I started this morning all riled up and ready to write a newsletter about how Google is using its market power in one segment — Gmail — to give itself a potentially unfair advantage in another segment: video conferencing.
That was the plan, but then Apple decided to use its market power in one segment — the App Store — to give itself a potentially unfair advantage in another segment: buying digital goods.
I’m obviously going to focus on Apple. But to get Google out of the way quickly, its abuse was deciding not only to build Google Meet into Gmail, but to inflict a giant button on inbox screens for all G Suite users by default. It can be turned off, but the company is clearly sacrificing user experience to push its own agenda against Zoom. (I’ll come back to Google in a postscript.)
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In Apple’s case, the decision was to tell the company that makes the brand new email app called Hey that it cannot distribute its app on the iPhone unless it makes it possible for users to sign up via Apple’s own prescribed methods — which gives Apple a 30 percent cut.
The timing of all this is simply incredible, with so many happenings that I’d be nuts to focus on anything else. Not only does Apple’s WWDC developer conference kick off in less than a week, the EU literally opened up an antitrust investigations into App Store and Apple Pay practices the very same day this Hey thing went down! Tom Warren:
The first investigation will probe whether Apple has broken EU competition rules with its App Store policies, following complaints by Spotify and Rakuten over Apple’s 30-percent cut on subscriptions and sales of ebooks through its App Store. “We need to ensure that Apple’s rules do not distort competition in markets where Apple is competing with other app developers, for example with its music streaming service Apple Music or with Apple Books,” says Margrethe Vestager, the head of the EU’s antitrust division. “I have therefore decided to take a close look at Apple’s App Store rules and their compliance with EU competition rules.”
And Apple itself was touting a study proclaiming how much its App Store has added to the economy on Monday, claiming it created $519 billion in commerce last year. Nick Statt:
In-app advertising, also largely dedicated to mobile gaming, makes up another $45 billion. Of everything else — from ride-hailing software to food delivery apps to mobile retail shops from Best Buy and Target — making up the remaining $413 billion, Apple takes no cut, the study says.
We’re going to run through some of the play-by-play of Hey, digging into what Apple’s policies are and how they may or may not apply. Here’s the relevant paragraph from Apple’s App Store policy, 3.1.1:
If you want to unlock features or functionality within your app, (by way of example: subscriptions, in-game currencies, game levels, access to premium content, or unlocking a full version), you must use in-app purchase. Apps may not use their own mechanisms to unlock content or functionality, such as license keys, augmented reality markers, QR codes, etc. Apps and their metadata may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.
The key thing to know is that the text of this policy is not actually the policy. Or rather, as with any law, the text is only one of the things you need to understand. You also need to know how it is enforced and how the enforcers interpret that text.
It should not surprise you to know that Apple’s interpretation of its text often seems capricious at best and at worst seems like it’s motivated by self-dealing. And the enforcement consequently often seems unfair.
The rule states that if you want to sell digital goods, you have to use Apple’s payment system. Except that’s not how how 3.1.1 has been interpreted to date. It has been interpreted as allowing people to access services they paid for elsewhere on their iOS devices, but not allowing those apps to try to get around the Apple payment rules when people sign up on those devices.
That’s convoluted, but that interpretation is what keeps Netflix from having an account sign-up in its app. It’s the policy that has enraged Spotify and keeps you from buying Kindle books on your iPhone without jumping through a million weird Safari hoops. That was already a very bad rule, if you ask me. Now, with this email app, Apple is apparently changing its interpretation to be more strict.
David Pierce at Protocol spoke to the folks at Basecamp, who make Hey, about what Apple told them was the reasoning for their app updates getting rejected. In short, the original app was accepted but updates will not be because somebody inside Apple started enforcing their revised interpretation. And boy howdy, if you want a masterclass in the real rules being hidden in interpretation and enforcement instead of in the plain text, buckle up:
Because Hey didn’t qualify as a “Reader” app, Apple said that existing subscribers could log in as normal but Hey needed to make all subscriptions available to new users as in-app purchases. … Apple told me that its actual mistake was approving the app in the first place, when it didn’t conform to its guidelines. Apple allows these kinds of client apps — where you can’t sign up, only sign in — for business services but not consumer products.
So now the rule is you have to use Apple’s system unless you were lucky enough to make a popular subscription app, in which case you could just keep going. According to clause 3.1.3(a), there are special classes of apps that are allowed to let you sign up elsewhere but still access the app on the iPhone: “business services” and “Reader apps” and these terms retroactively apply to those other apps? As Pierce tweets:
One other distinction: Apple allows “Reader” apps — things like Netflix and Kindle and Dropbox, where you’re using the app to access existing subscriptions — as long as they don’t offer a way to sign up. But email, messaging, etc don’t count as Reader apps
Now we’re in full pretzel mode. Dropbox is a “Reader” app somehow and therefore exempt? 3.1.3(a) refers to “Reader” mode, but it also has an eminently interpretable clause that includes “approved services.” I cracked a joke about the No True Scotsman logical fallacy, but more I think about it, the more it applies.
Figuring out whether or not your app is included in Apple’s interpretation of its rules or whether Apple will enforce those rules upon you is a straight up guessing game. Here’s a hint, though: if you’re big and powerful and have leverage, you have a better shot. After all, Apple is fully letting Amazon get around some of these rules right now on the Apple TV, even the 30 percent cut! Remember that kerfuffle? Here’s the so-called “established program” that nobody knew about:
On qualifying premium video entertainment apps such as Prime Video, Altice One and Canal+, customers have the option to buy or rent movies and TV shows using the payment method tied to their existing video subscription
Basecamp CTO David Heinemeier Hansson has been popping off about Hey’s potential App Store ban on Twitter all day — and rightly so. He has also testified before congress about Apple’s outsized market power. (Heinemeier Hansson, you may recall, also brought the Apple Card’s biases against providing equal credit to women to light.)
To me, arguing over whether the text of Apple’s policy is being interpreted or enforced fairly is almost beside the point. I say “almost” because the whole guessing game about rules is unsettling for developers, it lays bare that Apple holds the power to ban their app.
An arbitrary ruler exerts their will more forcefully and more onerously than one who follows the rule of law. Opaque and arbitrary interpretation and enforcement puts more power into Apple’s hands — and it already has the power the set the text of the rules in the first place.
The real issue is Apple’s power, of which this whole Kafkaesque series of changing rules is a symptom. We all know the score here: Apple needs to protect the 30 percent cut it takes, and if it allows too many apps to circumvent that cut then some sort of dam may break. From Apple’s perspective, it’s not so much the money for its services bottom line but that if everybody used a different payment system, the experience on the iPhone would genuinely be degraded, if not fragmented. (The money doesn’t hurt, though.)
For Apple, the line has to be drawn somewhere. We just happen to be right on that line, discovering that it’s a lot wigglier, grayer, and more porous than we realized. And given how convoluted the interpretation and enforcement has been in this case, the reasoning for those wiggles is much easier to explain by looking at Apple’s business imperatives than it is by looking at Apple’s policies.
Google, for what it’s worth, draws its line at games. Other apps are free to link out to other places where people can sign up and pay for their accounts. Of course, even then there’s controversy: Fortnite was denied an exemption and then quit and finally rejoined the Play Store under duress. Android doesn’t restrict users from installing apps from non-Play Store sources, but it does make doing so feel dangerous and scary.
There’s a cognitive dissonance to calling Apple a monopolist. After all, people are free to buy an Android phone and well over 80 percent of smartphone buyers on the planet do just that. Apple’s marketshare in the US is significantly higher than it is in the rest of the world, but it’s not that high.
Ben Thompson at Stratechery has been writing about this for years — he recently pulled his 2018 article on this very issue out from behind the paywall. In it, he writes that “I don’t believe the relevant market is smartphones, but rather digital goods and services.” Indeed.
The monopoly Apple has is a monopoly over the iPhone itself, not over smartphones. And that is a very strange way to think about a monopoly. Shouldn’t Apple be free to make whatever rules it wants on the devices it sells? Is it unfair for Apple to demand a cut of all digital commerce on its platforms?
Here’s how Thompson answered that question, and I’m not sure I can say it better:
What should be restricted, though, is leveraging a win in one area into dominance in another: that means Apple winning in smartphones should not mean it gets to own digital payments, and inventing the App Store does not mean it gets 30% of all digital goods (or be allowed to diminish the user experience of its competitors).
The thing about Hey is that it was a very high profile app with a high-profile launch and high-profile executives getting attention over this issue. But it’s surely the tip of a growing iceberg and it feels like one of those unwritten interpretations or enforcement rules have changed. If you’re a developer who’s been caught up, feel free to reach out.
P.S. I asked Google a series of questions about its planned Meet integration into Gmail. Here’s the only one that really matters:
Do you have any comment on the concern that Google is using its market power on popular apps like Gmail and Google Calendar to give its own video conferencing app an unfair competitive advantage?
And here’s Google’s response, which I find to be disingenuous but am relaying in full:
Google Hangouts, with support for video meetings and direct/group messaging, has been in Gmail and Calendar for years (Gmail on web has had video calling for over a decade). We are now updating the video calling functionality that Hangouts provided with Google Meet and extending the experience to mobile. As always, we will continue to enable user choice and allow users to opt in or out of features to their liking. In addition, as G Suite is a platform, third-party apps have access to integrate with our applications through the G Suite Add-on framework.
As for why that integration needs to be a gigantic button at the bottom of your Inbox instead of just showing up in the sidebar, Google says “A tab is easier to access […] and testing shows that users like this method.” I suspect that real-world testing will show Google something very different.
Disclosure: My wife works on the Oculus Store, including setting policies for that store. I recuse myself from reporting on Oculus so I am not at all familiar with what Oculus’ policies are.
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Correction: The original story referred to Apple’s policies for both “Reader” apps and “business services” as “unwritten.” In fact Apple’s policies do refer to “Reader” apps (quotes included), but do not note clear distinctions for business services. The article has been updated with clearer details on that clause, and we regret the error.