UK investigates multi-billion dollar deal between Apple and Google

07/03/2020 Business


American and European regulators are closely watching Apple for possibly violating antitrust laws related to the App Store. Apple doesn’t allow iOS and iPadOS users to download apps from a third-party app store, but by cutting app purchases by 30%, Apple is forcing some developers to increase their prices to keep their margins high. A good example of this is Spotify, which competes against Apple Music. Online, they both charge the same $ 9.99 per month for an individual subscription and $ 14.99 for a family subscription of up to six members.

Google’s payments to Apple are being investigated as anti-competitive

If you look at Spotify’s prices on the iOS App Storefront, you’ll see that prices have increased by 30% to offset Apple’s cut. But new Spotify subscribers cannot subscribe to the service through the App Store. The higher price only comes into play for renewals that go through the payment system in the Apple app. Spotify subscribers have to cancel their automatic renewals through Apple and sign up for Spotify and that gives Apple Music an unfair advantage over its main rival.

On Wednesday, Reuters reported that the UK market regulator is investigating payments made to Apple by Google that keep Google’s default search app on iOS. In a report released yesterday, the UK markets regulator said these payments create a significant barrier to entry and expansion. “Last year Google reportedly paid the equivalent of $ 1.5 billion to be the default search engine on multiple devices with Apple receiving most of that money.

The UK Market and Competition Authority’s final report, which was investigating online platforms and digital advertising, found that Google’s search rivals such as Microsoft’s Bing, Verizon’s Yahoo and the independent search engine Duck Duck Go are being hurt by Google’s payments to Apple. However, those three search engines also pay Apple to appear in the list of search engine options for the iPhone (only it is not close to the amount paid by Google).

Toni Sacconaghi, an analyst at Bernstein, said earlier this year that Apple receives about $ 9 billion a year in license deals with gross margins in excess of 90%. More than $ 7 billion of that figure comes from payments made by Google These payments are reported as revenue for Apple Services; The company had previously set a target of $ 50 billion in revenue for this year, double the $ 25 billion in service revenue it received in fiscal 2016. Other businesses in this segment include Apple Pay, App Store, Apple Music, Apple Pay, AppleCare +, iCloud and more.

In the report, the Competition and Markets Authority said it would pass on a variety of options to enforcement authorities. One of these options would require Apple to include a “choice screen” when setting up a new iPhone. This is something Google offered users last year after the European Commission (EC) discovered that the company was anti-competitive by requiring phone manufacturers to install Chrome and Search as the default browser and search engine on phones. Android. The report also suggested restricting Apple’s ability to monetize its default apps. This would be “very expensive,” Apple told regulators.

Apple decided to focus on its Services business just as iPhone sales peaked in fiscal year 2015. During the first half of fiscal year 2020, Apple generated Services revenue of $ 26 billion, putting the company a little ahead of its goal for the Services business. The fiscal third quarter of 2020 covers the period April through June and should be announced in late July or early August. Fiscal fourth quarter earnings, which include the three months between July and September, could be released in late October or early November.

Big Tech is under the microscope in the US and Europe with anti-competitive behavior at the top of the lists of researchers.

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