Apple and Google's app store practices came under fire when companies including Spotify and Tile accused the tech powerhouses of charging exorbitant fees and copying their products.
The U.S. Senate Subcommittee on Competition Policy, Antitrust and Consumer Rights held an antitrust hearing Wednesday to discuss the app store ecosystem. At issue was whether Google and Apple exercised power to exclude or suppress applications that competed with their own products, charged high fees to companies with competing products and built apps that copied third party apps in their stores. It's yet another instance of Google and Apple, among other tech giants, being accused of engaging in anticompetitive behavior in an industry that's facing increasing scrutiny for exercising monopoly power online.
Sen. Amy Klobuchar, chairman of the committee, said the concern is that Apple and Google are creating an unfair environment by operating as "gatekeepers" to a multi-billion dollar industry with the power to decide how or whether apps can reach users.
"In 2020, global app revenues have been estimated at more than $580 billion and they are projected to grow to more than $900 billion by 2023," she said. "In just the first three months of this year, users are estimated to have spent $21 billion on apps from Apple's App Store and around $11 billion on apps from Google's Play Store … this is a huge business, and it's growing and it's growing fast. There's nothing wrong with that, but what's wrong is if we don't have competition."
Apple App Store, Google Play
Sen. Amy Klobuchar
Since the creation and release of smartphones, Apple and then Google developed app stores -- the Apple App Store and the Google Play store -- through which users download company apps to access their services rather than use a web browser.
Though Google allows alternative app stores, a vast majority of apps downloaded onto Android devices are downloaded from the Google Play store. Apple allows only apps from its App Store to be downloaded onto iPhones. During the hearing, Klobuchar said users spend about 90% of their smartphone Internet time on apps.
"Consumers cannot get the same functionality from a web page as they can from an app," she said.
Both Google and Apple control their app stores. As a result, companies must adhere to their rules to be listed on Play and the App Store.
Sen. Michael Lee, ranking member of the committee, cited the far-right social media app Parler as an example of Apple and Google's power. Parler was removed from both Google and Apple app stores following the Jan. 6 U.S. Capitol riots due to not meeting content moderation requirements. Parler has struggled to stay online since being barred from the app stores and denied service by web hosting companies. In a letter sent to the House and Senate antitrust subcommittees earlier this week, Apple said Parler has proposed updates to both its app and its content moderation practices, and as a result will be reinstated to the App Store.
Additionally, Klobuchar said through charging 30% fees to apps that offer digital services -- like Spotify's music and podcast streaming -- Apple and Google are making a substantial profit above and beyond what it costs to operate the app stores, which Klobuchar called "monopoly profits," as well as potentially stifling apps with competitive products. A U.S. House of Representatives report on digital markets showed it cost about $100 million to operate the app stores.
"In 2020, consumers are estimated to have spent $72.3 billion in Apple's App Store and $38.6 billion in Google's Play Store," she said. "Applying their standard commission rates to these amounts nets Apple and Google billions of dollars. These concerns have attracted the attention of enforcers in America and around the world."
Kyle Andeer, chief compliance officer for Apple, and Wilson White, senior director of public policy and government relations for Google, both denied wrongdoing on the part of their companies and noted the extensive products offered through the app stores to developers looking to create apps. Spotify, Tile and Match legal counsels argued otherwise.
Accusations against Apple, Google
Tile produces Bluetooth-enabled devices that consumers can purchase and use to find lost items. During the subcommittee hearing, Tile general counsel Kirsten Daru said the company launched its app in the Apple App Store in 2013, and Apple even sold Tile devices in its physical stores.
"That all changed when Apple decided it wanted to take over this category," Daru said.
She said Apple introduced a new Find My app in its iOS13 operating system update in December. The app now allows users to add non-Apple products to the location app, such as headphones, a backpack or luggage, which is what Daru called Apple's version of Tile.
"Find My is installed by default on all iPhones," Daru said. "At the exact same time, Apple made changes to its OS that denigrated our users' experience and made it hard for customers to activate Tile."
On Wednesday Daru said Apple announced the launch of its competing product -- AirTags -- that use ultrawideband technology instead of Bluetooth, which can more accurately locate items. Daru said UWB chips were first included in the iPhone 12, and Tile requested to access the UWB chips in 2019 but Apple refused the company's request. However, Apple now uses the technology in their own AirTags product.
Apple claims its actions are necessary in the name of privacy and protecting user data, Daru said.
"Apple could easily define requirements to allow all to play on the same field, but Apple doesn't do that," Daru said. "Apple uses privacy as a blanket excuse to subject competitors to different rules. This is what happens when you have a monopolist acting as a de facto regulator. The regulations will always favor the monopolist."
Jared Sine, chief legal officer of Match Group Inc., which operates online dating sites including Tinder, OkCupid and Match.com, also accused Apple and Google of using privacy and safety as a shield when requiring apps to use the app stores' in-app processor for payments -- meaning instead of buying services directly from a company, users pay through Google or Apple. Sine said Google and Apple charge companies a 30% fee for using the in-app payment processor. App store fees are Match's single largest expense, totaling roughly $500 million annually, Sine said.
Spotify chief legal officer Horacio Gutierrez echoed this grievance. Gutierrez said that under pressure from Apple, the company implemented Apple's in-app payment service and as a result had to start paying the 30% fee. Spotify then had to raise subscription prices from $9.99 per month to $12.99 per month to compensate for the fee.
Shortly after, Gutierrez said Apple launched Apple Music for $9.99 per month.
"Apple Music is one of our principle competitors," Gutierrez said. "Its advantage is not better service. Instead, it is Apple's total control over the app store, which allows them to impose rules that disadvantage Spotify and benefits Apple's own service."
During the hearing, all three companies requested an app store antitrust reform bill be introduced.
"Apple and Google have used their monopoly power to redirect the meritocracy of the free, competitive and innovative information superhighway to run primarily through the toll gates of their app store monopolies," Sine said.