With the passage of the European Union Digital Markets Act (DMA) in 2022, online platforms, including Apple, with an EU turnover of €75 billion or more and at least 45 million active monthly end users must open their devices to third-party app stores.
The DMA aims to end unfair practices by large online platforms that have a high degree of market power and function as so-called digital “gatekeepers”, providing important gateways between consumers and business users. The purpose of the DMA is to make it easier for small and medium-sized technology companies to enter markets currently dominated by the big technology giants.
Under a law, Apple must allow third-party app stores such as Set up appa subscription-based service from MacPaw for iOS and MacOS applications, Steama popular video game distribution platform from Valve, and AltStore, a third-party app installer, on its platform. In addition, Apple must also allow sideloading, i.e. allow users to install software they download from the Internet.
A number of popular gaming apps have been cut off from the platform.
While Apple has raised privacy and security concerns about allowing alternative app stores and sideloading on its platform and has not officially stated that it will comply with the law, the company is reportedly developing software to meet the requirements of the European Union which are expected to come into force in 2024. according to Bloomberg.
“This is all about more competition in the digital space,” says Maciej Marek, a senior associate at Denton’sCompetition and Antitrust Department. “There is a perception that digital giants have become too big and there is not enough competition in this field.”
The DMA is the EU’s largest legislative effort to date to tackle industry monopolization by Silicon Valley’s tech giants. While the EU has typically dealt with each antitrust issue individually, the DMA is implementing comprehensive reforms designed to address widespread problems across the industry. But the key question is: what impact will these new rules have on Apple, its users and the app market in the EU?
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Benefits for Apple, users and developers
Apple’s App Store comes pre-installed on all iOS devices, and since it was the only app store available on iPhones and iPad devices, the tech giant has been able to set the rules for distributing apps to users of its devices. In addition, Apple generates a huge profit from its App Store, receiving up to 30% (15% for those with less than $1 million in annual net sales) commission on all App Store transactions and regular subscriptions (subscription fees drop to 15% after the first year).
While Apple may be somewhat resistant to the DMA’s requirements, Mykola Savin, Setapp’s product lead, believes it can actually benefit the company by providing its customers with more choices, new innovations, and an overall better experience. “We have seen cases like this before, for example with the new banking regulations that came with Payment Services Directive 2,” he said.
Payment Services Directive 2 (PSD2), which came into full effect on September 14, 2019, forced banks to release their data in a secure and standardized format to make it easier to share with third-party providers (including fintechs offering new financial services) . At first, banks resisted this idea due to security concerns, but they later found that open banking allows them to offer a wider range of services to their customers and enables partnerships with startups that offer new solutions.
“They had to deal with a lot of sensitive data in terms of bank accounts and transactions, but when it was properly regulated and opened up, we’re now seeing a lot of really useful products for budgeting, wealth management and peer-to-peer payments. So it’s a whole new industry and this again translates into a better experience,” explains Savin.
Similarly, Savin pointed out that competition can often help a company innovate. He cited the famous US antitrust case against Microsoft in the 1990s, which forced the company to allow other browsers on Windows, rather than just its own Internet Explorer.
“When it was done right, and to Microsoft’s courtesy they got it right, it was a clear choice for users as to which browsers to use as default. This really helped Chrome and other browsers get back on their feet because it wasn’t about the product, it was about letting users choose the best service. Now Microsoft has moved to Edge and they are integrating OpenAI because they were forced to compete and innovate,” said Savin.
It should be up to the user where they get their apps from.
Ioannis Kokkoris, director of the Center for Commercial Law Studies at Queen Mary University of London, pointed to another advantage for Apple.
“There is an advantage that Apple has more than one app store on its platform,” he said. “Maybe there are certain applications that are not available in the Apple App Store because the developers made them only for the Google Play Store. By putting the Play Store on its platform, customers would have bought it [Android] phones are now more likely to buy iPhones because they have access to those other apps.
For example, a number of popular apps, especially in the lucrative gaming sector, have been cut off from the platform due to Apple’s strict App Store rules. Fortnite, one of the most popular games, was banned from Apple’s App Store in 2020 because its parent company, Epic Games, tried to get users to buy virtual currency on its own website, in violation of Apple’s terms and conditions.
Interestingly, statistics show that while iOS vs Android users are about 50/50 split in the US, in the EU iOS users currently represent only 34% of the total market share versus 64% Android users.
In addition, the DMA will create many opportunities for smaller independent developers to experiment and find out what works for users, allowing them to create better products and try new business models and distribution channels, Savin said. Setapp, for example, works on a subscription basis, meaning app developers could potentially reach an audience that might not be looking for their app directly, but would consider using it as part of a productivity suite.
Allowing more competition in the market benefits users because they have more choice in the app store they want to use, Kokkoris said. “And more choice is always better for the consumer because there will be lower prices, more innovation and higher quality because you have more competition,” he said.
Concerns about security and privacy are legitimate
Marek acknowledged that Apple’s concerns regarding security and user privacy are legitimate, adding that the DMA acknowledges those concerns as well.
“The DMA clearly states that the gatekeeper can take actions that are necessary and proportionate to ensure that sideloading and third-party apps do not compromise integrity and security,” said Marek. “But the question is, of course, how exactly you address those concerns when you implement the requirements [of the DMA].”
Testing is necessary before implementing an actual security solution.
While the DMA does not include criteria for determining whether third-party app stores are safe, the European Commission will decide on the criteria based on Apple’s opinion and based on the recommendations of technical experts, Kokkoris said.
“Apple knows how to handle these security issues,” he said. “And I think Apple could introduce some good rules and guidelines for third-party stores to follow. And there should also be general user awareness about security.”
Savin agreed that it’s important for users to be aware of security risks so they can make informed decisions about which applications to trust.
“Let’s leave the choice to the user. We are adults, we make our own choices every day. On the internet, we choose which bank we trust, where we do our shopping, and I think that should also apply to our data and where we decide to download our apps.
Marek added that the European Commission must ensure the security and integrity of Apple’s ecosystem, otherwise users are likely to lose confidence in it: “And everyone would be worse off. Not just Apple, but developers and users as well,” he said. “They need to be very careful when implementing the provision because there will be a regulatory dialogue between the Commission and Apple on exactly how to interpret this provision and exactly what they need to do to implement it and what safeguards they need to implement. “
Consequently, testing is necessary before implementing an actual security solution — testing on the side of an app, Marek said. He added that after implementation, the Commission will likely need to reassess the solution to ensure the security and integrity of third-party app stores.
“And I think the Commission has to be careful in the sense that it has to go step by step in implementing the solution. They should err on the side of caution and then reassess [the solution] periodic. I would really think it would be a shame if this was only at the expense of the quality for the user.”
The DMA has the potential to further reduce the dominance of big tech within the EU and increase competition. But as mentioned, this may not be such a bad thing for all parties involved. While the direct impact of the DMA on the business models of these major platforms is still unclear, it could lead others to pass similar legislation. In fact, there are already examples of laws aimed at curbing anti-competitive practices in Germany And South Korea. Whatever happens, it is certain that the DMA will make the EU app market interesting for developers, users and big tech alike.