Apple rivals lobby European Union over App Store dominance

Apple is coming under fire from rivals Meta and Microsoft who say its plans to open up its mobile software to comply with a landmark EU law fail to go far enough, as the iPhone maker faces unprecedented regulatory challenges from Brussels over the coming month.

EU regulators, preparing to fine the tech giant €500 million in March over allegedly favouring its music streaming app against competitors like Spotify, are also being lobbied to reject Apple’s proposals to satisfy the bloc’s Digital Markets Act (DMA).

The growing backlash against Apple comes as it is forced to make some of the biggest changes to its business model in years, following concerns over the dominance of its App Store, which forms a large share of the company’s $85 billion-a-year (€78.6 billion) services business.

Apple announced last month it will make changes to its iOS mobile software in Europe, such as allowing users to download apps from other sources and access alternative payment systems. The changes were offered ahead of the EU’s March 7th deadline for companies to declare how they will adhere to the DMA, which aims to tackle the market power of big-tech groups. The proposal leaves developers with a dilemma: stick with Apple’s existing ecosystem and fees, or leave permanently and face new terms.

For those who choose to also build apps in alternative stores, Apple said it would cut the highest amount paid by companies using its App Store to sell digital goods and services from 30 per cent to 17 per cent.

But it will add a series of new charges. These include a “core technology fee” of 50 US cents on every download or update of apps with more than one million downloads. Apple will also charge an additional 3 per cent fee to app developers using its payment processor. The 50 cents fee will apply immediately to downloads of alternative app stores.

Critics contend that the changes could lead makers of successful apps being charged far more than they are, while removing any incentive for rivals to create alternative app stores.

“The initial steps [to comply with the DMA] that Apple has put forward are very prohibitive to us actually creating a meaningful alternative to the one store that’s available on the world’s largest gaming platforms, which are mobile phones,” Phil Spencer, Microsoft’s gaming chief, told the Financial Times. “So we will continue to work with regulators to open that up.”

Meta chief executive Mark Zuckerberg has also dismissed Apple’s proposal as “onerous” and “at odds” with the intent of the EU regulation, saying he would be surprised “if any developer chose to go into the alternative app stores”.

After Apple’s announcement, “it took about an hour for app developers to realise they had been screwed”, said Damien Geradin, a lawyer for developers critical of Apple. “Pretty much everyone will stick to the old terms and the DMA will effectively make no difference. What the European Commission is saying to people is: ‘please help us, give us examples of where it doesn’t work’.”

The March deadline, he added, would mark the beginning of a new back-and-forth between the EU and Apple.

Apple said it spent “months in conversation with the commission” about the DMA and that its plan reflects the work of “hundreds of Apple team members who spent tens of thousands of hours” on the solution.

The growing backlash has left the commission, the EU’s executive arm, with the dilemma of deciding whether years of work on the new legislation aimed at digital “gatekeepers” has had its desired effect on Apple — and whether it can sanction the company for failing to comply.

The EU said the bloc can launch a non-compliance procedure against any company covered by the DMA as soon as the March deadline expires. The law allows the EU to fine companies up to 10 per cent of annual turnover, rising to 20 per cent in repeat cases.

Apple chief executive Tim Cook said on an earnings call this month that it was “very difficult” to quantify the impact the DMA changes would have on the company’s bottom line.

Meta and Microsoft are also hit by the DMA but spot an opportunity to grab a greater share of the about $27 billion Apple made in 2023 from App Store sales, according to data from Sensor Tower. Europe generates 7 per cent of those revenues.

The companies are seeking to challenge Apple in other ways. Two years ago, Apple extended its commission fees to also take a 30 per cent cut from marketers who pay to get their advert featured more prominently within apps such as Instagram.

Meta last week said it would now start passing on the 30 per cent charge directly to advertisers, in effect making it more expensive to reach Apple device users.

Nicholas Rodelli at CFRA Research said Meta’s move was a “direct challenge” to Apple’s policies, with tech companies now “going on the offensive” to exploit the iPhone maker’s new regulatory vulnerabilities.

Spotify and Epic Games, longtime Apple critics, have also argued Apple’s proposed moves amount to an act of bad faith. Match Group president Gary Swidler, which owns Tinder, said the EU’s acceptance of Apple’s plan is “far from assured”.

Independent analyst Eric Seufert said that Apple was “feeling around for what they will be allowed to do under the DMA”.

He added: “The question is whether the European Commission accepts this — which I believe they will not.” — Copyright The Financial Times Limited 2024