Tech Regulation Digest: The Walled Garden’s Side Door – Apple’s App Store Battle

Overview

Apple’s business ecosystem is commonly referred to as a ‘walled garden’—with Apple hardware, software, and services all existing in a closed environment with controlled access to third parties. The App Store illustrates the metaphor well; it is the sole platform for distributing and downloading applications on Apple mobile devices—with superior privacy and security standards offered as the primary justification. However, with competition concerns top of mind for policymakers around the world, Apple’s App Store has become a new target in recent antitrust legislation.

Background

It is not the first time that Apple’s App Store has been at the center of controversy, with prior antitrust settlements forcing Apple to change the fees they charge developers and allow for subscription-based apps to provide users with ways to pay outside of the App Store. However, even with these changes, the platform is again at the forefront of antitrust debates.

This month at the International Association of Privacy Professionals Conference, Apple CEO Tim Cook spoke on legislative attempts to alter the Apple ecosystem. Cook said, “Here in Washington and elsewhere, policymakers are taking steps in the name of competition that would force Apple to let apps on the iPhone that circumvent the App Store through a process called sideloading”. The ‘steps’ Cook is referring to is the proposed Open App Markets Act, which was approved by the Senate Judiciary Committee in February, that aims to increase competition by allowing sideloading¹. Similarly, the European Union’s (EU) proposed Digital Markets Act includes a sideloading requisite, however the text it is not yet final. While certain policymakers have argued that allowing alternative app downloading will increase competition and reduce fees for users, Apple has consistently advocated that this would lead to larger problems for consumers as it increases cybersecurity and privacy risks through potential malware attacks.

Why is This Important?

Adding a side door to Apple’s walled garden will have an impact on businesses and consumers alike, however whether it is net positive or negative will take some time to become clear. The tension between competition and privacy is well documented in policy discussions related to the digital economy and past regulatory interventions in favor of one have led to poor outcomes for the other. For example, recent empirical research found that the EU’s data protection law, GDPR had a chilling effect on innovation in the app market, with entry of new apps falling by half in the period after the law was introduced.

What Happens Next?

While Apple has responded to scrutiny surrounding the App Store in the past by implementing changes, it is unclear whether it will do so on this issue². On the legislative front, the Open Markets Act will be debated in Congress this year, and the Digital Market Act looks set to permit sideloading in the European Union. Apple will likely continue to advocate against sideloading requirements in other jurisdictions.

^{1. Sideloading is the practice of installing software on a device without using the approved app store or software distribution channel.↩}

^{2. In August 2021, Apple reduced the fee it takes from first year in-app subscriptions of news publishers from 30 percent to 15 percent, and pledged to keep the 15 percent fee for companies making under $1 million on the App Store for at least three years. ↩}