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Apple, Google face bipartisan antitrust grilling

From lawmakers concerned about the way both companies run the marketplaces that give consumers around the world access to millions of apps.
Image: David Paul Morris/Bloomberg

Apple and Google will come under close antitrust scrutiny Wednesday from lawmakers concerned about the way both companies run the marketplaces that give consumers around the world access to millions of apps on handheld devices.

Senators Amy Klobuchar of Minnesota and Mike Lee of Utah, the chair and ranking Republican on the Judiciary Committee’s antitrust subcommittee, are leading the panel’s inquiry into potential anticompetitive practices in Apple’s App Store and in Google Play.

Klobuchar, a Democrat, said apps represent a “humongous market” at the mercy of companies like Apple and Google. She added that she’ll be asking about fees — she called them a tax — that developers must pay to be included in app stores, as well as companies self-preferencing their own products and banning consumers from finding out about better deals.

“I don’t think everyone understands how this works,” Klobuchar said in a telephone interview, describing what she called anti-competitive practices and lack of transparency in app stores. “Why would that be good for capitalism?”

Apple agreed to send Chief Compliance Officer Kyle Andeer to the hearing after Klobuchar and Lee said the iPhone maker had initially declined to participate. Wilson White, Google’s senior director of government affairs and public policy, will testify on behalf of the search-engine giant.

Google’s White will stress that the company allows competing app stores on Android devices, a key distinction from Apple, according to his prepared testimony.

“We believe the value proposition of Google Play is a strong one,” his remarks read. “But if a developer feels this value proposition is not adequate, the openness of Android allows them to distribute their apps in a number of other ways.”

White also plans to note that 90% of apps within Google’s app store are free to consumers.

App developers have complained for years that the companies force them to give up too big a portion of revenue collected from app sales. They also complain that rules governing app stores are overly strict and sometimes inconsistent.

The two company representatives will face some of their accusers virtually in the hearing, with representatives from streaming music service Spotify Technology SA, dating app provider Match Group Inc. and Tile, which makes a tracking device for consumers, testifying that Apple’s practices have cost them revenue and stifled innovation.

The hearing is part of Congress’s expanding scrutiny of market concentration, especially as technology companies represent an ever-larger portion of the US economy. Democrats, and some Republicans, are pushing for changes to antitrust statutes that would make it easier to prosecute cases against companies that they say are buying up — and crowding out — competitors.

In its remarks to lawmakers, Match plans to say that it had reached an agreement with T-Mobile a few years ago to offer a discount to Match’s Tinder dating site via the phone carrier’s “T-Mobile Tuesdays” deals app.

“When Apple learned about this arrangement, they blocked the version of the T-Mobile Tuesdays app, asserting that the link to Tinder’s website violated T-Mobile’s requirement to use Apple’s in-app pay system,” Match said in a copy of its remarks. “Think of it, Apple was so hellbent on maintaining their monopoly grip on Tinder’s consumers and app that they blocked T-Mobile’s app, forcing T-Mobile to break its contract with us.”

Until now, congressional scrutiny has focused more on Google than Apple, and Google is already facing antitrust action on several fronts. A Justice Department lawsuit is examining how default programs are set on mobile devices, Texas is suing over the Mountain View, California-based company’s digital advertising practices and a case brought by group of 38 states led by Colorado is focusing on its search engine.

But antitrust complaints against Cupertino, California-based Apple are also piling up. They focus largely on the company’s App Store practices, which are now under investigation by the Justice Department, Bloomberg News has reported.

Apple sought to head off one Republican complaint about its App Store this week by allowing social media app Parler to return after Apple said Parler made changes to comply with company guidelines. Lee and Representative Ken Buck of Colorado, the ranking Republican on the House antitrust subcommittee, had questioned decisions by Apple, Google and Inc. to limit access to Parler, a service popular on the far right, after the January 6 attack on the US Capitol.

Google said Parler hasn’t submitted a new version that complies with its rules, and the app still isn’t available on Google Play.

Alternative stores

Although Apple and Google have nearly identical rules for their app marketplaces, Google has one difference that could save it from long-term scrutiny in the market: It allows alternative stores on devices powered by its Android operating system. That means although Google has app review guidelines and takes a share of sales from Google Play, it lets consumers run other stores that may charge consumers less or allow apps that are barred from its official download store.

Apple’s App Store is the only option for consumers to install apps on Apple devices like the iPhone.

Claims against Apple began to stack up around the world in 2019 when Spotify criticised the 30% share Apple takes from large app developers and the alleged advantage it gives to its own services over those of third-party rivals. Since then, many app developers have complained about Apple’s cut, and lawmakers have investigated several of the company’s products, including Apple Pay and Apple Music, in addition to the App Store.

Epic Games Inc., the maker of Fortnite, took aim at Apple’s surcharge and its app payment structure in a 2020 lawsuit that is scheduled to go to court in May. Apple later countersued, accusing Epic of breaching its App Store developer contract. Epic made similar allegations against Google in another lawsuit.

Other critics have said Apple, like other technology giants, develops its own products that may crush innovations by upstarts. At Apple’s product event on Tuesday, the company launched a new accessory called AirTag that can find physical items like bags, wallets and keys, entering a market with competitors including Tile and Samsung Electronics Co.

As increased accusations from Microsoft Corp., Match Group, Tile, Basecamp and others have sparked government inquiries, Apple has made some changes to its practices. Last year, the company started allowing third-party email and web browser apps to become default options on the iPhone and iPad. It also lessened restrictions on games that stream content from the cloud and reduced its revenue cut from 30% to 15% for developers who generated less than $1 million in App Store revenue the previous year.

Still, some developers aren’t satisfied, especially the large ones that aren’t eligible for the reduced revenue-sharing rate. Many are still pushing for Apple to allow alternative app stores or payment systems on the iPhone to avoid Apple’s fees and review guidelines, which have been criticised as preferential and inconsistent.

Apple’s position

Apple says the iPhone, App Store and its services are a jointly designed system for a consistent and privacy-focused user experience, something that alternative stores, payment methods and lack of review guidelines would undercut.

Its rules also protect its bottom line: The App Store is the biggest revenue driver in the company’s Services segment, which now generates more than $50 billion per year, or about 20% of annual income.

Before the hearing, Apple reiterated its stance that the App Store generates more than $500 billion annually in global commerce and that it welcomes competition. It said that Spotify, Tile, and Match Group — the three primary witnesses at the hearing — have seen their success enhanced by the App Store.

The iPhone maker also said that Tile has a 90% market share in the item-tracking hardware category, the market that Apple just entered with AirTag. It said that Tile hasn’t opened up that network to competitors, while it pointed out that Tile is welcome to join the same network being used by AirTag.

Apple also said that Spotify doesn’t pay commissions on more than 99% of its paid users and said that Match Group’s flagship offering, Tinder, is the No. 1 grossing app globally and that the company generated more than $2 billion in revenue in 2019.

© 2021 Bloomberg


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