On Tuesday, the EU announced it had opened two antitrust investigations into Apple — one concerning the company’s mobile payment system, Apple Pay, the other looking into Apple’s conduct in managing its App Store and how it treats third party developers.
For some apps, Apple requires developers to use its proprietary in-app purchase system and forbids developers from telling users in the app that they can make purchases outside the app (and thus let the developer avoid paying Apple’s fee). The European Commission will investigate whether these policies violate EU competition rules.
The announcement from the EU offers no details on what the Apple Pay investigation will entail, but it might look into the limits Apple has placed on access to the Near Field Communication (NFC) functionality — which enables contactless payments — of its iPhone and Apple Watch devices.
In the US, under the consumer welfare standard, an investigation like this would need to show (1) that Apple was dominant in a relevant product market, (2) that its conduct was anticompetitive, and (3) that it harmed consumers. In a hypothetical US case, Apple could plausibly argue in its defense that a tight integration between hardware and software is a key selling point for consumers, including Apple Pay for payments. Apple might also point out that a tightly curated App Store benefits consumers by improving security and increasing trust.
In the EU, by contrast, regulators don’t need to prove consumer harm so long as they can meet the first two conditions. If a company is shown to be dominant in a market, then abuse of that position via unfair conduct toward competitors is a violation of EU antitrust laws. However, if the EC decides to bring a case against Apple, it will still need to overcome a significant hurdle: Apple is not dominant in the European market.
According to data from StatCounter, Apple iOS has less than 30% of the European mobile operating system market. By comparison, Google’s Android has more than 70% of the market.
The European Commission’s guidance on “abusive exclusionary conduct by dominant undertakings” is clear on what cutoff it uses to determine an absence of market power (emphasis added):
The Commission considers that low market shares are generally a good proxy for the absence of substantial market power. The Commission’s experience suggests that dominance is not likely if the undertaking’s market share is below 40% in the relevant market.
Apple’s market share in the operating system market is likely a rough proxy for its share of the app store market, as the App Store is tightly integrated with iOS and the Play Store is tightly integrated with Android. An antitrust case related to payments might be even harder to make, as Apple Pay accounts for only about 5% of global card transactions. Even if its share in Europe is double or triple its global rate, Apple is far from being a dominant player in payments.
So how might the European Commission overcome its burden and find that Apple has a dominant market position?
The EC’s Android decision is instructive here. In that case, Google was fined $5 billion for illegally tying its Chrome browser and search apps to its Android operating system. The EC narrowly defined the market as only licensable mobile operating systems. Since iOS is exclusive to Apple and non-licensable, the EC was able to conclude that Google had a virtual monopoly on the licensable mobile OS market. The EC reached this decision despite that fact that according to its own market survey, 89 percent of respondents said Android phones compete with iOS phones. (Google is appealing the decision and many commentators believe the case is on shaky ground.)
As Thibault Schrepel and Nicolas Petit pointed out in recent comments to the European Commission, the market definition in the Android decision “leads to curious implications such as the idea that a merger between Apple and Google in smartphone OS” would be “unproblematic.” In spite of these logical inconsistencies and common sense contradictions, it is likely the EC will conclude once again that Apple and Google are not competitors in this market and find that Apple has a near-monopoly in non-licensable mobile operating systems.
While there are certainly individual cases where Apple has been inconsistent or imperfect in its enforcement of App Store policies, in general, Apple has created a trusted and privacy-conscious platform for users and developers to transact. As Benedict Evans said, “[C]urated app stores have been hugely, unambiguously good for users and software developers, and especially for user security and privacy.” In 2019, the App Store facilitated more than half a trillion in billings and sales for third parties. Since Apple doesn’t charge a commission on the sale of physical goods and services, for 85% of that economic activity, the value accrued entirely to the third party.
This data is in line with a report last year from Michael Mandel which found that a “preliminary scenario analysis suggests that the revenues collected by the app stores could be in the range of 4-7% of the value generated by all apps in the app stores, including both free and paid.” This is a far cry from the 30% App Store “tax” Apple critics like to tout. Capturing a single-digit percentage of all the value created seems like a reasonable exchange for developing and maintaining a safe and secure global platform for users and developers.
