App store commission fees scrutinized by South Korea

South Korea's regulatory move

South Korea may ban Apple and Google from charging developers commission fees on in-app purchases -- a regulatory move some experts argue could be too extreme.

Apple and Google require in-app purchases be made through their respective payment mechanisms, and they charge software developers a 30% commission fee on in-app purchases made by consumers. The practice has brought backlash from app developers, including Epic Games, which sued Apple for pulling its popular Fortnite from the app store when Epic tried to use an alternate payment system. Apple and Epic are awaiting a verdict after the case went to court earlier this year.

South Korea is also focused on commission fees as a way to rein in big tech. Earlier this week, a South Korean parliamentary committee voted to amend a law that would allow the government to bar Apple's and Google's payment mechanism requirements and app store commission fees. While antitrust bills introduced in the U.S. have focused on potential anti-competitive business practices, South Korea's focus on commission fees is a first. Both Apple and Google warn that such a ban could result in privacy risks and fraudulent activity.

Thomas Jungbauer

Thomas Jungbauer, associate professor of strategy and business economics at Cornell University, said finding the right foothold from which to regulate certain business practices like app store commission fees is something countries around the globe are grappling with.

"The root of the problem is there is no consistent regulation of those big tech companies," Jungbauer said. "Not only is there no consistent regulation, [but] we don't even know how to. One of the reasons we don't know how to regulate big tech is because their business operations are so complex that it is very hard for us to estimate the effect of certain laws on customer welfare, which is typically at the heart of antitrust regulation."

Other countries will be watching how the South Korean parliament proceeds and, if it chooses to implement the ban, what effects that will have on developers and consumers, he said.

Marshall Van Alstyne

App store competition

Marshall Van Alstyne, professor of information systems at Boston University's Questrom School of Business, is concerned that an outright ban would create more harm than good.

"As a rule, outright bans tend to be a bad idea relative to creating healthy competition," he said.

Van Alstyne said while developers correctly point out that the control Apple and Google have over the app store market can cause them to "suffer real harms under monopoly data and payment practices," it's important that governments focus on increasing competition over banning business practices outright.

Instead of ending the collection of commission fees, Van Alstyne said a government like South Korea should require Apple and Google to publish the terms of service under which any payment service, including their own, can operate on the platform. Doing so would foster competition, he said.

As a rule, outright bans tend to be a bad idea relative to creating healthy competition.

"Any payment service charging extortionary rates would quickly get swapped out for a fairer system, so we should get the best of both," Van Alstyne said.

Apple and Google have been making changes to their app store practices recently. They lowered commission fees to 15% in March for businesses making less than $1 million in annual revenue.

On Thursday, Apple announced plans to make changes to its App Store that will resolve a class-action lawsuit filed by U.S. developers in 2019. The agreement would, in part, loosen its in-app purchase practices by allowing developers to communicate with consumers about purchase options available outside of the app.

Also this week

• The Biden administration met with leaders from tech companies including Google, Amazon and Microsoft to discuss cybersecurity and threats against critical infrastructure. Both Google and Microsoft pledged millions to fund cybersecurity efforts over the next five years.
• China passed a new data privacy law that will take effect Nov. 1. The law establishes conditions for which companies can collect personal data such as obtaining user consent, and it implements guidelines for data that's transferred outside the country.
• The U.K.'s Competition and Markets Authority (CMA) has determined that an in-depth investigation into Nvidia's acquisition of chipmaker Arm Ltd. is warranted based on competition concerns. According to a recently published report on the deal, the CMA is concerned the acquisition could harm competition, particularly if Nvidia restricts access to Arm technology that is widely used by large companies like Apple.

Elsewhere

• China is crafting rules to ban companies with data that could pose a security risk from going public outside the country, according to Reuters. The move comes after Chinese officials began cracking down on tech companies like Didi earlier this year, which publicly listed their companies on foreign market exchanges.

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.