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Insights into Editorial: Making them pay: on regulating app store operators

 

Context:

South Korea’s parliament approved a bill that bans major app store operators such as Google and Apple from forcing software developers to use their payment systems, effectively stopping them from charging commissions on in-app purchases.

After the vote from the legislation and judiciary committee to amend the Telecommunications Business Act, dubbed the “Anti-Google law,” the amendment will come to a final vote in parliament.

 

What have Google and Apple been doing?

Google’s Play Store and Apple’s App Store strictly regulate how apps in their environment charge money from their users.

Till recently, app publishers had been allowed to deploy only Google’s and Apple’s proprietary payment systems to collect money from app store users for digital purchases, which include the apps themselves, or ‘in-app purchases’ such as additional content or services.

Google and Apple charged a 30% commission on all such purchases. As many app developers started to push back against what they said was a steep commission, Google announced in March this year that it was cutting the commission to 15%.

Phones with Google’s Android can ‘sideload’ apps; that is, download and install apps from websites or other sources. Android phones also support downloads from multiple app stores.

 

What makes the South Korean law important?

It is the first legal restriction on Google and Apple’s control over how money changes hands within their app stores.

This could become a template for the many countries that have been looking at ways to control the clout of these online behemoths that take a cut from the digital sales of everyone from the gaming industry to publishers.

The European Union has a draft Digital Markets Act in the pipeline that would force large internet “gatekeeper companies” that act as platforms for others to conduct transactions to change their business practices and level the playing field for smaller companies.

 

To check unfair use of market position:

  1. The new law is also a check on the unfair use of market position. With digital commerce becoming ubiquitous, and with the Googles and the Apples controlling this experience through their platforms, it has become imperative for government laws to regulate them.
  2. South Korea happens to be the first off the block. But a lot of other jurisdictions are not far behind.
  3. Australia, which only recently brought in a law to make Internet platforms pay media companies for displaying their content, is now reportedly thinking of bringing digital payment services such as Apple Pay, Google Pay and WeChat Pay under its regulatory ambit.
  4. The European Union’s draft law seeks to make these large platform companies, “gatekeepers” as it refers to them, comply with a set of dos and don’ts that gives the smaller companies a fair chance. The EU proposal is also centred around customers having more choice.
  5. In the U.S., recently, three Senators brought in a Bill much along the same lines. It aims “To promote competition and reduce gatekeeper power in the app economy, increase choice, improve quality, and reduce costs for consumers.”

 

Indian market has been more price-sensitive:

  1. Most of the Indian app developers have been at the receiving end of arbitrary and highhanded enforcement of policies and anti-competitive practices of Apple and Google app market monopolies.
  2. In the absence of enabling legislation, our app developers will always find it difficult to even pick up grievance redressal, forget challenging anti-competitive practice.
  3. India is a more price-sensitive market and most Indian companies/app developers operate on thinner margins making it a lot more difficult to navigate the 30 per cent tax. The payment cycles further exacerbate the issue by adding to cash flow pressures.
  4. Indian developers see a lot of hope in the Korean law as it now gives India’s anti-trust regulator Competition Commission of India (CCI) an important precedent to follow.
  5. CCI had convened a meeting to understand the issue better. It has also been doing independent studies to look at what is the right approach.
  6. If CCI actually gives clear direction that there has to be a choice provided to the developers, whether it is for the alternative payment or for the distribution, that would be huge. That’s what we are hoping to see at some point.

 

Needed legislations in India also: To regulate apps:

  1. South Korea’s newest legislation, dubbed the ‘anti-Google’ law, is something that Indian lawmakers should consider emulating.
  2. In India too, the angst of app developers has been evident in recent times.
  3. According to a report, Apple is facing an antitrust challenge in India from a Rajasthan-based non-profit called ‘Together We Fight Society’ on this issue.
  4. It remains to be seen if the regulator, the Competition Commission of India, orders an investigation.
  5. Last year, it started investigations into similar allegations against Google. A law to regulate app store operators is not a drastic departure from this government’s thinking on such issues.
  6. Only recently, it promoted the setting up of the Open Network for Digital Commerce to “democratise e-commerce” and “to provide alternatives to proprietary e-commerce sites”.
  7. The challenge, however, is to protect the smaller sellers and developers without undermining the ecosystem for technological innovation.

The present legislation is a step in the right direction, but it doesn’t solve the problem.

App developers want clear, fair rules that apply to all apps. Our goal is to restore competition once and for all, not one arbitrary, self-serving step at a time. We will continue to push for a real solution.

 

Conclusion:

This historic action and bold leadership by South Korean lawmakers mark a monumental step in the fight for a fair app ecosystem.

The legislation passed today by the Assembly will put an end to mandatory in-app purchase in South Korea, which will allow innovation, consumer choice, and competition to thrive in this market.

We hope that the passage of this bill will ensure the rights of creators and developers, and create a fair app ecosystem, where users can enjoy diverse contents at lower prices.