Mom and pop development shops are mad at Apple. By ‘mom and pop’ I mean anyone whose margins are being squeezed by platform costs. This is a category that includes companies with millions of dollars of revenue, and if you stretch it, unicorns like Spotify. They believe they’re responsible for much of the value of Apple’s platform, and feel increasingly powerless and passed-over in the value chain.
They’re being farmed and fear that when they cease giving milk they’ll be slaughtered. And all sides of this fight know very well the golden rule of doing business in the platform era: don’t give your power away.
Antitrust for the platform generation has yet to really kick in1, and Apple has been relatively untouched by the fines levied on its big 5 cousins. In China, where most western tech companies are persona non grata, Apple is thriving, probably because of their manufacturing base. In the US and Europe, consumer data profiteers like Facebook, Google2 and Equifax have hogged the regulatory spotlight while Apple has mostly dealt with trade + IP stuff.
But it’s coming. And credit card antitrust litigation gives us a preview of what Apple antitrust will look like. Credit card companies are mature platform companies that have been in rentier mode for decades. They also have a long history of regulation, both in congress and in the courts.
It’s also possible that the Durbin Amendment to Dodd-Frank is directly applicable, and I’ll start with that argument.
As always, I’m not a lawyer. This article isn’t legal advice unless the reader is a state AG, in which case it is legal advice and you should follow it.
- The Durbin Amendment
- Is Apple’s margin fair
- Also WTF is a market
- App stores aren’t gardens, they’re lawns
The Durbin Amendment
If you’re not familiar with Dodd-Frank, Pete Sessions of Texas described it as a ‘2300-page government takeover of the financial sector’. 10 years on, this is a more interesting summary than the real details and saves me some research.
The Durbin Amendment is a random add-on to Dodd-Frank that allowed merchants to use discounts to steer their customers to cash. Previously, card payment networks forbade this in their contracts. Full text if you care, it’s short:
(A) In general A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in-kind incentive for payment by the use of cash, checks, debit cards, or credit cards3
The Court of Appeals for the DC Circuit said it was ‘poorly drafted’ and put them ‘in a real bind’4 but I think they were talking about a different piece.
My sense from skimming a bunch of senate debate records5678 and Durbin press releases910 is that this is a relatively low-impact law which blocks credit cards from rent-seeking in an area of retail they could care less about, and that small mom & pops with thin margins (Qik-N-Ez, National Associate of Convenience Stores) really do care about the extra 1 or 2% of margin.
My broad point here is that credit card legislation looks like what Apple will have to deal with. But I wonder if there’s a court in the land that would find this law directly applicable to Apple’s situation.
Specifically: Apple takes a cut of every dollar spent on their platform, but also bans you if you distribute an app that uses an external payment processor or subscription. Hey.com ran afoul of this during their launch and made some noise about it. ProtonMail and Telegram followed on with blog posts about how these policies suck, and probably others did too. There are some exceptions to these rules which are either category-based or grandfathered in, depending on who you ask.
If you think ‘payment card network’ from Dodd-Frank includes the digital payment system of the iOS App Store, the anti-steering provisions in the App Store rules are illegal. For what it’s worth, Apple has a credit card product and some amount of commerce on their platform is probably through that thing. This is a kind of a long shot, but if I had an infinite legal budget I’d try it.
Is Apple’s margin fair
I read this well-researched apology for app store prices. It basically concludes that app stores add a lot of value and Apple is comparable fee-wise to other app stores. It also compares app store fees to brick and mortar retail.
If the claim is that the App Store is at least cheaper than shelf space, this EFF tweet raises the important counterargument that Apple didn’t invent the internet.
All this raises the question: WTF is an app store even? Are they selling payment processing or what? If yes, they’re doing so at a 15x markup over dedicated payment processors.
Another perspective is that they’re providing ‘shelf space’, same as a grocery store. Take that to its conclusion, though, and they’re selling ads. I suspect Apple benefits from non-spammy top-10 lists in App Store categories, that are driven by usage rather than publisher spend. In a sense, ‘shelf space’ is a service Apple provides to the end user, not to publishers. (In a two-sided market, though, it can be both).
You can argue that the App Store also provides safety and quality services that are paid for by Apple’s vig on IAPs etc. Okay: which other services? I read this Multi-sided Platforms as Regulators paper which claims that taking bad apps down is part of the service Apple provides.
The paper’s first example of a banned app was the $999 ‘I Am Rich’ app, which is plausibly a useful takedown from a customer-centered view. But the second example was Podcaster, an app that competed with iTunes. And while yes, Apple customers are maybe benefiting from curating away endless duplication, but in this example Apple was clearing ground for their own product.
The paper also talked about Nintendo’s tight control of their platform in the 80s preventing the sort of lemon-driven crash that destroyed Atari. It also talks about Facebook as a successful self-regulator, because it’s from 2008.
The authors describe FB as ‘among the leading social networking platforms, with over 100 million members’, praised its privacy controls, and talked about a thriving widget ecosystem with no negative externalities. This was pre Cambridge Analytica. 2008 was a while back.
All this is to say that ‘they’re using that 30% margin to make the platform better’ is an argument not without holes.
Also WTF is a market
You’re probably familiar with Apple v Pepper, the recent SCOTUS opinion that found that end users on the App Store had standing to sue for Sherman Act violations. Apple v Pepper is Apple’s counter-suit to Pepper v Apple, a suit claiming Apple is conspiring with AT&T Mobility (?!) to monopolize the market for iPhone apps.
An important question here is is the market for iPhone apps a market?
A blog post11 about Apple v Pepper points out Ohio v Amex, a 2017 SCOTUS case examining the ‘anti-steering’ provisions in American Express’ contracts with its merchants. These are contract clauses that prevent merchants from encouraging customers to use other credit cards.
Ohio v Amex hinges on the question of whether the payment card space should be analyzed as one multi-sided market or two linked markets for separate services. The majority claimed that it’s a single multi-sided market, therefore a two-sided transaction is a single transaction, and the fee in question doesn’t significantly affect the total transaction, i.e. the end-user price.
The dissenting opinion claimed that payment processing is two markets: one for each pair of parties in the transaction. And therefore the fees in question had an economically meaningful effect on the price of the payment processing service, even if they were a drop in the bucket for the overall transaction.
Both Apple v Pepper and Ohio v Amex are 5-4 wins. A suit claiming there’s a ‘market’ (in a legal and economic sense) for iPhone apps may similarly find itself in coin-flip territory.
My takeaway here: if you flip enough coins some court somewhere will force Apple to allow another app store onto their hardware. This is already happening in China, where the Wechat app has its own built-in app store.
If there were competition in app stores, I suspect app store review wouldn’t get mysteriously hard when Apple is about to launch a competing product. API access would still get fucked around with though.
Gorsuch for the dissent in Apple v Pepper says that the majority is oversimplifying Illinois Brick, a key precedent here, and opening a loophole:
Instead of collecting payments for apps sold in the App Store and remitting the balance (less its commission) to developers, Apple can simply specify that consumers’ payments will flow the other way: directly to the developers, who will then remit commissions to Apple.
I think even this change would have benefits; app publishers could BYO payment processor, for example (and probably bill the processing fee to Apple). In general reversing the flow of payments would adjust the power relationship between Apple and its platform participants in subtle but beneficial ways.
App stores aren’t gardens, they’re lawns
“Will you walk into my parlour?” said a spider to a fly – Nursery rhyme
Tech writer Ben Thompson noted at the height of hey.com fury that an early version of the App Store rules had this to say about government in the sunlight:
If you run to the press and trash us, it never helps
Controlling the narrative is a classic abuser tactic and as more app publishers suspect Apple is treating them unfairly, they realize there’s little to lose by going public. This week scrappy young publishers Microsoft and Facebook are taking to the court of public opinion over this.
People call the App Store a ‘walled garden’ to capture the curation and safety tradeoffs. To me it seems like less of a garden and more of a lawn. Ecologists hate lawns; they’re the next best thing to being dead. They require wasteful water and chemical assistance. As ecosystems, they’re in a constant state of failure.
Healthy ecosystem vs lawn is not just a question of the businesses that are allowed to grow there; even the core technology (XCode and the buildsystem) sucks because it’s bottlenecked by a single dev tools team.
As humans, lawns don’t hurt us much as, say, if we were bugs. We don’t live in forests or in grass and dirt; our lunch comes off a truck. But we do live in app stores, increasingly, and earn our livings on them, and kind of are bugs there.
Want to live in an healthy ecosystem of networks and tools that work and grow sustainably? Not possible as long as marketing VPs are doing drive-bys with their driving mower and cutting short the growth of better plants.
By which I mean no big platform has been forcibly separated from its ads business yet. ↩
To Head Off Regulators, Google Makes Certain Words Taboo. “Google faces at least four major antitrust investigations on two continents”, ‘The taboo words include “market,” “barriers to entry,” and “network effects,”’, “They are further cautioned never to print or hand out their slides”. “We use the term ‘User Preference for Google Search’ and never the term market share”. Samesies. ↩