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New Zealand's longest-running online daily news and commentary publication, now in its 25th year. The opinion pieces presented here are not purported to be fact but reasonable effort is made to ensure accuracy.

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Applestortion?

30 Jan 2024

One of the benefits to being one of the world's largest companies is that you get to do things others can only dream of.

In the case of Apple, Google and such, you can impose all sorts of draconian conditions on the use of your products and services that would never be acceptable if tried by smaller, less successful players in a market.

The perfect example of this is playing out right now within the confines of Apple's "walled garden" of apps.

Until recently, the only way most people could get an app on their iPhone or iPad was to download that app from the Apple Store. There were no third party sources for such things unless your wanted to "jailbreak" your device.

That seemed awfully unfair and anti-competition so the EU lawmakers stepped in and directed Apple to change things -- and that's exactly what they did. However, the results were far from those that were expected.

By legislating that Apple must relax the constraints on app availability and also allow app companies to bill their users directly, without all payments going through Apple's own systems, the EU expected that life would become a lot better and cheaper for Apple users in Europe.

They also expected that developers and app vendors would be able to grow more quickly, as less of their profit margin was siphoned into Apple's coffers by way of the huge commissions payable for every cent billed through an app.

Oh dear... it seems that the outcome for developers and users has become exactly the opposite of that intended.

Apple has announced that developers who choose to bill directly and serve apps from their own store will now pay €0.50 for each annual app install or update after 1 million downloads.

Owch!

Spotify has gone on record as stating “With our EU Apple install base in the 100 million range, this new tax on downloads and updates could skyrocket our customer acquisition costs, potentially increasing them tenfold ... Under the new terms, we cannot afford these fees if we want to be a profitable company, so our only option is to stick with the status quo.”

As I said... the outcome is hardly what the regulators in the EU were expecting.

If you're a small developer this might not sound so bad, as you'll be under the 1 million download threshold but it does effectively put quite a firm ceiling on your ability to grow without suffering a significant hit, once that threshold is exceeded.

Spotify, which boasts half a billion users world-wide, is objecting strongly to the effect this would have on their business. Not only would they end up paying a huge sum each year by way of this "install tax" but even if they process payments directly themselves, Apple is still demanding a 17 percent commission on new signups and a 10 percent clip on any renewals.

What's more, apparently companies that bill directly will have to agree to be regularly audited by Apple's beancounters to ensure that they're paying the right amount.

It would seem that the world's best bureaucrats are no match for the world's most polished and successful electronics device manufacturer. You don't get to be number one by being stupid, do you -- but you can rise to the pinnacle of a bureaucracy simply by ticking boxes and generating truckloads of paperwork.

No contest!

So where to from here for the EU's regulators, once they've wiped the egg off their faces?

The reality is that companies doing business with Apple must be "doing okay" or they would simply give up. If Apple tightens the thumbscrews too much this is exactly what will happen and they know it. As a result, an equilibrium exists within the Apple ecosystem whereby Apple makes a fortune and everyone else does "okay than you". Attempts to upset this balance by way of regulation will likely always be doomed to failure.

Capitalism is a great system but it does have one rather significant distortion: monopolies.

Carpe Diem folks!

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