(Bloomberg) – Approximately a year after a U.S. antitrust investigation by Apple Inc., Justice Department attorneys are analyzing the rules that require many app makers to use the company’s payment system, according to people familiar with the case.
Government attorneys have met with developers as recently as last week and are asking questions about Apple’s rules requiring apps to use its App Store payment system for subscriptions, the people said, who declined to be identified arguing. a confidential matter. Apple pockets up to 30% off when apps use payment technology.
The Justice Department has been interviewing developers about Apple since mid-2019, the people said. The investigation continues and no final decisions have been made on whether to file a case.
Most of the department’s antitrust division resources focus on a Google investigation of Alphabet Inc. that involves the power of the search giant in the digital advertising market. That investigation is at a more advanced stage and a case could be filed as early as this summer, some people said. Still, the US investigation into Apple’s app store policies was described as serious by a person familiar with the case.
The scrutiny shows that investigations of the country’s largest tech firms overseen by Attorney General William Barr continue to grow a year after they started. The Justice Department met Friday with state attorneys general about plans to sue Google for antitrust violations, according to one of the people.
App store review
In Apple’s investigation, government attorneys have also asked developers about the App Store review process, during which Apple evaluates and approves or rejects an application based on a series of guidelines, the people said.
Sometimes developers approached the Justice Department, while sometimes the government made the initial contact, the people said. At least one major developer has met with the department in the past 10 months, and conversations have become more frequent in the past few weeks. In recent meetings with at least one major developer, the number of attorneys for the department has also increased, one of the people said.
In early talks with the Justice Department, at least one developer was asked if Apple cutting its 30% cut would resolve their concerns, but the person said the problem is less commission and more that Apple doesn’t allow a payment system. alternative.
The Justice Department has met with small, high-profile developers selling apps. “We have spoken to DOJ about Apple and the App Store twice,” said David Heinemeier Hansson, founder of software company Basecamp, which created the Hey email application, in an interview. “We shared our experience, passed on the experience of others, and put them in touch with a developer who did not want to make his story public. I am very pleased that the Department of Justice is investigating this, because we need both legislative action and law enforcement. ”
The government is also asking questions about the Google Play app market, two of the people said. It’s unclear whether Google Play’s scrutiny is part of Google’s ongoing Justice Department antitrust investigation or whether the questions are being used to inform Apple’s investigation.
Representatives from Google and the Justice Department declined to comment. Apple has said that 84% of the applications are free and do not pay Apple anything, but declined to comment further.
Reuters, MLex and Politico previously reported aspects of the department’s discussions with developers about Apple.
Apple has been under increasing fire in recent weeks. Earlier this month, the European Union launched an antitrust investigation into the iPhone maker. Regulators are particularly concerned with how the company forces many developers to use its App Store payment service for subscriptions.
Last week, Microsoft Corp. President Brad Smith said it is time for antitrust regulators in the US and Europe to discuss the tactics that app stores use to take advantage of those who want to distribute their software, referring to Apple.
The next day, Rep. David Cicilline, a Rhode Island Democrat who is leading an investigation of Apple and other tech giants in the House of Representatives, said in an interview with Bloomberg TV that the 30% cut in Apple sales is ” highway robbery. “
Apple and Google are the dominant providers of app stores, the great digital bazaars that showcase millions of games, productivity tools, and other software available for download on mobile devices. Globally, the two generated more than $ 83 billion in mobile app spending by consumers in 2019, according to Sensor Tower data.
That power means that most developers must work with Apple and Google if they want to reach billions of smartphone users as customers. Companies earn up to 30% of app sales, creating highly profitable businesses, but also a growing chorus of critics who see an exploiting duopoly.
Unlike Apple, Google’s Android phones allow users to access multiple app stores in addition to Google Play, which can help isolate the company from antitrust action over its app store practices. Apple has said it does not allow multiple stores for security reasons.
The problem for some developers is the way that Apple forces its users to pay for subscriptions and updates within the App Store’s payment network. Many apps can’t handle purchases outside of the App Store, ensuring Apple gets a 15% to 30% cut.
Apple makes an exception for video, music, book reading, and some other services to allow users to sign in without purchasing an in-app subscription. However, as part of the rule, services cannot advertise in the app that users can purchase the subscription online.
Netflix Inc., for example, tells users that they can’t subscribe to the service within the app, but it doesn’t explicitly tell customers how to pay for a subscription online, thereby avoiding violating Apple’s rules. “We know it is a nuisance,” says the app. Apple says developers can promote other pricing outside of the App Store, as long as they don’t discourage in-app purchases.
Application store subscriptions
Other services choose to use Apple’s payment system because it is simpler for customers. But that can make the product more expensive. For example, the Soundcloud Go + music streaming service costs $ 9.99 through its website, but $ 12.99 when purchased through the Apple App Store.
Apple’s growth is at stake. If apps could sell subscriptions outside of the App Store, developers could stop using Apple’s payment system, causing the company to lose revenue. Application store transaction fees are estimated to be one of the biggest contributors to Apple’s service revenue, a business the company is trying to expand.
Other developers, including Spotify Technology SA and Rakuten Inc., a Japanese online retailer, have complained that the App Store is both the store operator and the competitor. For example, when it offered registration subscriptions on the iPhone, Spotify had to give Apple its 30% stake. Spotify argued that Apple Music, its main rival, owes no one a 30% fee.
Apple accuses Spotify of wanting “all the benefits of a free application without being free” and has accused Spotify of “maintaining all the benefits of the App Store ecosystem, including the significant revenue they get from App Store customers” . without making any contribution to that market. “
In recent days, Apple has loosened some of its restrictions, appeasing developers. The company opened its HomePod speaker to third-party music services, such as Spotify, and will allow users to set third-party email and web browser applications as defaults in the next version of iOS.
Last week, Basecamp had an update to its Hey email app declined for not using the in-app purchase system required for subscriptions, but Apple reversed the course after the developer added a free option.
The company also said it would stop rejecting bug fix updates that violate the app store review guidelines, allowing developers to fix these issues in a future release. Also, for the first time, it will allow developers to challenge specific review guidelines.
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