Watchdog moves to split Apple and Google app store grip

The UK competition regulator is preparing to unleash the power of Apple and Google in the mobile economy, proposing rules that will allow app developers to point customers to cheaper payment methods outside of the two companies’ app stores.

The Competition and Markets Authority (CMA) says consumers and app developers are being short-changed by restrictions that prevent people from spending outside of Apple’s App Store and Google Play Store. With at least 90 percent of the UK’s mobile devices running on one of the two platforms, the regulator has dubbed the two a “functional duopoly”, a description it has used repeatedly as it develops scrutiny of the sector.

At the heart of the proposals is “directing”, the practice of allowing the application to direct users to a website where they can register or purchase directly, leaving the forums entirely. The CMA is currently discussing proposed measures to prevent this, a change it says would allow apps to bypass the “mandatory fees” imposed by the two companies. Both Apple and Google pay commissions of up to 30 percent on in-app purchases, including subscriptions, a tax that has long angered developers and is the focus of the regulator’s proposed action to drive more competition on social media.

Restrictions have real effects on how people use applications every day. Spotify, for example, doesn’t allow UK users to buy monthly subscriptions through the Apple App Store, because it doesn’t want to take payments and pass them on to customers. Potential subscribers must instead sign up via a desktop website, a chore that the CMA believes represents a market without competitive pressures.

Will Hayter, executive director at CMA, said it was important to give apps and their users more choice in how they act and communicate. “This is not only because selection is inherently valuable but also because we see this as the best way to introduce competitive pressure to an important part of the mobile ecosystem that is not under such pressure,” he said.

Most importantly, the watchdog is not proposing to strip the platforms of all revenue. Apple and Google will still be able to charge fees to enable guidance, as long as those fees are used appropriately. Google said it has already made the necessary changes, including allowing apps to direct users outside of the Google Play Store to complete transactions, and introduced new fees this week that include, among other things, fees to direct users to other payment methods.

The CMA is also considering whether to force Apple to open up access to its Near-field Communication (NFC) technology, which is the backbone of contactless payments. Doing so would allow developers to offer their tap-to-pay services within iOS apps rather than moving everything through Apple Pay, a move that could give more room to rivals. British fintech Curve is among those already planning to take on Apple Wallet with a rival payment system.

The proposals build on the CMA’s decision last October to award Apple and Google “strategic market status” in addition to their dominance of the mobile market, a designation that allows the regulator to impose unpredictable rules of conduct for each company. That decision has already prompted both companies to agree on a series of changes to the UK app store, and the latest package of measures aimed at opening up the mobile market is underway. A full consultation on new requirements for Apple and Google’s mobile platform is now open.

Apple, predictably, is not happy. The company warned that the regulatory changes undermine user protections and open the door to scams and circumvention of parental controls. “When users are directed away from Apple’s trusted payment infrastructure, they lose the protections they rely on Apple to provide. We will continue to make our concerns clear in our ongoing dialogue with the CMA,” the spokesperson said.

For small and medium-sized UK software businesses, the prize is straightforward: lower fees, a more direct relationship with customers and, the CMA hopes, savings that can be reinvested in the kind of innovation that entrenched duopolies tend to discourage.