16 February 2023

If we want a fairer, more competitive app market, the Government must act now

By Rick VanMeter

Basic economic theory tells us that competition leads to lower prices, higher quality goods and services, greater choice, and more innovation – and the digital sector is no exception.

For over a decade, Big Tech companies like Apple and Google have used monopolistic practices to squash competition through their respective app stores. This behaviour not only restricts competition and freedom, but has even forced some developers out of business when they don’t play by the gatekeepers’ rigid rules. Government inaction has failed both consumers and app developers for too long, but light is now on the horizon.

Here in the UK, the Digital Markets, Competition, and Consumer Bill will reform the competition regime, putting the power in the hands of consumers and strengthening public and business confidence in the power of free markets to deliver prosperity. Most importantly, the bill will boost competition by introducing a new regime to address the far-reaching market power of a small number of very powerful tech firms.

The legislation will put the new Digital Markets Unit (DMU) at the Competition and Markets Authority (CMA) on a statutory footing, giving it real teeth to ensure the tech giants can’t get around the rules in the UK market. The bill is also expected to empower the DMU to proactively address the root causes of competition issues in digital markets. Ultimately, it will enable the DMU to deliver its core objectives: promoting competition in digital markets for the benefit of consumers, lowering prices and increasing both transparency and fairness.

This is especially important in Britain, which has the opportunity to expand its already impressive tech sector. The UK is among Europe’s top tech nations, with Manchester, London, Bristol, Oxford and Cambridge among Europe’s top 20 cities for tech investment. The British mobile app market, valued at over £3bn, is the largest in Europe – but it has the potential to be even bigger if we can liberate the app marketplace from the existing anti-competitive practices that only serve to benefit two huge companies.

The UK government rightly recognises that anti-competitive practices are bad for the economy, small businesses and consumers. The CMA has reported that tech giants are harming consumers through higher prices. Indeed, it estimates that they made excess UK profits of £2.4bn in 2018 alone – and these prices are only getting higher.

Just this week paid-for app prices for Apple’s iPad and iPhone customers in the UK jumped between 11% and 20% as the company unilaterally raised the price tiers on its App Store. And if you are one of the millions of consumers with an Apple device, there is no alternative app store you can turn to.

This kind of behaviour is the product of a digital ecosystem where the significant imbalance between app stores and other developers is plain for all to see. For instance, Apple and Google place a 30% ‘App Tax’ for most purchases made on apps, or in-apps, downloaded from the App Store or Google Play Store (for subscriptions, in-game purchases, etc). That 30% fee is for ‘payment processing’ – which other payment processors charge around 3% for.

Why do Apple and Google force consumers to pay 27% more? Because they can. This excessive App Tax inflates prices and pads the profits of the monopolists, artificially rising prices for consumers and robbing developers of capital they could otherwise reinvest in their business.

All of which is all the more reason for the Government to act quickly and decisively by introducing the bill immediately.

My organisation, the Coalition for App Fairness, is not alone in calling for this bill to be brought forward as soon as possible. The urgent need for the bill has been made clear, not only by app developers, but also parliamentarians from across the divide who have listened closely to industry, academics and regulators on this important issue.

Towards a free market

Speaking on behalf of the more than 70 members of our coalition, what the sector wants is not special treatment, but a fair marketplace – one in which everyone in the ecosystem can invest more in their own businesses while offering lower prices to their customers.

It’s also important to not lose sight of the fact that the DMU is a response to the Big Tech companies successful efforts to fix the market. In a properly competitive market, customers could take their business elsewhere, but Apple and Google ban app developers from telling customers where they can purchase their service for less, or implementing their own safe and secure payment platforms. They force developers to agree to onerous terms, which dictate that app developers cannot tell their customers that their service is available at a better price outside the app store.

Giving the DMU powers to designate tech firms as having ‘strategic market status’ is a flexible solution that can help regulators keep pace with technological change and not over-regulate businesses unnecessarily. A correctly empowered DMU will help balance the scales for UK businesses and developers. 

Keeping up with the competition (rules)

Another reason for the Government to get moving on its legislation is that Britain is increasingly falling behind international peers when it comes to tech regulation. The UK’s independent competition and consumer regulation regime currently has a good reputation, but not a great one. According to Tory MP John Penrose’s independent report on the UK’s competition regime, international rankings put the UK’s major competition institutions behind the US, France, Germany, the EU and Australia. The UK has fallen behind and needs to catch up and the Digital Markets, Competition, and Consumer Bill is a vital step on that path.

The EU’s Digital Markets Act (DMA), which shares many of the same objectives as the proposed UK legislation, is due to enter into its implementation phase later this summer. However, the slow progress currently being made in the UK may mean that the timeline for the DMA gets too far ahead of the DMU regime, and the UK becomes a follower rather than a leader on this issue. Any further delay may mean the UK may need to adapt to fit with the EU approach, rather than crafting its own. In the US, meanwhile, President Biden has called for bipartisan action from Congress to hold Big Tech accountable and to pass legislation placing new safeguards for digital competition on the US tech industry. 

Ultimately, markets need to work for people, not the other way round and the DMU will help drive innovation in the UK mobile app marketplace. App developers and their consumers, the EU, a UK Conservative government and a US Democratic President all see the need for fair treatment and for consumers to have more control over their own devices. After a decade with next to no oversight, regulation, or fair competition, it’s time for Apple and Google to finally be held accountable and for freer markets to flourish. 

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Rick VanMeter is Executive Director of The Coalition for App Fairness.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.