegal level of commission on digital purchases on the App Store. These accusations boil down to a combination of three counts:
- Unfair prices (30% commission)
- Unfair linking (by requiring in-app purchases to use Apple's own payment systems)
- Exclusive offer (only supports App Store purchases on its platforms)
Apple had attempted to obtain part of the unfair pricing removal claim, but was prepared to challenge the exclusivity and tied-sale claims in court.
Apple faces growing global scrutiny
Apple's app store fees continue to face challenges around the world. These include:
Maybe history matters too
The strange thing about many of these challenges is that Apple isn't the only one charging up to 30% in fees. Most platform operators charge something similar, and some charge more.
Historically, Apple's app store disrupted existing software distribution models at the time. Developers had shelled out much higher percentages for distribution to retail stores and also had to bear the risk of making CDs and jewel cases as well as distribution costs.
The Apple store offered developers a much better deal and reflected existing digital service fees. Developers gained access to international markets, tools and platforms from Apple. Developers who did not charge did not pay any commission. More recently, those earning less than €1,000,000 a year pay 15%.
Meanwhile, Apple is investing in platform development, software development, fraud protection, payment systems, servers, and other marketing/infrastructure costs to support its position. That Apple's 30% commission represents its profit margin is a myth: the company's margins are certainly lower.
How is the victory?
To win, prosecutors must prove that Apple's commission is excessive and that its business practices are unfair.
This will involve the usual list of critics of Apple developers giving depositions in court, and no doubt there will be talk of Apple's costs versus revenue and the extent to which the App Store's profits have grown.
For most humans, many of these arguments will be as interesting as a discussion of Rockall geology or the possibility of buying NFTs in the "metaverse" (yawn), but for the tech industry, which is really under surveillance, it is cash.
After all, for courts to make a decision about what is a fair price for Apple, they will also need to define what constitutes a fair price more generally. It cannot arbitrarily set such rules, which means that any global entity that offers online stores for digital services could be affected by the decision.
And of course, since all business today is also online business, the repercussions could affect all businesses. Think about it: In the context of an inflationary economy and growing wealth inequality, a decision that effectively defines a fair profit margin in one industry becomes a precedent for similar discussions across industries.
It also seems likely that if such a move is made, other global digital software stores will be sucked into the discussion and should perhaps anticipate similar action against them.
Are consumers winning? Maybe a little, but since there is a real cost to operating online services and the decision will not be between 30% and free, but rather between 30% and some other number probably above 10%, the benefit to the consumer will be limited to better.
The legal battle will take place on an unspecified date, probably in 2023.
What the protagonists say
In a statement, Dr. Kent said: “A claim of this magnitude will always be strongly defended. The anticompetitive practices we blame Apple for are central to Apple's business strategy, and with its almost limitless resources, that will always make the battle an uphill battle.
While Apple hasn't commented further at this time, the company said last year: "The fees charged by the App Store are within the average of those charged by all other digital marketplaces. In fact, 84% of apps on the App Store are free and developers pay Apple nothing, and for the vast majority of developers who pay Apple a commission because they sell a digital good or service, they qualify for a 15% commission rate.
Apple introduced reduced commissions for most developers in late 2020. Developers earning less than $1 million per year pay a 15% commission, while those offering free apps pay nothing. Despite these and other changes, the level of challenge and scrutiny facing Apple continues to increase, and it is difficult to predict what the overall impact of these decisions will be on Apple's business.
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