Sens. Blumenthal, Blackburn, And Klobuchar’s Open App Markets Act Benefits Big Companies, Not Consumers Or Developers
The Open App Markets Act would jeopardize the benefits that today’s mobile app ecosystem brings to consumers and app developers. As the Senate Judiciary Committee considers the bill, it’s critical to understand that:
— The bill carves out gaming consoles, like Microsoft’s Xbox, allowing the government to pick winners and losers and ignoring the reality of the competitive ecosystem and how consumers are using apps.
— Prohibiting the choice of a first-party in-app payment system could harm consumers and app developers and make the billing experience less safe.
— Today’s consumers have myriad options of mobile payments and app stores.
The bill carves out gaming consoles, like Microsoft’s Xbox, allowing the government to pick winners and losers and ignoring the reality of the competitive ecosystem and how consumers are using apps.
Gaming consoles successfully adopted the app store business model by offering downloadable games exclusively through their first-party online stores, highlights Neil Chilson of the Charles Koch Institute. “The app store model has been copied by gaming consoles that offer downloadable games. Game consoles have always exercised strict control over the third-party software that can operate on the devices, so unsurprisingly app stores such as the Microsoft Store on Xbox or Sony’s PlayStation Store are the exclusive online stores for third party content for those devices.”
The bill is shortsighted for excluding from its definitions the app stores of gaming consoles like Microsoft’s Xbox, televisions, streaming boxes, and many other computing platforms, notes CCIA’s Arthur Sidney in the DisCo project. “Despite this overreach, the bill is shortsighted about how consumers use technology today and is not future proof. For example, it excludes from its definitions the app stores of consoles like Microsoft’s Xbox, where people are increasingly accessing apps. Consoles are no longer solely gaming devices. Case in point: as early as 2017, Xbox’s most popular app wasn’t even a game; it was Netflix. The bill also excludes a variety of other app stores on televisions, streaming boxes, and other computing platforms.”
Microsoft could benefit from the bill and avoid the bill’s provisions by arguing that its Xbox gaming service is not a computing platform, notes Bloomberg’s Brad Stone. “Another winner [of the Open App Markets Act] 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.”
Microsoft refused to give developers more control in its Xbox gaming console, reports Karen Weise of the New York Times. “Microsoft said its principles [of giving developers more control in its app store] would not apply to its Xbox gaming console, which it argued followed a different business model. It said gaming consoles are sold with little or no profit, or at times below cost, and instead recoup the development costs through the games.”
Prohibiting the choice of a first-party in-app payment system could harm consumers and app developers and make the billing experience less safe.
Prohibiting app stores from offering the choice of a first-party payments system could bring confusion to consumers and inconvenience to “the vast majority of app developers,” reminds the Developers Alliance. “While we see the competitive benefit of allowing payment systems other than those of the app stores, consumers could be negatively impacted by the confusion of app-by-app commercial relationships. Today, consumers often perceive that they’ve purchased an app ‘from the store,’ similar to shopping in a brick and mortar store. They might not appreciate that every product in the app store may lead them outside the store to complete the transaction and that the app store has no power to prevent fraud or assist them with the 3rd party transactions after the fact. In addition, the vast majority of developers prefer to avoid the burden of establishing and managing payment systems of their own, and see this capability as a valuable service. We fear this prohibition will reduce consumer trust in apps and app stores generally, and would ask that off-store systems provide clear and conspicuous consumer notices to prevent user confusion.”
Requiring covered companies to permit any third-party payment system could put users’ privacy and security at risk, reminds CCIA’s Arthur Sidney in the DisCo project. “Requiring covered companies to permit any third-party payment system to operate in app stores may introduce more harm because the covered company cannot be assured that other payment systems invest in privacy and security to the same degree as the covered company. Such a change puts systems for processing refunds, assuming parents can control a child’s request to make an in-app purchase, and the privacy of users’ identity and contract information at risk.”
Without an option for the first-party payment system, consumers could “inevitably” absorb the cost of potential security issues, warns Rachel Chiu, a Young Voices contributor. “[T]he Open App Markets Act goes too far in its attempt to fix these problems. For example, the ‘exclusivity and tying’ section of the bill prohibits covered companies from requiring the use of their own payment systems. The introduction of third parties for payment functions will, among other consequences, open the door for potential security issues and vulnerabilities. As a result, covered companies will need to do more to keep their app stores and devices secure — a cost that will inevitably be passed onto consumers.”
The bill could lead many companies to forgo instituting privacy and security practices that target bad actors, warn Jeffrey Westling and Juan Londoño of the American Action Forum. “[W]hile the bill would provide exemptions for security and privacy of users, these protections may not go far enough to give companies the flexibility to target bad actors without violating the law. As a result, many companies may simply choose to forgo instituting practices that are designed to protect the privacy or the security of their users to ensure the company does not violate the law.”
Seeking redress from third-party payments processors can be “extremely difficult or outright impossible in the case of fraud,” warns NetChoice. [I]t would be harder for consumers to seek restitution when fraud does occur. Currently, an aggrieved party can seek redress from Apple or Google in the event of fraud or malice in the processing of payments. However, under these proposals, consumers would be forced to identify the specific payments processor for each individual app and seek redress from them, something that could be extremely difficult or outright impossible in the case of fraud.”
Prohibiting the choice of first-party in-app payment systems could result in “fewer low-priced or free apps” for consumers, highlights Aurelien Portuese, Director of ITIF, in a letter to the Senate Judiciary Committee. “Should in-app purchases be prohibited or marginalized as the legislation provides, consumers might find there are fewer low-priced or free apps available. And if the number of app stores significantly increases, the costs to curate those app stores will increase as well, and these higher costs will ultimately be passed on consumers.”
Upending the existing in-app payment model could “undermine the economics of app distribution and result in fewer and worse options for up-and-coming app developers,” notes NetChoice. “Since many of these proposals would make today’s contracts illegal, it would force stores to allow app developers to use their own payments processor. As a result, app developers would be able to collect as much money as they please through in-app transactions without sharing any of the revenue with app stores. Considering that app stores make a substantial portion of their revenue through in-app purchases, this would significantly undermine the economics of app distribution and result in fewer and worse options for up-and-coming app developers as well as those that offer their products for free”
Today’s consumers have myriad options of mobile payments and app stores.
There are multiple ways for consumers to make purchases without going through any app store’s payment system, reminds NetChoice in a comment submitted to the Senate Judiciary Committee. “Users can sign up at Spotify.com on their mobile device and the store is never connected to the transaction. Epic Games can do transactions with users on mobile devices without using the store’s app payment systems. Likewise, Epic Games makes micro-transitions for Fortnite available without ever having to download the game or the Epic Store app. In fact, users can go directly to the Epic Store webpage on their mobile device and buy V-Bucks or other microtransactions. At the same time, Match.com, Spotify and Epic Games make gift cards available for purchase at drug stores and shopping centers. Here citizens can use essentially their chosen means of payment to buy these gift cards and redeem at Match.com, Spotify.com, and EpicGames.com”
Consumers have a wide range of choices when it comes to app stores and “are not locked into a single device,” underscore Jennifer Huddleston and Juan Londoño of the American Action Forum. “Numerous app stores exist including those directly on mobile devices and those accessible in other ways.”
— “Consumers are not locked into a single device and may switch between products for many reasons including the availability of apps or app stores. In many cases, consumers even choose a collection of different operating systems and devices, which creates an even greater choice of app stores and apps.”