Apple's app store is suddenly a flashpoint in the Big Tech debate

Apple has been here before, but the circumstances have changed. Government regulators could take action on year-long complaints about how the company runs its app store.
Image: CEO Tim Cook speaks at an Apple event at their headquarters in Cupertino
CEO Tim Cook speaks at an Apple event at their headquarters in Cupertino, California, on Sept. 10, 2019.Stephen Lam / Reuters

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By David Ingram

Apple has been called a lot of different names over the years. On Tuesday, an executive for a new email app added another one to the list: “gangsters.”

“There is no chance in bloody hell that we're going to pay Apple’s ransom,” wrote David Heinemeier Hansson, the chief technology officer of Basecamp, the Chicago tech company behind Hey, a new email app aimed at people willing to pay $99 a year for aggressive filtering of their inbox. "I will burn this house down myself, before I let gangsters like that spin it for spoils."

The online vitriol began earlier this week when Hey said that Apple was forcing it to make changes so that Apple would get a cut of its sales. Hey had planned to sign up subscribers through a website with no involvement by Apple except distributing the app through Apple’s app store, similar to how many people subscribe to Netflix or other subscription services.

Apple charges a commission of 30 percent on users who subscribe through the app store. Hey said Apple threatened to block the app if it didn’t comply.

And Apple isn’t backing down. In an email Thursday to Basecamp chief executive Jason Fried, shared by Apple with NBC News, Apple said that the Hey app needed to change to include in-app purchasing as an option for users.

Apple has been here before. Many companies have bristled at what they call Apple’s “tax” and the policies Apple has to ensure money flows through its platform. Last year, Spotify complained about it to European antitrust authorities, while Apple countered that Spotify pays only a small amount.

But the circumstances have changed. In Europe, complaints about Apple have ballooned into two newly announced investigations, one into the app store and another into Apple Pay. In the United States, antitrust enforcers are scrutinizing how Big Tech firms wield their power, from mergers to their lucrative advertising business. The Department of Justice, the Federal Trade Commission and House antitrust investigators have made Apple part of their broad review of competition in the tech sector.

House Antitrust Subcommittee Chairman David Cicilline, D-R.I., called Apple’s commission “highway robbery” in an interview on The Vergecast podcast posted Thursday.

Apple isn't the only big tech company facing antitrust concerns. The CEOs of Amazon, Facebook and Google’s parent company have agreed to testify in a congressional hearing, but Apple CEO Tim Cook is holding out, Politico reported this week.

The Hey app has made the blowback even more visible and sparked the attention of other companies. Epic Games, the maker of the game Fortnite, said Tuesday that Apple was being an “extractive” monopoly, while Match Group, the parent company of Tinder and OKCupid, said consumers were paying extra as Apple squeezed certain industries.

“We’re acutely aware of their power over us,” Match Group said in a statement to Axios. The company noted that only some apps, deemed “digital services,” pay a commission to Apple, while others like ridesharing apps pay nothing.

The situation has also kicked off a discussion within the tech community, with comparisons that may be ominous for Apple.

“I would go so far as to say that executives in the tech industry are more afraid of Apple in 2020 than they were of Microsoft two decades ago,” Ben Thompson, an independent tech analyst, wrote Thursday in his popular industry newsletter Stratechery.

The Justice Department sued Microsoft in 1998, alleging violations of antitrust law in a case that had long-term implications for the company and the tech industry.

Thompson called Apple’s app store review “an absolute gatekeeper” and said “the number of ways that Apple can retaliate are so varied and hard to verify, that no one is willing to publicly breathe a word against the company.”

Microsoft itself is worried about app stores, Brad Smith, the company’s president, said in an online event Thursday hosted by Politico.

“Increasingly, you are seeing app stores that have created higher walls and more formidable gates to access to other applications than anything that existed in the industry 20 years ago,” Smith said. “The time has come, whether talking about D.C. or Brussels, for a much more focused conversation about the app stores.”

Part of the issue is that Apple’s rules for who pays the 30 percent and who doesn’t aren’t always consistent or transparent, said John Bergmayer, legal director for Public Knowledge, an advocacy group in Washington focused on consumers and tech. Google’s Gmail has a paid version, but Apple doesn’t share in that revenue or publicly explain the difference, he said.

The harsh scrutiny for Apple’s app store could hardly come at a worse time for the company, as legal challenges pile up.

Two app developers filed a lawsuit last year in a case that makes similar allegations about the app store. It’s still pending in federal court in Oakland, California.

And the company was already a defendant in a proposed class-action lawsuit brought by consumers, also in Oakland federal court. Like the app developers, the consumers allege they’re being overcharged in the app store by an Apple-run monopoly, and last year the Supreme Court ruled their suit could move forward toward a possible trial.

Apple lost an earlier antitrust case at the Supreme Court four years ago, when the high court upheld a decision that Apple conspired with book publishers to raise the price of e-books.

“An expanding list of antitrust complaints does not work in any firm’s favor,” Diana Moss, president of the American Antitrust Institute, said in an email.

She said there were now “many pathways” for an antitrust case to move forward against Apple, and that the company’s past decisions in the app store may be telling. “That evidence could set some unfavorable context in future antitrust cases,” she said.

But any case may be a steep climb, said Amitai Aviram, a University of Illinois law professor. He said Apple can point potential benefits to consumers from a robust app store review, such as ensuring the integrity of apps, and he said higher prices aren’t themselves illegal even if Apple has a monopoly.

“If excessive pricing is an antitrust offense, courts and antitrust agencies will need to determine what is the proper price, which would turn them into price regulators of all markets, something they are not equipped to do,” Aviram wrote in an email.

Apple did not immediately respond to a request for comment Wednesday, and it is not clear if the company is considering changes to its policies.

Apple has been vocal in defending its app store. On Monday, it said in a news release its “app economy” was responsible for $519 billion in economic activity, including everything from Uber and Lyft rides and airline tickets bought through an app to in-app advertising and paid gaming apps.

Apple charges a flat 30 percent commission on paid apps. And for apps that have ongoing subscriptions, Apple charges 30 percent for the first year and 15 percent for successive years — if people sign up for the subscriptions through the app store. For people who get subscriptions on a web browser or another way, as Hey planned, Apple gets no cut.

Apple says that app developers get plenty for what they pay, including tools and software kits that make their apps usable and better, free marketing in the app store and camps for entrepreneurs. Consumers get quality control and security assurances, it says.

“We carefully review each app and require developers to follow strict guidelines on privacy, design, and business models,” the company says on a website dedicated to explaining and defending the store’s practices.

Its review team covers 81 languages and since 2016 has removed more than 1.4 million apps that were out of date or not working, Apple says. “This helps unclutter the search for new apps, and makes it easier for users to find quality apps.”

Olivia Solon and Dylan Byers contributed.