A while back I wrote about the European Commission’s competition investigation into the Android operating system (OS) and today’s mobile platform competition. The main argument of my previous post was that competition in the mobile economy is best conceived as competition between mobile ecosystems with Android and iOS being by far the two most popular which, in my opinion, stand in clear competition with each other. All mobile OSs have to serve and balance the interests of a variety of parties to keep them attractive (or even alive) — that is the nature of a multi-sided platform like a mobile OS. The ‘Apple factor’ should be part of the Commission’s investigation into Android at the stages of determining dominance as well as potential abuse. It is very hard to imagine that Google can act ‘independently’, in the competition law sense of the word, of Apple in the market for mobile OSs. In that sense the Commission’s market definition of licensable smart mobile operating systems, which leaves Apple’s iOS outside that market, appears peculiar (you can read more on that point in my previous post).
Interestingly, the Australian Competition and Consumer Commission (ACCC) has indirectly confirmed that point in a recent investigation. In a request made by some of Australia’s leading banks, the competition authority was asked to grant authorization to the banks which would allow them to collectively bargain with Apple with respect to access to the iPhone’s embedded Near-field Communication (NFC) controller as well as the ability to pass through Apply Pay fees to bank cardholders. In essence, the banks’ ultimate goal was to provide their own digital wallets with embedded NFC on Apple devices without relying on Apple Pay for mobile payment processing and to make sure Apple would not apply any unreasonable terms and conditions to the distribution of the banks’ digital wallets through the App Store.
While this proceeding has many interesting angles, the ACCC has recently denied authorization for a variety of reasons, including a concern that the proposed conduct could lead to a distortion of competition between mobile OSs. That is because it could lead to an alteration of the integrated iOS experience which is an “important point of product differentiation that Android and other platform providers compete against” (p. vi). The fact that iOS and Android compete with each other could hardly be expressed more explicitly in the ACCC’s observation that:
“As software platforms, both Apple’s iOS operating system and Google’s Android operating system are driven by the goal of attracting more users, developers and (for Android) handset manufacturers. There is often strong competition for market share, which tends to be fluid and subject to rapid change.” (Emphasis added, para. 93).
It is worthwhile to highlight that while the ‘Apple factor’ is probably the single most important reason not allowing Google to act independently and ignore the wishes of its various platform constituencies, both Google and Apple cannot ignore dynamics of global mobile economy markets. The ACCC, in the proceeding mentioned above, raised this point quite convincingly in saying that “[d]espite Apple and Google currently holding strong global positions in the market for smartphone operating systems, it is a highly dynamic market marked by the frequent emergence of new players and rapid shifts in market share” (para. 94). It bolstered this point by adding that:
“Whilst the ACCC accepts that there are some barriers to switching between devices or operating systems, the dynamic global market for smartphone operating systems is characterized by high levels of innovation, fluctuating market shares, and entry and exit.” (para. 250).
This does not sound like a market constrained by the abusive behaviour of a dominant company. If anything, recent App Store numbers suggest that competition exerted by Apple is set to increase. The Financial Times reported this week that despite slowing iPhone sales, consumer spending in Apple’s App Store rose by 40% in 2016. App developers’ income rose to more than $20bn last year — that is after Apple took its cut. This confirms a trend that has lasted for a couple of years: developers’ income rose by at least 40% in each of the past three years. It is important to remember that app developers’ willingness to code is arguably the single most important ingredient for the success of a functioning mobile ecosystem. Google can’t possibly ignore this development and hence has a legitimate interest in keeping its own mobile ecosystem as attractive, secure and integrated as possible. Again, these developments need to be part of any competition investigation from the very beginning to avoid an extremely myopic view of the various competitive forces at play.
On a very positive note, recent statistics also reveal that across both Android and iOS, the total app market grew about 24% last year with consumers spending more than $50bn. It seems consumers continue to have very good reasons to spend their money in app stores.