Apple’s DMA compliance and the EC’s folly
The European Commission (EC) today revealed that it has reached the “preliminary view” that Apple’s App Store policies in the EU are not compliant with the Digital Markets Act (DMA). From the press release:
Today, the European Commission has informed Apple of its preliminary view that its App Store rules are in breach of the Digital Markets Act (DMA), as they prevent app developers from freely steering consumers to alternative channels for offers and content … By sending preliminary findings, the Commission informs Apple of its preliminary view that the company is in breach of the DMA … If the Commission’s preliminary views were to be ultimately confirmed, none of Apple’s three sets of business terms would comply with Article 5(4) of the DMA, which requires gatekeepers to allow app developers to steer consumers to offers outside the gatekeepers’ app stores, free of charge. The Commission would then adopt a non-compliance decision within 12 months from the opening of proceedings on 25 March 2024.
Additionally, the EC announced that it has opened a new non-compliance investigation into Apple over its contractual terms with developers, including the introduction of the Core Technology Fee (CTF). The EC will reach a final decision no later than one year after the opening of the investigation in March 2024, although that decision can be appealed. The DMA allows the EC to impose fines of up to 10% of a company’s annual global turnover for non-compliance, rising to 20% in cases of “repeated infringement.”
I unpack the new business terms that Apple introduced in the EU in response to the DMA in Apple to Developers: Heads I win, tails you lose (part 3). I conclude in that piece that Apple’s DMA compliance is “performative” and another instance of Apple offering developers a “heads I win, tails you lose” proposition. The new business terms are, in large part, simply unworkable for the overwhelming majority of app developers and don’t represent a genuine alternative option. In particular, I find the CTF to undermine the viability of the new business terms completely, representing a non-starter condition for adoption: because the CTF applies to app updates, and recurs annually, it fundamentally breaks the freemium model. In that piece, I call the new business terms that serve as Apple’s effort to comply with the DMA “a Hobson’s choice that will perpetuate the status quo.”
Apple surely knew that its new business terms would be viewed cynically and as insincere by the EC. And Apple seemingly made the strategic decision to test the EC’s appetite for conflict. My belief, when they were introduced, was that Apple’s new business terms were not designed to achieve what the DMA intended, which is expanded consumer choice on the largest mobile platforms.
But the DMA instituted a wholesale paradigm shift in competition and was introduced without clear guidelines of how so-called gatekeepers are expected to achieve compliance. And the DMA is ultimately not self-enforcing, as it was presented: as I discuss in this DMA-related episode of the Mobile Dev Memo podcast, the fact that the EC launched investigations into Meta, Alphabet, and Apple before their DMA workshops had concluded supports the idea that interpretation and litigation are necessary parts of the adoption process. As we detail in that episode of the podcast, the DMA proposes tradeoffs: expediency, clarity, and a consistent set of rules that apply to all market participants of a certain size in exchange for untargeted and, surely in some cases, unproductive constraints that don’t remedy true consumer harms. But while all of the detriments have been realized, none of the benefits have.
So not only does the DMA attack size for the sake of it, but it’s also not self-executing, resulting in long, drawn-out compliance investigations. Given the uncertainty of enforcement and the scale of the penalties — which exceed the revenue that many gatekeepers generate in the EU — the DMA presents a risk to gatekeepers, which have already started to regulate their willingness to bring new products to the EU as a result. The wholly predictable consequence of the combination of a disproportionate penalty system and nebulous compliance guidance that I describe in Apple’s collision course with the European Commission is an acutely conservative approach to serving EU consumers. From that piece:
It’s possible to hold two thoughts in one’s head simultaneously with respect to the DMA:
One: The EU has every right to craft laws that it believes best serve the interests of the nearly 500MM people who reside there, and any company that wishes to access that market must adhere to those laws;
Two: The DMA imposes penalties that are disproportionately punitive relative to the commercial opportunity enjoyed by many of the gatekeepers operating there, none of which are domiciled in the EU.
Apple recently stated that it would not launch Apple Intelligence and other new features in the EU for fear of running afoul of the DMA, and Meta delayed its launch of Threads in the EU by six months over DMA compliance concerns. This is the EC’s folly, and it presents manifest consumer harm: consumers in the EU are deprived of new and innovative technologies from the companies best positioned to deliver them because the clumsily implemented and disproportionately punitive competition law breaks their risk / reward calculus.
Comments: