With the passage of the European Union’s Digital Markets Act (DMA) in 2022, online platforms, including Apple, with EU sales of €75 billion or more and at least 45 million active monthly end-users will have to open their devices to third-party app stores .
The DMA aims to put an end to unfair practices by large online platforms, which have high levels of market power and act as so-called digital “gatekeepers”, providing important gateways between consumers and business users. The aim of the DMA is to make it easier for small and medium-sized technology companies to enter markets that are currently dominated by the large technology giants.
A provision of the law requires Apple to allow third-party app stores, such as Setapp, a subscription-based service from MacPaw for iOS and macOS apps, Steam, a popular video game distribution platform from Valve, and AltStore, a third-party app installer on his platform. In addition, Apple must also allow sideloading, that is, allowing users to install software they download from the Internet.
A number of popular gaming apps have been cut off the platform.
Although Apple has expressed privacy and security concerns about allowing alternative app stores and sideloading on its platform, and has not officially stated that it will comply with the law, the company is reportedly developing software to meet European Union requirements that to come into force in 2024. according to Bloomberg.
“This is about more competition in the digital space,” said Maciej Marek, senior associate in Dentons’ Competition and Antitrust Division. “There’s this perception that digital giants have gotten too big and there isn’t enough competition in this space.”
The DMA is the EU’s largest legislative effort to challenge the industry’s monopolization by Silicon Valley’s tech giants. While the EU has typically dealt with each antitrust problem individually, the DMA introduces sweeping reforms aimed at addressing widespread issues across the sector. But the key question is how will these new regulations really impact Apple, its users and the EU app market going forward?
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Benefits for Apple, users and developers
Apple’s App Store comes preinstalled on all iOS devices, and since it was the only app store available on iPhones and iPad devices, the tech giant was able to set the rules for distributing apps to users of its devices. In addition, Apple makes a huge profit from its App Store and takes up to 30% (15% for those with annual net sales less than $1 million) commission on all App Store transactions and regular subscriptions (subscription fees drop to 15% thereafter). %). first year).
While Apple may be a bit reluctant to meet the DMA’s requirements, Mykola Savin, Setapp’s head of product, believes it could actually benefit the company by allowing it to offer its customers more choices, new innovations, and an overall better experience. “We’ve seen cases like this before, for example with the new banking regulations that came with the Payment Services Directive 2,” he said.
The Payment Services Directive 2 (PSD2), which came into full effect on September 14, 2019, forced banks to release their data in a secure and standardized form for easier sharing with third-party providers (including fintechs offering new financial services). . Banks were initially reluctant to this idea for security reasons, but later realized that open banking allows them to offer their customers a wider range of services and facilitate partnerships with startups that offer new solutions.
“They were dealing with a lot of sensitive data related to bank accounts and transactions, but when it was properly regulated and opened up, we’re now seeing a lot of really useful products for budgeting, wealth management and peer-to-peer payments. So it’s a whole new industry, and that in turn makes for a better experience,” explained Savin.
Likewise, Savin pointed out that competition can often help to motivate a company to innovate. He cited the famous US antitrust lawsuit against Microsoft in the 1990s, which forced the company to allow other browsers on Windows instead of just its own Internet Explorer.
“If it was done right, and thanks to Microsoft they got it right, it was clear to users which browsers they should use as default. This really helped Chrome and other browsers rise again because it wasn’t about the product, it was about allowing users to choose the best service. Now Microsoft has moved to Edge and integrated OpenAI because they were forced to compete and innovate,” Savin said.
It should be up to the user where to get their apps from.
Ioannis Kokkoris, director of the Center for Commercial Law Studies at Queen Mary University of London, pointed to another benefit for Apple.
“It’s an advantage that Apple has more than one app store on its platform,” he said. “Perhaps there are certain applications that are not available in the Apple App Store because the developers only made them for the Google Play Store. By placing the Play Store on its platform, customers who would have purchased [Android] Phones are now more likely to buy iPhones because they can access these other apps.”
For example, some popular apps, particularly in the lucrative gaming space, are cut off the platform due to Apple’s strict app store rules. Fortnite, one of the most popular games, was banned from Apple’s App Store in 2020 because parent company Epic Games tried to trick users into buying virtual currencies on its own website, in violation of Apple’s terms and conditions.
Interestingly, statistics show that while iOS and Android users are roughly a 50/50 split in the US, iOS users in the EU currently account for only 34% of the total market share versus 64% for Android users.
In addition, the DMA will create many opportunities for smaller independent developers to experiment and find out what works for users, allowing them to build better products and try new business models and distribution channels, Savin said. For example, Setapp operates on a subscription basis, meaning app developers may be able to reach an audience that may not be directly looking for their app but would consider using it as part of a productivity suite.
According to Kokkoris, users benefit from allowing more competition in the market because they have more choices as to which app store they want to use. “And more choice is always better for consumers because there will be lower prices, more innovation and higher quality because you have more competition,” he said.
Security and privacy concerns are legitimate
Marek acknowledged that Apple’s concerns about user security and privacy are legitimate, adding that the DMA also acknowledges these concerns.
“The DMA clearly states that the gatekeeper may take such measures as are necessary and proportionate to ensure that sideloading and third-party app stores do not compromise its integrity and security,” Marek said. “But of course the question arises as to how exactly these concerns are addressed when implementing the requirements [of the DMA].”
Tests are necessary before an actual security solution is implemented.
Although the DMA does not include criteria to determine whether third-party app stores are secure, the European Commission will decide on the criteria based on Apple’s views as well as recommendations from technical experts, Kokkoris said.
“Apple knows how to address these security issues,” he said. “And I think Apple could put in some proper rules and guidelines for third parties to follow. And there should also be a general security awareness among users.”
Savin agreed that it’s important for users to be aware of security risks so they can make informed decisions about which applications to trust.
“Let’s leave the choice to the user. We are adults, we make our own decisions every day. On the internet, we choose which bank we trust, where we buy our groceries, and I think that should also apply to our data and where we get our apps.”
Marek added that the European Commission must ensure the security and integrity of the Apple ecosystem, otherwise users are likely to lose confidence in it: “And everyone would be worse off. Not just Apple, but developers and users as well,” he said. “They need to be very careful when implementing the provision as there will be a regulatory dialogue between the Commission and Apple on exactly how this provision should be interpreted and what exactly they should do to implement it and what safeguards they should put in place.”
Consequently, testing is necessary before an actual security solution is implemented – testing on the side of an app, Marek said. He added that once implemented, the commission should likely re-evaluate the solution to ensure the security and integrity of third-party app stores.
“And I think the Commission should be cautious in the sense that it should go step by step in implementing the solution. You should play it safe and then reevaluate [the solution] regularly. I think it would be a real shame if this only reduced the quality for the user.”
The DMA has the potential to further reduce Big Tech’s dominance within the EU and increase competition. But as I said, that might not be so bad for everyone involved. While the direct impact of the DMA on these major platforms’ business models is still unclear, it could prompt others to pass similar legislation. In fact, there are already examples of laws to curb anti-competitive practices in Germany and South Korea. Whatever happens, it is certain that the DMA will make the EU app market an interesting market for developers, users and Big Tech alike to watch.