Should App Stores be regulated like Airports – on a cost to serve basis?

Hitanshu Gandhi  
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Apple & Google app stores are de-facto duopolies, much like airports So should they function on a cost to serve model? Why should digital “goods” consumers subsidize your favorite shopping or social media or email or enterprise app?

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Fortnite just kicked off an Epic Battle Royale with Google & Apple. They unveiled in-app payment modes bypassing Google/Apple’s 30% commission which led to them being banned by Google/Apple. This has gone viral and a big lawsuit has been filed.

In my mind – Apple & Google app stores are de-facto duopolies, much like airports and should be price-regulated similarly.

Do you pay % of your luggage value as baggage fees to the airport – so should Epic pay 30% to app stores? We must debate as a society whether digital monopolies must charge on a cost to serve model.

Before we jump in – please note that I am an iFan – we have bought 2 iPads, 4 iPhones and one Mac with our personal money. So I am not someone averse to paying for value.

Today’s app stores are de-facto digital gatekeepers. In a world of unending cybercrime, Apple & Google Play stores are practical duopolies that work really hard to keep the common person safe online.

The big problem is with Apple – Google still allows 3rd party app stores or direct downloads. The only way to work with Apple users is be in the App Store.

I simply recognize the regulatory concern here and think that the time is ripe to balance Apple’s costs of infra, and of administering the 84% free ad-supported apps vs blockbuster apps like Fortnite with their loyal following independent of Apple.

Now let’s examine how a “practical” monopoly that we have used – Airports!

Airports charge businesses within their premises in two ways:

  • Revenue Share: Businesses that it can drive but it outsources to a specialist like Duty Free
  • Fixed fee: Businesses that happen regardless or have a regulatory function. Think luggage screening. Sorting & Screening cargo is critical but the airport bills per aircraft, not basis the value of the luggage.

Eventually we must consider the App (Play) stores as public goods that must operate on a cost to serve model. Consider:

  • Is the fees charged to Fortnite in the same ballpark as Apple’s costs in vetting the app / distributing it?
  • Is Fortnite growth attributable only to App Store listing or its inherent viral nature / brilliant design?
    • I strongly believe it is the latter since my 9 year old son installed it because his friends are using it. He’s HOOKED – he only watches Fortnite tactic videos on Youtube in his non-gaming screen time!


On the other hand, for the long tail of independent reader / ad supported / x-platform / physical product apps – Apple spends much more money / time vetting them than the money it makes (mostly zero)

Why should Fortnite and all digital “goods” consumers subsidize your favorite shopping or social media or email or enterprise app? What do you think?

Addendum:

Do note that there is strong historical precedent for regulatory oversight. Microsoft was forced to un bundle internet explorer which was a much weaker “monopoly” situation, with negligible revenues at stake (in comparison).

I strongly recommend listening to Ben Thompson‘s Exponent podcast who is by and far the best thinker on this subject in my experience.

Fortnite declaring war on all ecosystems is a well planned move. They filed a 65 page lawsuit, launched a viral video and pushed their payment method through surreptitious in game downloads across all platforms all at once. This has been a long time coming. Unlike Spotify who complained legally and setup a blog story – this is truly an act of war on the platforms. This will make for an interesting precedent. Fortnite video: https://www.youtube.com/watch?v=euiSHuaw6Q4 Spotify blog: https://www.timetoplayfair.com/

PS: I have NO hands on experience in developing apps – I just know that developer licenses are charged $99 and Apple charges only on in-app purchases. Happy to update as required. Just tweet at me for real-time updates!

FAQs:

  1. The App store was designed to facilitate the distribution of digital goods, so why should they not pay?
    1. My take is simple – to quote a common Indian example, it is like Maggi, India’s favorite noodles brand unilaterally increasing their margin with all retailers. Now they can argue as much as they want, but consumers will buy Maggi from the convenience store down the road rather than seek alternatives in supermarkets.
    2. Is that how a partner would behave? Hell No – like I said, this is war!
  2. What are the long term technical ramifications of Epic’s move on the app store ecosystem? Here’s stuff I heard, which I have no technical way of verifying:
    1. It will be plugged – You can be rest assured that life is about to get much much harder for the rest of the gaming ecosystem, especially the big guns, say PubG – Apple will minimize the partners’ ability to push “in-app” updates
    1. There would be stricter QA resulting in iterations & delays in upcoming updates
    2. Can it effect the listing of other Epic Games franchises? There is no evidence so far – their apps are still listed, but who knows how the legal battle may be played out.