Apple’s App Store rules are about to come under a lot more scrutiny and that could be bad news for the company.
On Monday, the Supreme Court ruled that a group of consumers can sue Apple over App Store rules they say are anti-competitive. The groups who brought the suit say that because Apple’s rules prevent apps from being distributed outside of the App Store, it creates a monopoly that lets Apple jack up the price of software in its store.
Now, although the latest decision was merely a procedural win — Apple’s lawyers had argued the case should be thrown out — the fact that the case will move forward could eventually have significant implications for the App Store.
And, at a time when more and more officials are calling for the break-up of Big Tech, the fact that the court green-lit the case could be a worrying sign.
What could happen?
The original suit in the case dates back to 2011, so it’s important to note that the Supreme Court decision is unlikely to change anything in the short term. If both sides opt to litigate, it could be another years-long legal battle. Apple could also decide to settle, much like it did in the Qualcomm case.
So while it’s impossible to say exactly how this will play out, there are a few areas where Apple could, eventually, be forced to change its rules.
One scenario is that Apple could be forced to allow users to install apps from outside of the App Store, what’s sometimes called “sideloading.” This would be one of the more extreme outcomes, as it would mean the end of the company’s so-called “walled garden.” Apple has always been loath to do this, and has actually gone out of its way to punish developers who try to skirt its rules, going so far as to break all of Facebook’s internal apps when it got wind of the company’s attempts to “research” teens internet habits.
Apple often cites security reasons for this — it can’t guarantee that software outside of its App Store is safe — but there’s another huge reason why it wants to control app distribution: money. Apple takes a 30 percent cut of app sales and in-app purchases which, of course, it controls. If it were forced to allow other app stores, or let developers sell apps directly to users, it could potentially lose out on a significant amount of revenue.
Add this to the pile of significant legal anticompetitive challenges that Apple faces by their in-app purchase rules.
They’ll never allow sideloading or reduce the 30%, but I expect all of this to result in a relaxing of the “can’t even mention other payment methods” rule.
— Marco Arment (@marcoarment) May 13, 2019
The same goes for in-app purchases. Because Apple requires all in-app purchases to be conducted through the App Store, developers automatically lose out on 30 percent, which is why some developers have tried to buck the App Store. This is why you can’t buy Kindle books in Amazon’s iOS app, for example, and Netflix no longer lets you sign up for its service in its app.
So another potential outcome of the case could be that Apple will have to allow alternative methods for in-app purchases. This is the scenario that some pundits think is most likely, as it would satisfy some critics without fundamentally changing how Apple monetizes apps.
Apple could also theoretically be forced to change the amount it takes from developers. Instead of the 30 percent commission it gets now, it could be that a lower amount would be deemed more “competitive.” But this seems less likely as Google also takes a 30 percent cut from its developers’ app sales.
None of it is great for Apple
But we do know the Supreme Court decision is a blow to Apple. Quite simply, the App Store business is critical to Apple. That’s long been the case, but as iPhone sales have slowed, the company has been trying to transition to a “services” focused business. (The company’s last major event saw the launch of three new subscription services in gaming, news, and streaming.)
As the company attempts to get these new services off the ground, the App Store makes up a significant chunk of Apple’s services revenue (which was $11.5 billion last quarter). If the company was forced to allow apps to be distributed by third-parties, or to loosen its grip on in-app purchases, for example, it could have a significant impact on that business.