How much is trust worth? A third of your transactions, according to Google and Apple – and zero rupees, according to Paytm. Apple and Google both charge a 30 per cent commission on paid downloads and in-app payments on apps downloaded from the two stores. Paytm’s freshly launched “mini app store” – a place to use custom-built mobile websites that feel like apps – charges no commissions.
Under the pressure that was ramping up, Google announced that it would defer the enforcement of its commission in India till April 2022.
Apple’s and Google’s 30 per cent commission is applicable to payments for digital goods and services, not physical ones. Thus, payment for streaming songs through Spotify attracts the commission, but payment for buying food through Zomato does not. Apple has claimed that it charges this amount for the trust that consumers repose in its app store. It claims that it ensures quality, security and privacy, which enables more people to download more apps, and therefore the 30 per cent cut is justified.
The app store duopoly
Many app developers have complained about the 30 per cent cut. Some Indian start-ups have demanded an Indian app store as an alternative to Apple and Google, and Paytm’s mini app store was launched as a direct competitor. Reports suggested that the government is considering building an Indian app store under the Aatmanirbhar App Scheme and making it mandatory for Android phones to pre-install this store.
The solution of providing “Indian app stores” as an alternative does not recognise that there are already several alternative app stores in the market. It also misses out on what the uproar over the commission actually reveals –- the dire need to regulate platforms in a way that encourages competition.
Apple does not allow iPhone users to download apps from anywhere except its store. It does not allow apps to sell their services through their own payment system either. Apple does not even allow apps to inform users about alternative methods of paying for their services.
Google allows downloads from other sources on Android phones, but recently clarified that apps must use Google’s own payment system and cannot escape the 30 per cent commission. App developers can, however, inform users about alternative payment methods that are available.
The question here is not whether the 30 per cent fee is too high. Any answer to that can only be arbitrary or contextual. Apple, for instance, claims that its cut is lower than what game distributors used to charge before Apple came along.
The question that regulation has to tackle is why apps have no option but to pay the fee, and why users are not given an opportunity to determine how much trust is worth to them. While the government has correctly identified that a lack of competition is a problem, its solution sidesteps ways in which the existing market can be made competitive. For instance, the government could demand that Apple unbundle the app store from iPhones and provide users options for other app stores. It can also demand that both Apple and Google unbundle payments systems from their app stores. There is no logical reason why these services must be bundled. Bundling happens only because Apple and Google have a stranglehold on the operating systems that run on phones. Since apps must also run on these two dominant platforms, the two companies use bundling as a means of capturing market share.
Regulation, but how?
To avoid regulatory action, Google has already announced that it will make it easier for other app stores to be downloaded on Android phones. However, this announcement is thin on details. The fact remains that app developers and users have to still depend on Google’s largesse for this action, which can be withdrawn at any time. The same holds for Google’s deferral of the enforcement of its commission.
The government should consider bringing regulations on anti-competitive defaults. For instance, the fact that Google’s Play Store is the default app store on Android means that it enjoys a captive market. The most famous case of bundling as anti-competitive behaviour was United States v. Microsoft Corp (2001), where Microsoft was accused of crushing competition by bundling Internet Explorer and Windows as an integrated product. Such integration was found to have made it inordinately difficult for other browsers to compete with Internet Explorer.
A ruling by Russia’s Federal Antimonopoly Service similarly found that Google’s bundling of Google’s search engine with the Android Operating System was anti-competitive even if Google allowed other search engines to be downloaded on Android. It required Google to show users a screen that asked them to choose between different search engines instead of providing Google as the default search engine. This overturned Google Search’s monopoly in the Russian market.
The European Union also requires Microsoft to provide a choice screen for browsers for Windows users. Similarly, Indian regulators can mandate comparable choice mechanisms that allow users to choose any app store instead of being directed to the default one. This will foster competition and innovation among app stores in a way that merely introducing a local app store cannot.
Such a move would allow app developers to sell their apps through the platform that provides their preferred trade-off between trust and cost, or through their own websites. It allows users to freely determine the value they put on trust.
This would not, however, automatically overcome the network effects of app stores. Most app developers make apps for Apple’s and Google’s stores as most users use these stores and vice versa. Developing an app separately for a different app store might be too expensive if these apps have a limited user base. Also, a user base cannot be built unless apps are built for and released on this new app store. A new competitor would need to build trust among users and perhaps charge a significantly lower commission to break into this market. Nevertheless, the climb will be less uphill for them if prospective customers were offered choice screens. This would significantly level the playing field.
For its part, Paytm seems to be using its own network effects to propel the mini app store into prominence. Paytm has said that it will be a “seamless experience” for Paytm users, and hundreds of developers have launched mini apps on the store.
Mini apps, of course, are not perfect substitutes to real apps. They have limited functionality in collecting data and using push notifications. The options of developer languages are also limited. App developers will eventually want their app to be installed on your phone, rather than to be accessed through Paytm’s gateway. Paytm has provided one alternative, but an alternative that targets the entire market of downloadable apps can only be successful with the help of friendly regulation.
Concerns raised by some start-ups also point towards a need for algorithmic transparency for app stores. Start-ups have complained that Google uses advertisements on Play Store to advertise against competitors to its apps such as Google Pay. They also complain that Google’s competitors are prevented from using similar advertisements against Google in the same way.
It is obvious that the government must demand transparency in the working of the Play Store to determine whether Google uses Play Store to unfairly bias users towards its own apps. Without such transparency, other players in the market have no option but to take Google at its word that it does not bias advertisements or search results against its competitors.
Disturbingly, international e-commerce rules pushed by the United States and its allies at the World Trade Organization would make it illegal for any national government to mandate such disclosures of algorithms. Therefore, countries that wish to retain control over their own market conditions must oppose such an agreement at the WTO.
India’s start-up and digital ecosystems would be well served by astute regulations that recognise the unique characteristics of platform monopolies. The development of an Indian app store, while not damaging, will not necessarily solve the problems that arise from the emergence of platform monopolies. The government’s intention to demand pre-installation of such an app store might hurt Google’s monopoly now, but will do nothing to prevent another from taking its place. A smart approach to regulation — not a knee-jerk response — would be one that serves the long-term interests of promoting competition and innovation.
(Jai is a Senior Resident Fellow at the Centre for Applied Law and Technology Research at Vidhi Centre for Legal Policy. Views are personal)