Hifihedgehog
(Hifihedgehog - Waiting for Surface Pro 10!)
1
For your viewing pleasure.
Apple is triggering an EU fine in 3… 2… 1… The eve of the EU’s Digital Markets Act going into effect is nigh upon us, and Apple “purportedly” believes that the interpretation of the EU’s DMA allows apps to not be stored on their servers while still maintaining oversight and full power to charge restrictive junk fees to third parties at will. This is malarkey and preposterous. The EU’s DMA prohibits such restrictions, specifically “preventing consumers from linking up to businesses outside their platforms.”
Whether that be policy or exorbitant fees, they are preventing all except the largest world’s largest developers from using third-party app stores, which is not in accordance with the DMA. Microsoft learned long ago with Windows that such snafu-ery will only lead to a painful torture cage session with the EU, so buckle up, folks. It’s true that with the upcoming changes, Apple will unlock browser engines (something Microsoft had to do decades ago) and they now allow off-store content, but can you believe this crock?
Apple requires that a third-party app store have a minimum of 1 million Euros credit for approval and that they must pay 0.50 Euros per user install of said marketplace. Furthermore, Apple has defied the act by claiming they can charge a fee of 0.50 Euros per user for an app outside of the App Store with more than 1 million user downloads—and yes, this includes free apps. Just look at this stupidity that even defies some of the biggest facepalm smooth moves at Redmond:
In effect, they have extended the tent poles of their App Store to the outside world by charging them exorbitant fees to host or sell apps. And it is clearly to either (1) make it prohibitively expensive for the majority and (2) offset the blow for the minority of the uber-wealthy software companies. The EU commission is not stupid and is going to crush Apple for trying to make the outside third-party world their App Store. There is likely more too from what I gather, but Apple’s flamboyant temper tantrum is loud and clear.
Apple knows that if they fully comply with the EU’s DMA, as they must, that precedent will send a shockwave around the world, which will lead to the US and other major markets quickly following suit with third-party app stores and unrestricted sideloading after being put through the wringer in their legal and regulatory systems. Based on 2022 amounts and their trajectory, we know that Apple rakes in around $100 billion from the App Store annually, over a quarter of their revenue. Losing a significant portion of that financial war chest would strike a deep financial blow to their current walled garden business strategy. With fees already slashed in the EU, they want to stop an App Store exodus pronto and keep the App Store as status quo.
So for now, welcome the dystopian third-party app stores of the EU, which should really be called Apple’s App Store 2.0, but don’t expect it to last long. This kind of nefarious anti-trust is precisely not what the EU’s DMA allows. Grab some popcorn as we watch Apple’s childish kicking and screaming unfold in this delightful third-party app store drama. I have to believe this easily avoidable bad PR drama that will arise from them not going along quietly will tarnish their brand image for years to come. Apple is going to look very Ballmer-era Microsoft-esque based on the nonsense I see them trying to pull here.
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Hifihedgehog
(Hifihedgehog - Waiting for Surface Pro 10!)
2
I know Epic Games has some bad blood out for Apple but this quote from Tim Sweeney hits the nail on the head. Apple is going to get hammered heavily by the EU for trying to pull this stunt of enforcing this “damned if we do, damned if we don’t” set of choices on developers: “They are forcing developers to choose between App Store exclusivity and the store terms, which will be illegal under DMA, or accept a new also-illegal anticompetitive scheme rife with new Junk Fees on downloads and new Apple taxes on payments they don’t process.”
Apple being dumber than Microsoft wasn’t on my 2024 bingo card, but here we are, and that takes some doing. The PR nightmare that is piling up from this gross miscalculation (I see ceaseless pages of it on social media and it is multiplying by the minute) will—potentially lost revenue aside—inflict irreparable brand damage.
For better or worse, it isn’t lost revenue until they lose in court - which could be years away. 5 years times EU% of $100B is pretty good money.
FWIW, Amazon/Audible app allows me to “buy” an audiobook using a credit in the subscription I paid to Audible outside the App Store. Not sure if Amazon is paying for that privilege, but it seems to me a lot like what Epic wanted to do.
Hifihedgehog
(Hifihedgehog - Waiting for Surface Pro 10!)
4
The issue that the EU takes with Apple is Apple restricts all software installation to the App Store and its payment processing. Per DMA’s new policy guidelines, they must allow exchange of software between user and developer outside of the platform app store. Where Apple is violating the act is they are charging—effectively penalizing—petty fees for standing up and running a third party app store. The issues: even if it is a free or single developer’s app distribution system, they must show have Apple proof of capital for 1 million Euros. Second, for app store owner, they must pay royalties of 0.50 Euros for every unique user download. Third, for every app store developer which may be also the app store owner self distributing, they must pay a 0.50 Euro royalty for every download over 1 million. This includes free apps. Fourth, all apps and app stores be screened and validated by Apple to work. That is why Apple is going to be fined in March. All of these actions clearly restrict users and Apple has effectively extended the tentpoles of their App Store into any aspiring third party solution and—most damningly—made it a financially deterimental and infeasible to all but the uber-wealthy mega corporation developers to host a third party app store. DMA states users and developers shall in no wise be restricted from linking up for exchange of software yet these financial roadblocks that Apple has set up do just that. This morning, I chatted with the EU’s director of the Open Market Institute which has close ties and works with their regulatory agencies, and he was in complete agreement. So as expected, Apple is playing dirty pool and the regulators are already abundantly aware that they are, and their resistance to truly comply is only going to make this whole situation worse with the bad PR that they are creating. Plus as the director has indicated, fines of 20% of total revenue global revenue as well as bans on acquisitions and forced breakups of company subsidiaries are all options on the table of punitive actions the EU can take to strong-arm Apple into submission to the regulatory act.
This is far worse than “Ballmer-esq” - it is the ultimate in A-hole behavior. I’m sure they asked legal what is the most we can do to these third-party stores without going to jail, and it looks like they’ve leaned the entire company right over that line. If they don’t get their chops busted by the EU then there is no stopping this churlishness.
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Hifihedgehog
(Hifihedgehog - Waiting for Surface Pro 10!)
6
Oh, they certainly will. Look what notice they just received for their noncompliance:
Apple is digging in their heels because of just how much the whole company’s financial success is strongly dependent on the walled garden and particularly App Store fees. They do not want the EU to fall because the US will be soon to follow and that scares them so much they are acting like the ultimate losers. It is funny watching the Apple fans on Reddit, many of whom are anti-corporate (wait… you are anti-corporation yet worship the world’s largest corporation?), waking up to Apple and really hating them for this underhandedness.
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Hifihedgehog
(Hifihedgehog - Waiting for Surface Pro 10!)
7
Yesterday, Apple made an important announcement regarding changes to iOS, Safari, and the App Store in the European Union in response to the Digital Markets Act (“DMA”). This announcement covers a lot of ground and should be read in parallel with a number of accompanying documents.
In this blog post, I discuss my first (and therefore provisional) reactions to this announcement as it concerns Apple’s new terms for the distribution of iOS apps in the EU. App distribution is a subject we have dealt with on many occasions on this blog to express our frustration with Apple’s unwillingness to accommodate developers’ legitimate requests for greater competition in its mobile ecosystem. The announcement covers additional issues, such as browsers, gaming, etc., which I do not address here.
With the adoption of the DMA, Apple is forced to modify its model, but it does it with rage (the announcement is combative and shows Apple’s distaste for the will of the EU legislator) and in a largely unsatisfactory manner. This is not surprising. In courts, investigations and elsewhere, Apple’s stance has been to defend its practices to the fullest extent against change. It takes the view that only Apple can protect users’ security and privacy, and only Apple can innovate in these markets.
Against this background, here are some initial reactions:
First, Apple has no choice but to allow alternative app stores, but wants to retain a large degree of control. While the various steps that will need to be met by aspiring app store providers are not entirely clear, they are likely to be onerous. Apple has in multiple instances sought to introduce friction to make changes difficult (e.g., for instance in response to the Dutch Competition Authority’s findings it committed an abuse of dominance). The same approach is to be expected here. But in any event, alternative third party app stores will face serious challenges I discuss below.
Second, Apple is also under an obligation to allow “sideloading” (i.e., the ability to download apps directly from a website, as software can be downloaded from websites on PCs), but interprets this obligation in an extremely narrow way: “sideloading refers to downloading iOS apps outside of an official app marketplace — and in the EU, users will have the option to download alternative marketplaces that offer apps for download.” In other words, direct downloading of apps will not be possible from the web (although this is perfectly possible from PCs, including iMacs). Curiously, Apple claims that “sideloading is one of many reasons why in the EU, the DMA’s changes will result in a system that’s less secure than the model we have in place in the rest of the world,” and uses this as an excuse to introduce a host of controls that will obfuscate its obligations under Article 6(4) the DMA. For instance, apps will have to be notarized with notarization being defined “a baseline review that applies to all apps, regardless of their distribution channel, focused on platform policies for security and privacy and to maintain device integrity.” If that is the case, it is not clear why notarized apps can’t be downloaded straight from the web.
Third, Apple has been investigated by various competition authorities for mandating app developers that sell digital products and services to use its in-app payment solution. Apple has failed to convinced regulators that mandatory IAP is necessary, and Article 5(7) of the DMA now makes it illegal. Thus, Apple has no choice, but to allow app developers to use an alternative payment service provider (“PSP”) or linking out to purchase. But this is subject to a variety of conditions that will disincentivize app developers from using alternative PSPs.
First, Apple has decided to make the use of such options difficult by forcing app developers willing to use alternative PSPs to go through multiple steps. Apple introduces warnings designed to scare away users from using apps.
Second, app developers using alternative payment options will still be subject to Apple’s full commission (discussed below). This will financially disincentivize app developers from using these options because there is very little (if anything) to gain doing so.
Finally, and most importantly, developers will not be allowed to “offer both In-App Purchase and alternative PSPs and/or link out to purchase to users in their App Store app on the same storefront.” So much for user choice. This also places app developers in a difficult position. If they decide to use an alternative payment option, they will not only have no financial incentives to do so, but they will probably lose revenues through the reduced conversion rate associated with friction.
Fourth, Apple offers new alternative business terms for iOS apps in the EU. These have three primary elements:
“Reduced commission — iOS apps on the App Store will pay a reduced commission of either 10% (for the vast majority of developers, and for subscriptions after their first year) or 17% on transactions for digital goods and services, regardless of payment processing system selected”;
“Payment processing fee — iOS apps on the App Store can use the App Store’s payment processing for an additional 3% fee. Developers can use a Payment Service Provider within their app or link users to a website to process payments for no additional fee from Apple”;
“Core Technology Fee (CTF) — For very high volume iOS apps distributed from the App Store and/or an alternative app marketplace, developers will pay €0.50 for each first annual install per year over a 1 million threshold. Under the new business terms for EU apps, Apple estimates that less than 1% of developers would pay a Core Technology Fee on their EU apps.”
Thus, for developers that use IAP, as most will continue to do for the reasons expressed above, the total fee will be 17%/10% + 3% + the core technology fee.
Excluding the core technology fee or CTF, the standard commission for app developers using IAP has thus been reduced by 10%, although for smaller app developers and subscriptions after their first year, the reduction is just 2%. For app developers using alternative payment methods, the standard commission is reduced by 13% and the commission for small app developers and subscriptions after the first year by 5%, but they have to pay the payment processing fee to their own PSP. The payment processing fee will vary depending on a variety of considerations. Using alternative PSPs won’t generate much savings.
As to the core technology fee, this is a new “junk” fee, which will disproportionately affect those app developers that have limited revenues, but whose apps are widely downloaded. It looks like a clever way by Apple to recoup the reduced commissions. Note that developers of alternative app marketplaces will pay the CTF for every first annual install of the app, including installs that occur before the 1 million threshold is met. Thus, if an app developer decides to distribute its apps through a third party app store, it will not pay any commission to Apple, except the CTF, plus the commission that will be charged by the app store in question.
The question, of course, is whether app developers should be happy with the reduced commissions and whether such commissions are FRAND (and thus compliant with the Article 6(12) of the DMA).
As to whether app developers should be pleased with the reduced commissions, the question is yes and no. Yes, because some of them will in theory pay less (although in the case of those paying the reduced commission, the further reduction is small). But they now have to pay the CTF, which will represent a heavy burden for apps that have limited revenues, but whose apps are heavily downloaded. These app developers could be worse off than under the existing terms (and will thus stick to them, which is a possibility offered by Apple; but in that case they cannot use alternative payment methods). Now, even a reduced commission still means a lot of money. A medium size app developers with $5 million in revenue will still need to pay $1 million in commission, just for the sake of being in the App Store without even counting the CTF.
This also ignores the fact that the app developers offer immense value to Apple. But for the presence of millions of apps on its App Store, Apple would not be able to sell many iPhones. To illustrate why 20% is excessive use the following thought experiment. Would Apple maintain an App Store if the standard commission was reduced to 5%? It would. And what if the commission was 0%. It still would because it would have no choice. People expect to be able to download Netflix, Uber, Tinder, Spotify and many other apps on their iPhones. No apps mean no iPhone sales, which represent the bulk of Apple’s revenue. In other words, the commission is nothing but an illustration of Apple’s bottleneck power.
I should also add that for app developers that use the App Store and pay a commission, the CTC appears to be a pure junk fee as, per Apple’s description, both the commission and the CTF will effectively cover the same costs. This looks like double charging.
As to whether the reduced commissions comply with FRAND. The answer is an unequivocal no. These commissions are not fair and reasonable for the reasons described in the preceding paragraph. But they are also discriminatory. The reason is that app developers whose apps sell digital goods and services and those whose apps don’t, effectively use the same app store services, but are treated differently. Only the former pay a commission. As mentioned elsewhere, it is hard to understand why Tinder will need to pay a 17% commission, while Uber pays zero percent. Widely successful apps such as Facebook, Amazon, etc. will pay no commission although they surely consume more App Store services than, for instance, a moderately successful news app. That makes no sense at all.
Of course, Apple might say that if app developers are not happy with Apple’s commissions, they can decide to distribute their apps through a third-party app store, since such app stores will now be allowed on iOS devices. But this is too simple a proposition. First, it will take time for such app stores to be up and running as they have to be developed and are subject to constraining processes. Second, there is no guarantee that these app stores will succeed as they will have to start from scratch and compete with the App Store, which benefits from large network effects. Finally, app developers will still need to pay a commission to these alternative app stores (they won’t operate for free), plus the CTF “for every first annual install of the app, including installs that occur before the 1 million threshold is met.” Thus, even if the alternative app store they select charge a lower standard commission (e.g., 15% instead of Apple’s 17%), they could end paying as much (or more) than if they kept their app into the App Store. Most app developers will not bother.
Fifth, because the new business terms are onerous and don’t move the needle, it is not clear how many developers will sign in to these terms. I suppose that app developers that need to use IAP (and may pay large commissions in the process) may be tempted to accept these new terms to save some money (although the extent to which they are able to save money depends on the impact of the CTF). Other app developers may decide that the deal is not sufficiently attractive to accept it or that they may be worse off that under existing terms (if, for instance, they are able to attract users to their web payment platforms without steering them from the app). One should not forget that this would also require app developers operating across the globe to have different apps within the EU if they want to take advantage of the alternative payment solutions that are now offered (in addition to the fact Apple makes them deeply unattractive).
Thus, my initial reaction to Apple’s announcement (and related documentation) is that Apple is not seriously complying with the DMA. The objectives of the DMA are to bring contestability and fairness in digital markets, and this is not achieved here. Apple shows disdain for both the DMA and app developers. Its approach to DMA implementation appears to do little for users, other than to deprive them from meaningful choice on the need for protection. That should not be tolerated. Unless Apple make significant changes to its implementation plans, which it will likely not do, the EC should open infringement proceedings on 7 March 2024. Apple’s proposed plans are so at odds with the company’s obligations under the DMA, that EC officials will have no choice. If competition law does not deliver and the DMA fails, what are they left with?
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Hifihedgehog
(Hifihedgehog - Waiting for Surface Pro 10!)
8
The Apple Inc. logo is seen hanging at the entrance to the Apple store on 5th Avenue in Manhattan, New York, U.S., October 16, 2019. REUTERS/Mike Segar/File Photo Acquire Licensing Rights, opens new tab
LONDON, Jan 26 (Reuters) - Apple faces strong action if changes to its App Store do not meet incoming European Union regulations, the bloc’s industry chief said on Friday.
In a move designed to comply with the EU’s incoming Digital Markets Act (DMA), the company will soon allow software developers to distribute their apps to Apple devices via alternative stores.
From early March, developers will be able to offer alternative app stores on iPhones and opt out of using Apple’s in-app payment system, which charges commissions of up to 30%.
However, critics have said the changes do not go far enough, arguing Apple’s fee structure remains unfair, and that the changes may be in violation of the DMA.
Asked about Apple’s plans, EU industry chief Thierry Breton exclusively told Reuters: “The DMA will open the gates of the internet to competition so that digital markets are fair and open. Change is already happening. As from 7 March we will assess companies’ proposals, with the feedback of third parties.”
He added: “If the proposed solutions are not good enough, we will not hesitate to take strong action.”
Under Apple’s new EU regime, developers will still have to submit apps to Apple for review for cybersecurity risks and obvious fraud.
Apple device users in the EU will also be able to choose their default web browsers and contactless payments apps, meaning they could make contactless payments without using the Apple Pay system.
But even if developers opt not to use Apple’s App Store or payment system, they will still be required to pay a “core technology fee” of 50 euro cents per user account per year.
Apple said on Friday the core technology fee only applies to developers who choose to opt into the new business terms.
Under the new business terms for EU apps, Apple estimates that 99 percent of developers would reduce or maintain the fees they owe to Apple, the company said.
With millions of free users, companies such as Meta and Spotify are likely to get hit more than smaller developers. Neither company was immediately available for comment.
HIGH PRICE
Apple’s critics have warned the trade-offs under Apple’s new rules offer few benefits.
Andy Yen, founder and CEO of privacy-focused software firm Proton, said: “Allowing alternative payments and marketplaces seems positive on the surface, but the strings attached to Apple’s new policies mean that in practice it will be impossible for developers to benefit from them.”
Paulo Trezentos, CEO of alternative app store Aptoide, said: "We heard rumours some changes were coming, but we didn’t expect them to be this thorough.
“This was definitely a good move, but the fees are still too high. We are preparing to send formal feedback to the European Commission.”
Apple did not immediately respond to a request for comment.
A spokesperson for the European Commission said: "We take note of Apple’s announcements ahead of the compliance deadline on 7 March. We do not comment on these announcements.
“We strongly encourage designated gatekeepers to test their proposals with third parties.”
Hifihedgehog
(Hifihedgehog - Waiting for Surface Pro 10!)
9
Hifihedgehog
(Hifihedgehog - Waiting for Surface Pro 10!)
11
My response to a comment on Reddit:
The EU will get their way one way or another, and it’ll just be worse for Apple than if they had complied properly in the first place.
Exactly. Sanctions and dragging their brand image through the mud in the process of kicking and screaming to compliance. I think their goal is near-term profits and hoping to keep this in the courts for as long as possible in the interim. The problem is this is so front and center and so many others are willing to stand up against Apple. Plus, as far as time from court to ruling, at best, Apple can expect a year, if that. Checking Microsoft’s history of dueling it out with the EU Commission, for a 2005 infraction, they only bought themselves 7 and 10 months, respectively, before having to pay up and comply.
Unless they change their tune, a multi-billion euro fine is coming Apple’s way, repeatedly if they continue with the toy throwing.
Perhaps even an import ban.
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Hifihedgehog
(Hifihedgehog - Waiting for Surface Pro 10!)
14
Oh, it is even worse than that: there are apparently three major options on the table they are considering when I approached the EU director of Open Markets Institute:
Fines of up to 20% of global turnover (meaning revenue)
Ban on acquisitions
Forced company breakups
The third one is quite amusing. Imagine Apple being split into two with one half a hardware company and the other solely software. I can see fun ways that can pan out: macOS sold and installed on any device. iMessage and other Apple services fully rolling out to all devices. Apple laptops and iPads rolling back hardware restrictions to allow Windows and Linux to be installed natively without reverse-engineering it. Heck, the macPad would be a reality! Apple would abhor that and will likely give long, long before they fall prey to that dire end, but it would be a fun outcome.
Punishment is one thing, the is INSANITY. There is not a person on this forum that doesn’t know that software/hardware integration is the essence of Apple, and some government bureaucracy even discussing a break up is the height of insanity. It wouldn’t be a fun outcome in any sense.
