S.2710 is being pitched as promoting competition and reducing ecosystem-owner power in the app economy, as well as promoting cheaper, better, and more plentiful apps for consumers. But obviously, everyone can’t be a winner, so who are the losers here?
In large measure, the bill covers a portion of the same ground that S.2992 (Senator Klobuchar’s American Innovation and Choice Online Act) covered. This bill however restricts itself to app stores rather than dismantling the entire ecosystem. It defines an app store as a site, app, or service that distributes 3rd party apps “to users of a computer, mobile device, or any other general-purpose computing device.” We interpret this to mean that gaming consoles, IoT devices, cars, consumer electronics, and the like aren’t covered and that if the system is closed to 3rd party apps, it escapes the net. We are very concerned that the bill, like the other Senate bill, encourages app stores in one of two directions: open up and lose the commercial basis for hosting an app store, or close completely to 3rd party developers via closed hardware or software. While several of the bill’s objectives could benefit developers at a modest cost to app stores, there are fatal flaws that prevent us from giving it our support.
In summary, then, developers can find much that they like in the bill. If the sponsors can find a better balance between obligations to loosen control on the one hand, and destroying the 3rd party app model on the other, we could support some of the pro-developer elements in the bill.
Here are the details:
S. 2710 says app stores cannot require developers to use their payment systems as a condition of being placed in the store or loaded on a device. This model is already creeping into the market as a result of Apple litigation in the U.S. and due to legislation in countries like Korea. It’s likely that this policy will spread, so seeing it here is no surprise. It’s important to understand that this does NOT mean that app stores can’t charge fees for using their stores – Apple’s emerging model is a small discount below the 30% markup for the small number of rich companies that were obligated to pay under the previous model. The markup (FYI – retail stores like Walmart charge at or above this level in the real world, but no one complains) is meant to support ongoing investments in the ecosystem, not the payment system (which is run by third parties at a cost to the store, just like in the real world). The implication that app store fees will drop to zero is unrealistic as they still need to support the infrastructure to run them, so don’t make that assumption. In any case, devs will have the choice to either use app store payment, or contract with their own payment processor, with the net cost being about the same. Choice is good.
S.2710 also says app stores cannot set “most favored nation” style pricing, or punish apps for their pricing practices or terms of sale on or off the platform. For developers, this means you’ll be able to set different prices inside different app stores or for downloads from your site. The benefit will be a new ability to use pricing or other sales models as a lever for user acquisition, but of course, everyone else will be playing that card against you. With a little restraint, apps should eventually reflect the value that consumers get from accessing them – capitalism will sort the winners and losers. Be prepared to take advantage of the new marketing tool if your app charges users. Capitalism is also good.
S.2710 says that app stores cannot restrict you from communicating with your users for legitimate business purposes. App owners would not gain the right to abuse this ability to spam or defraud people, but the language here leaves wiggle room for bad actors. Connecting with your users is good, but better guardrails would be good too.
S.2710 stumbles a bit by adding that app stores cannot use the data they have about an app’s performance or popularity to compete with the app. While this seems reasonable on the surface, this is a significant departure from how things work in the real world, where brick-and-mortar stores “white label” products and do exactly what this bill prohibits online. From a consumer perspective, there is evidence to suggest consumers actually benefit from white-labeling offline. We are strong advocates of having the same rules apply online and off as it benefits a growing tech economy as a whole.
S.2710 then imposes support for app sideloading, customized default apps, and the unrestricted ability to hide or delete apps. This is a step too far. The goal is likely to prevent OS owners from gaining an advantage over 3rd party competitors for their own apps. Our own research says users expect to have basic apps (like browsers, app stores, email, phone, and messaging, for example) available on a new phone out of the box. The language of the bill is getting at who decides whose apps those are, and what limits can be placed on changing them. The logic here is sound unless you take into account the role that ecosystem owners play in managing a stable and predictable platform for 3rd parties to build on. Unsophisticated users are likely to delete or hide critical services leaving 3rd party apps with broken or missing APIs. Unrestrained sideloading can be a security risk, and of course, users can already add apps that duplicate core services and use them instead of the defaults. We understand the goal, but this portion of the bill is clearly written to benefit billionaire developers with established brands – at the cost of breaking the system for startups and emerging players. App store competition is good, and most developers would welcome another route to market. Elimination of any restraints on the minimum set of apps, of app quality, and of some limited ability for app stores to steward the ecosystem is as likely to harm small developers as it is to help them.
S.2710 imposes “neutral” ranking and discoverability for users trying to find 3rd party apps and services. This is a noble goal, but we worry about the practicality where whoever designs the algorithm must use some basis for the decision, and the more transparent that becomes the more the system will be gamed. Again, developers could provide a lot of insight into how to accomplish the goal given their vast experience inside the various systems over time. Half points for this.
Finally, S.2710 requires OS owners to provide developers access to their hardware, software, and product plans equivalent to what they offer their own teams. Our developer research tells us that developers value the role OS owners play in safeguarding the platform and that restricting 3rd party access to sensitive functions and features is a requirement of that role. Witho
ut this ability, there is no mechanism to protect user privacy, prevent fraud, or promote user trust in the devices they buy and the software they use. Bad actors are everywhere, and without OS owners protecting the platform, users will not buy the products and the market for apps will disappear. We are particularly offended by the bill’s pretense of a safe harbor, which is obviously nothing of the sort. This obligation will devastate the developer community by making mobile devices a conduit for fraud and deceit, too insecure for unsophisticated users to trust. There would be no centralized mechanism to prevent pirating and malware. Further, OS owners would be forced to provide their intellectual property to all competitors, eliminating any incentive for OS or device innovations. We cannot support this.
One last unique element of the bill is the ability for developers to personally sue an app store for violations. For those of you that have met a patent troll, you know that this actually means any lawyer can sue with very little reason in hopes of a payoff instead of a suit. There are plenty of ways to challenge an app store’s behavior in this bill – via the Attorney’s General, or federal agencies, who are all too happy to take the fight to these companies. We question who this portion of the bill is meant to benefit.
Ask your Senator to re-write this bill before it becomes law.