The European Commission (EC) has taken a significant step in regulating tech giants, with Apple’s App Store practices under fire. The EC’s preliminary findings allege that Apple’s App Store rules violate the newly implemented Digital Markets Act (DMA). This move marks a potential turning point for how tech companies operate within the EU, with hefty fines on the horizon for non-compliance.
The DMA, a recently enacted EU regulation, aims to curb the dominance of major tech companies and foster fair competition within the digital market. The EC’s investigation focuses on two key areas where Apple’s App Store policies potentially breach the DMA:
Restricted Information for Consumers
The EC argues that Apple’s App Store rules unfairly prevent app developers from informing users about alternative purchasing options outside the App Store. Currently, developers cannot advertise different prices or direct users to external payment methods within their apps. While Apple recently allowed developers to include links to their websites, the EC views these mechanisms as insufficient due to limitations and restrictions.
Commissions on External Transactions: Even if developers direct users to their websites to process transactions, they are still obligated to report these transactions to Apple and pay a commission. While Apple recently waived a portion of the payment processing fee for web purchases, the EC maintains that this doesn’t go far enough in terms of complying with the DMA.
Apple has scrambled to adjust its App Store policies following the EC’s preliminary findings. The company claims, “We are confident our plan complies with the law, and estimate more than 99% of developers would pay the same or less in fees to Apple under the new business terms we created.” However, the EC remains unconvinced, highlighting the need for further modifications to fully comply with the DMA.
Beyond the App Store: Scrutinizing the Core Technology Fee
The EC is also delving deeper into Apple’s recently introduced Core Technology Fee (CTF). This fee, amounting to €0.50 per app after one million downloads, raises concerns about its fairness towards EU developers. While Apple has implemented exemptions for non-commercial apps and a grace period for small developers, the EC will investigate if the CTF aligns with the DMA’s principles of fair competition and balanced market dynamics.
Another critical aspect of the EC’s investigation is the user experience when attempting to install app stores outside the official App Store on Apple devices within the EU. Currently, installing alternative app stores like AltStore, Setapp Mobile, or Aptoide involves a cumbersome process filled with browser errors, navigating settings menus, and accepting multiple pop-ups. This “multi-step user journey” raises concerns that Apple might be intentionally discouraging users from exploring alternative app stores, potentially hindering competition and violating the DMA’s spirit.
The EU Takes a Stand: Statements from Top Officials
The EU’s leadership has been vocal in its criticism of Apple’s practices. Thierry Breton, the EU’s Internal Market Commissioner, stated, “For too long, Apple has been squeezing out innovative companies — denying consumers new opportunities & choices.” Margrethe Vestager, the Commission EVP in charge of competition policy, echoed these concerns, adding, “We are concerned that Apple designed its new business model to discourage app developers and end users from taking advantage of the opportunities afforded to them by the DMA.”
Vestager further emphasized the core principles of the DMA, highlighting, “Gatekeepers have to allow for alternative app stores to establish themselves on their platform, and for consumers to be fully informed about the offers available to them so that they can freely choose where they want to source their apps, and at what conditions.”
Apple faces significant financial risks if found in breach of the DMA. The regulation allows for fines of up to 10% of a company’s global annual turnover. Considering Apple’s massive revenue stream, such fines could translate into billions of dollars. This underscores the seriousness of the EC’s findings and investigations.
Apple’s Opportunity to Rectify: The Road Ahead
Apple now has the chance to formally respond to the EC’s preliminary findings in writing. The final decision on the matter is expected within a year of the investigation’s launch. This timeframe provides Apple with an opportunity to negotiate, make further adjustments to its App Store policies, and potentially avoid hefty fines.
The EU’s scrutiny of Apple’s App Store practices signifies a pivotal moment for both the company and the broader tech landscape in Europe. Apple’s response and its ability to adapt its business model to comply with the DMA will be closely monitored in the coming months.
