WASHINGTON ( Web News )
The U.S. Congress wants to change the way your smartphone works. And the effort may actually succeed.
Last Wednesday, Democratic Senators Richard Blumenthal and Amy Klobuchar, along with Republican Senator Marsha Blackburn, introduced the Open App Markets Act, a bill aimed at significantly weakening the “gatekeeper control” that two tech giants, Apple Inc. and Google, have over their dominant mobile operating systems. On Friday, another bipartisan coalition, led by Colorado Republican Ken Buck, introduced a similar bill in the House.
Suddenly, of all the various legislative, regulatory and legal efforts designed to limit big tech’s influence, curbing the power of the smartphone duopoly now seems the most likely to become law and to challenge the boundless ability that tech platform owners have to set the rules that govern their marketplaces.
The bills stem from a contentious April hearing before a Senate antitrust panel in which companies like Spotify Technology SA, Tile Inc. and Match Group Inc. took turns complaining about Apple and Google’s restrictions, in particular the 15% to 30% revenue cut they take from transactions on their mobile devices. This so-called tax, testified Horacio Gutierrez, Spotify’s chief legal officer, is “nothing more than an abusive power grab and a confiscation of the value creation by others.” Lawmakers appeared sympathetic.
If the proposals become law, they’re likely to change iPhones more dramatically than Android phones, which have long given hardware makers and phone owners more freedom to customize devices and add competing app stores. But an iPhone owner, for the first time, would be able to download another app store to bypass Apple’s or install apps that don’t go through Apple’s supposedly rigorous, but sometimes arbitrary, approval process.
App makers like Amazon.com Inc., Netflix Inc. and Spotify will also have the flexibility to direct customers to their websites to sign up for subscriptions, circumventing Apple’s cut. Currently those apps don’t offer a way for iPhone or iPad users to become members, and the companies aren’t allowed to communicate openly about why that’s the case. The result is often confusing for customers:
But the bills’ biggest impact would be behind the scenes, putting a legislative thumb on business disputes that have festered in Silicon Valley and are winding through the courts. For example, the proposed laws would give Epic Games Inc., the maker of Fortnite, much of what it’s asking for in its lawsuit against Apple, which is currently awaiting a verdict from a Northern California judge. (Epic wants to use its own payment system for in-app purchases in its games. Observers of the case believe that Epic is likely to lose.)
The new law would also help other tech powerhouse, such as Amazon, which has a competing app store, and Spotify, the $34 billion music streaming giant that is itself the target of bitter disputes about unfair competition and shoddy treatment of artists. Another winner would be Microsoft Corp., which will likely argue that its Xbox gaming service is an entertainment console, not a computing platform, and thus exempt from the bill’s provisions. Perhaps not coincidentally, Gutierrez, the Spotify lawyer who has been leading the fight against Apple, is a former general counsel for Microsoft.
And that may be Apple’s best argument in the fight against the Open App Markets Act, which threatens the estimated $22 billion in annual high-margin revenue it generates each year from the App Store. Apple has said the bill would threaten the security and privacy of its customers and make the simple experience of using an iPhone or iPad more complex.
But the open secret behind such laws is that they are just as likely to simply shift the balance of power between existing giants as they are to empower a new generation of entrepreneurship and competition. —Brad Stone in San Francisco