Epic’s chances of winning the war appear to be getting slimmer by the day.
But the European Union may have just turned the tide by formally adopting the Digital Markets Act on July 5th, 2022.
This legislation introduces a list of requirements that companies classified as “gatekeepers” will have to abide by including 2 that might completely reverse the failing direction of Epic’s efforts:
- allow users to install apps from third-party app stores and directly from the internet also known as sideloading
- allow developers to offer third-party payment options
The return of Fortnite to iPhones through an Epic Games Store or simply via sideloading may now only be a matter of time.
And consequently, big tech platforms like app stores are now facing the most formidable threat against their iron grips to date: the regulatory hammer of government.
But is this legislation really what’s in the best interest of consumers? or for creating a leveled playing field for smaller competitors?
What the DMA Requires
The negatives for gatekeepers like Apple are obvious. They will no longer be able to keep certain apps from being installed and will likely see a significant decrease in revenue from one of most lucrative business models in the last decade: the 30% app store fee.
But those are not the only changes that will be ushered in by the Digital Markets Act. There’s more that companies like Apple and other digital platform holders must do:
- allow interoperability with apps and services belonging to the gatekeeper like chat and messaging
- access to any hardware feature like NFC and secure elements
- ability to uninstall all apps including core platform services
- share data and metrics with developers and competitors
- ability to change the default voice assistant
On top of that, it also disallows gatekeepers from:
- pre-installing apps like default web browsers
- requiring developers to use specific services or frameworks
- giving their own products preferential or prominent treatment
True to the spirit of bloated antitrust legislation, these requirements hollow out significant parts of a platform holder’s competitive advantages but are also not immune to unintended consequences or drawbacks.
Especially in the domain of security, privacy, and user experience: a drawback that Tim Cook has made publicly in interviews and speeches.
DMA = Less Choice?
While this EU regulation can be considered groundbreaking, a significant amount of requirements simply describe an ecosystem that already exists. And you’ve probably heard of it. It’s called Android.
It is hard to seriously deny that the least curated versions of Android have an inferior user experience and much greater risk of malware compared to iOS.
The best and most secure Android experience is that of Google’s Pixel which is more similar to Apple’s approach to iOS with a tighter integration of hardware, software, and services.
This doesn’t mean that Apple’s approach is better but allowing it means that consumers will have the full range of options from least curated to most curated.
The language of the Digital Markets Act will mean a reduction of choice for consumers in the European Union and potentially worldwide.
But it didn’t have to come to this. Apple could have done something that Steve Jobs shared with everyone after revealing the first iPhone at the end of his keynote at Macworld in 2007.
Epic Shot Across the Bow
On August 13th, 2020, Epic Games announced the Fortnite Mega Drop which was a permanent 20% decrease in the price of V-Bucks across all platforms including iOS and Android but only if you chose Epic direct payment instead of using the native in-app purchase system.
The move was considered bold as incentivizing users to by-pass the official in-app payment methods would almost certainly invite the wrath of Apple.
Which it did just hours later as Apple removed Fortnite from the App Store.
The popularity of Fortnite on iOS at the time boasted 2.5M daily active users and over 73M total iOS-only players but that was not enough to convince Apple to look the other way or modify their policies.
This was not a surprise to Epic. They were prepared and knew that their bold actions were in violation of App Store guidelines. A lawsuit was immediately filed along with a PR stunt that included a Fortnite-themed parody of Apple’s iconic 1984 SuperBowl commercial where IBM was depicted as a dystopian Big Brother stifling competition in the computer industry. That commercial was itself in reference to George Orwell’s classic science fiction book, titled 1984, on the consequences of totalitarianism and mass surveillance.
The connection being that Apple had become a similar Big Brother figure and that Epic was the brave underdog in this fight to free mobile computing.
Epic was not the first company to have complaints about Apple and Google’s monopoly-like dictation of fees but they put the most at risk in an attempt to change policies that—in hindsight—Apple and Google should have been doing all along.
But both refused to read the tea leaves even after the judicial ruling came down in Epic’s lawsuit against Apple.
A Win for Developers but a Loss for Epic
While the ruling was a win for Apple, they lost on the one issue that was clearly trending against them: allowing third-party payment options.
This was Apple’s second chance. If it wasn’t clear where the puck was going when Fortnite was banned then it should be blindingly obvious now. Unfortunately, Apple continued to fight the trend and filed an appeal which temporarily halted the injunction to allow third-party payment options.
This was even after Apple moved to lower the commission fee to 15% for developers making less than $1M annually, settled a lawsuit filed by US developers to allow the sharing of information on making purchases outside of the App Store, and forced to allow third-party payment options in South Korea.
Given all these signs and Apple’s continued concessions regarding payments, it is hard to argue that they were completely blind to where the puck was going. At best, they were in denial.
Apple eventually agreed to comply with South Korean law in early 2022 and apps there can accept alternate payment options but developers will have to report sales and pay a 26% fee.
If this sounds like a childish attempt to comply in letter but not in spirit then you’d be right but it also reveals that facilitating payments, subscriptions, refunds, and keeping a history is, at most, a 4% service which is inline with providers like Stripe or Paddle.
All other Apple-hosted services plus distribution may be worth the remaining 26% but they are not used by every app and clearly feels unfair to developers who know what they are paying in self-hosted servers and content distribution networks.
What the DMA Really Means
The Digital Markets Act will make iOS less secure in the aggregate. Those of us who are more technically savvy will be least affected but there are armies of extremely persistent and tenacious people wasting their lives running frauds and scams. A greater surface area for attacks simply means they will have more chances to succeed.
There’s no way around it. It is not a matter of a user’s intelligence as much as it is about people being in a rush, lacking time, or just having trust by default.
Governments are often a lagging indicator and run the risk of going too far once they can pass or adopt legislation by simple majority because society at-large have already been moving in that direction.
And since Apple misguidedly forged ahead in defense of revenue from App Store fees—for reasons of greed or hitting Wall Street earning expectations—public support for curbing monopoly-like pricing power is going to overshadow those of security and privacy.
And that is what we’re seeing today in the European Union and possibly the rest of the world but there’s still a chance for a more perfect future if Apple can change course as US legislatures haven’t acted, yet.
Behind the Curtain
I've long been a supporter of Epic's efforts to bring Fortnite back to the App Store and force Apple to lower or otherwise change the App Store fee structure. But through the market and not force of government.
That said, I was initially positive of the Digital Markets Act until I had to do more research for this article and associated video. Ultimately, the heavy hand of government has its drawbacks which I think are worse than the temporary monopoly-like power that Apple and Google currently have.
It does take some faith to believe that the 30% fee and unreasonable banning of apps will eventually come to and end but the signs already point in that direction. Apple should have gotten ahead of this trend and changed their app review policies and fee structure before slower moving governments came to regulate it.
I think that it makes sense to allow people to install whatever they want on their mobile phones like we do with desktop computers but it is certainly not a requirement for a product to allow it. There are valid reasons to both approaches which means consumers currently have a choice depending on what they value more.
The regulation simply makes everything more like Android which would be a reduction of choice.
Ultimately, Apple needs to act more proactively and go to where the puck is going to be. The constant legal battles has the potential to end in a much worse scenario than if Apple just went ahead and regulated itself.
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