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MOBILE ECOSYSTEMS MARKET STUDY
APPLE RESPONSE TO INTERIM REPORT
The launch of the iPhone in 2007 has been described as “ kickstarting a mobile revolution that has transformed the modern world ”.^1 One of the keys to the iPhone’s success is the seamless user- experience that makes it easy to set up and use the iPhone, with minimal hassle from interoperability issues and security threats. This user experience was not due to happenstance but stems from Apple’s decision to develop an integrated solution, including the operating system (iOS) which was - and remains - about guaranteeing a high-quality, safe and trusted mobile experience for consumers through its devices.
Today, Apple is in direct and fierce competition with Samsung, Google, Huawei and many others on a global basis, competition which has and continues to yield remarkable advances in innovation. To compete successfully, Apple differentiates itself on the basis of its continuing commitment to tight integration across product areas and policies that protect the value that consumers clearly recognise and the benefit that developers clearly derive.
This integration has, from the outset, been at the heart of Apple’s vision and proposition to consumers^2 and has significant benefits in relation to consumer protection, privacy, device and data security, and child safety. It also supports a vibrant, healthy, competitive market in which small developers have an opportunity to be found by consumers and compete with established developers on a trusted platform.
The evidence before the CMA demonstrates the reasons why Apple has designed its products as it has, and the benefits that this has delivered to consumers and developers. Yet on the basis of partial analysis and hypothetical concerns – as detailed below – the Interim Report (IR) proposes interventions in an already highly competitive market that would fundamentally change the iPhone and have huge implications for consumers, including in terms of Apple’s industry-leading privacy and security standards, and would reallocate the distribution of benefits of the app economy from the broadest set of developers to a small set of successful incumbents.
Apple respectfully submits that the second half of the market study must undertake a more balanced investigation of the issues under consideration. The findings of the market study are intended to feed into the actions that may be taken by the new Digital Markets Unit and could have an impact on other regulatory proceedings worldwide. With so much at stake, the final report of the market study must go beyond the acceptance at face value of often self-serving complaints from a limited number of the largest market participants. It must hear more from consumers about why they continue to choose Apple devices. The final report cannot rely on hypothetical considerations to the exclusion of positive evidence submitted by Apple, app developers and other interested parties. And it must contain a fuller examination of the implications of the interventions that it is proposing.
(^1) https://www.businessinsider.com/watch-steve-jobs-first-iphone-10-years-ago-legendary-keynote-
macworld-sale-2017-6?r=US&IR=T#jobs-took-to-the-stage-in-his-trademark-black-turtleneck-sweater-for- the-now-legendary-presentation-in-january-1. (^2) This involves reliance on a single, curated App Store, the requirement for browsers to use a single browser
engine, charging a commission on the in-app sale of digital goods and use of IAP to collect that commission. These have been in place since the iPhone was originally developed and opened up to third-party app distribution. They are foundational to Apple’s ecosystem and its business model and to the success of the iPhone over the last fifteen years. They are a reflection, not of market power, but of Apple’s unique innovation in creating a holistic smartphone experience for users.
A. Introduction
- The IR recognises the wide-ranging benefits that Apple’s tightly-integrated ecosystem has brought to consumers and developers, including ease of use and performance, ongoing investment in innovation and privacy, and the establishment of trust in the platform that leads consumers to try new apps:
High consumer satisfaction with the iPhone: ease of use and performance
- The evidence demonstrates that overall users’ satisfaction with iPhones is high, with over 9 in 10 satisfied with their device and [60-70]% reporting particularly high satisfaction.^3
- The convenience associated with pre-installation and defaults can bring real benefits which are valued by the users of mobile devices, likely to most benefit those users who are less technologically savvy and would struggle to find and install apps which would allow them to achieve their mobile device’s full potential.^4 This reflects Apple’s aim, which is to provide the best possible overall iPhone experience to users.
- Apple’s App Store payment system offers the convenience of being able to use a single set of payment details and deal with a single trusted point of contact for payments, which can be of significant value as users know that their interests will be protected by Apple, and also indirectly benefits developers through the greater confidence users have in placing transactions through the App Store.^5
Significant and ongoing investments in innovation and privacy
- Apple has invested in innovation and has made many enhancements that have dramatically improved the processing speed, functionality and quality of its mobile devices and connected devices. Apple has innovated in chip design and performance, and haptics, and has introduced new materials like Ceramic Shield Glass to the iPhone. Apple has also introduced innovative privacy features, exploiting its hardware technologies, to empower users.^6
- Apple has invested billions of dollars in making its ecosystem thrive, by providing tools, software, and technology to make it as easy as possible for developers to bring their ideas to life on the iPhone. Apple’s R&D efforts are protected by copyrights, patents, and other intellectual property (“IP”) protections. Apple licenses this incredibly valuable IP to developers, providing access to more than 150,000 APIs that allow developers to unlock the potential of Apple’s proprietary technologies.^7 Each app made available through the App Store is built on the basis of these innovations from Apple.
- Users have benefitted as the quality of mobile devices has increased,^8 with survey evidence indicating that users consider Apple’s devices to be of a higher quality than those of other manufacturers.^9
(^3) See, IR paragraphs 9, 2.72 and 3.59. (^4) See, IR paragraph 6.92. (^5) See, IR paragraph 6.174. (^6) See, IR paragraphs 9, 3.46 and 3.91. (^7) See, IR paragraphs 9, 3.46 and 3.91. (^8) See, IR paragraphs 9 and 3.47. (^9) See, IR paragraph 3.42.
was concerned that Apple ‘could be using commercial data which it receives through IAP to gain a competitive advantage when it comes to its own product development’ and that this ‘could give Apple superior market intelligence over its competitors or any potential competitors’ ” [emphasis added].
- As a result, the findings in the IR are, in effect, no more than hypotheses about how Apple’s ecosystem “may” have the “potential” to harm competition, being as they are untested and based on one-sided evidence. Such hypotheses are insufficient to warrant, never mind support, a discussion of potentially radical remedies at this stage, whilst there remains significant investigative work needed to ground any theories of harm and consider the real impact on competition and on consumers.
- A clear example of this is in relation to the proposed remedy to mandate alternative app stores or allow sideloading. Apple has provided objective third-party research that confirms its approach to security, including its ban on alternative app stores and sideloading, is many times more effective than Android’s or any other consumer computing platform.^16 The IR places little to no weight on this evidence, or even on its own finding that potential remedies which are designed to “ allow more choice or competition within an ecosystem could in principle result in weaker protection for the security of users’ mobile devices ” [emphasis added].^17 As a result, the IR significantly downplays the security risks associated with this proposed remedy. It also fails to account for the fact that users highly value that security, and that many choose Apple over Android on that basis. Remedies that jeopardise Apple’s holistic approach to security would effectively remove the competitive differentiation between Apple and Android, taking this valued element of choice away from users.
- Apple is deeply concerned that the IR is proposing solutions to hypothetical problems that will result in real-world market interventions that could force it to redesign the iPhone to benefit a handful of powerful developers. The IR appears to assume that its proposed changes would be relatively simple. Yet many would require a complete re-architecting of a product that has existed for 15 years, has been constantly improved by Apple’s investment in IP and is valued and trusted by millions of consumers. It would force changes that could limit choice and significantly increase costs to both consumers and the broadest set of developers, and would disadvantage smaller and start-up developers as compared to the large incumbents who currently dominate digital services such as music, gaming, and video streaming. The CMA cannot dictate and control the direction and speed of future innovation on the basis of speculative concerns fuelled by large tech companies intent on using the regulatory process to undermine Apple’s ecosystem.
- Apple urges the CMA to undertake a more fulsome analysis of the benefits that Apple’s ecosystem brings to both consumers and developers, and to consider objectively the ramifications of any proposed interventions on consumers and competition in the various markets that would be impacted.
- To this end, Apple’s response below addresses the following topics:
• Section B addresses competition between the Apple and Android ecosystems, providing a
high-level overview of the Apple ecosystem, the drivers behind how the ecosystem operates and its impact on competitive differentiation and user experience.
(^16) For example, The Nokia Threat Intelligence Report 2020 results confirm that iOS devices suffer 15 to 47
times fewer malware infections than Android devices. Another third-party study found that 98 percent of mobile malware targets Android, rather than iOS devices. (^17) IR paragraph 7.27.
• Section C addresses the IR’s assessment of the App Store.
• Section D addresses the IR’s assessment of mobile browsers and browser engines.
• Section E considers Apple’s privacy initiatives.
• Section F considers Apple’s approach to cloud gaming.
• Section G provides Apple’s initial assessment of the proposed remedies.
- Second, there are competing devices at each price point at which Apple devices are sold, as illustrated in Figure 1 below.
- Third, Apple constantly monitors and benchmarks its performance in the UK against rivals, on a weekly basis; (i) focusing on how its devices compare across carriers (for contract sales), across channels and in terms of “total cost of ownership”; and (ii) responding with its own campaigns and initiatives to ensure that carriers promote attractive offers for Apple devices. This would not be the case in the absence of strong competition against other device manufacturers.
Figure 1: Price comparison UK, 2022
Source: Apple’s weekly analysis of minimum retail prices across Amazon UK, Argos UK, DSG Retail UK, and JLP UK. The figure presents price comparisons with prices at Argos.
- A reliance on “average price differences” also ignores the fundamental fact that this is a vertically differentiated market, where users trade off price and quality (“value for money”) and competitive constraints bear across the price range: consumers will "trade down" if they no longer find a high- end device is worth the price premium. Accordingly, Apple is constrained in its premium segment also by competitors from lower segments (and vice versa). That there is a range of price points is not evidence of lack of competition when there is a range of quality and characteristics at different prices. This needs to be accounted for in the final report’s competitive assessment.
- The IR also relies on survey evidence apparently suggesting that consumers rarely switch mobile OS when replacing their devices, to conclude that "[t]his suggest there is a limited competitive constraint on Apple and Google from rival suppliers of mobile devices and operating systems (including each other)".^21 This is again conceptually wrong, and not borne out empirically. One cannot assume low switching to be the result of a "lack of competition" without at least exploring alternative explanations:
- First, as a matter of principle, while high levels of switching are typically indicative of competition, low levels of observed switching say nothing, per se , about competition.
(^21) IR paragraphs 3.81 and 3.82.
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- Second, any interpretation of customer loyalty needs to take account of the extraordinarily high levels of user satisfaction for iPhones. Survey evidence available to Apple in the ordinary course not only confirms that users are highly satisfied on average with their iOS devices, but also shows that those who are not have a higher propensity to leave their respective ecosystem. This is what one would expect in a competitive market where differentiated products are offered, and consumer preferences are relatively stable over time.
- The IR further claims that survey evidence the CMA has available shows that customers switch more often from Android to Apple than the other way around, and this is evidence that constraints on Apple are weaker.^22 But this overlooks a much more plausible explanation: Apple simply offers more popular products, so users have little reason to switch back to Android. It is well known that loyalty is driven by customer satisfaction. This view is also supported by survey evidence available to Apple in the ordinary course. First, survey evidence confirms high levels of satisfaction by iOS device owners , which needs to be taken into account when interpreting the observation that iOS users are less likely to switch OS relative to Android users (because this can reflect higher user satisfaction, rather than barriers to switching). Second, it shows that users switching from Android to iOS are significantly more satisfied with their new device than users switching the other way. Third, when looking at the share of users who switched mobile OS among those upgrading their device, the survey also shows that it is the iOS users who were not highly satisfied with their previous device who tend more to switch to an Android device. This confirms that users switch when they are less satisfied with their iOS device; and they are not held back by barriers to switching. Overall, the CMA cannot simply disregard satisfaction with the device as an obvious driver of consumer choice – and conclude that low switching must be evidence of artificial barriers.
- Indeed, instead of recognising the impact of user satisfaction, the IR postulates that three main categories of barriers are responsible for a lack of switching: learning costs, transfer costs (for data, apps, and subscriptions), and the availability and characteristics of first-party apps, services, and connected devices.^23 The IR asserts that survey evidence documents the salience of these barriers. However, a closer look shows that only a negligible proportion of survey respondents expressed views that would be consistent with such barriers. What the evidence shows first and foremost is that these are, in fact, not an issue for most smartphone users. There will be, of necessity, some “costs” associated with learning to use a different product: to avoid such costs or ensure availability of the same first-party apps, services, and connected devices, the ecosystems would have to be identical. This cannot reasonably be the benchmark for assessing "barriers to switching". Transferring data etc. across ecosystems is not only possible but it is easy, both from Android to iOS and vice versa.^24 All major smartphone OEMs offer tools to seamlessly transfer content from Apple to Android devices and vice versa.^25 Well-rated apps from third-party providers are equally available.^26 The survey results referred to in the IR^27 are from 2017: they are
(^22) IR paragraph 3.26. (^23) IR paragraph 3.102. (^24) See, for example, https://www.computerworld.com/article/3218067/how-to-switch-from-iphone-to-
android-ultimate-guide.html (^25) Such tools include Samsung Smart Switch and TouchCopy. Since several apps seamlessly transfer content
and apps from iOS to Android devices, the IR’s allegation that “ there does not appear to be a main mechanism through which a third-party switching app can reliably obtain data on which apps a user has installed on their iOS device ”(§3.116) is misguided. (^26) For example, Wondershare MobileTrans boasts to be the “Best Secure Phone to Phone Transfer Solution”
and works with Android and iOS devices alike. See https://mobiletrans.wondershare.com/ (^27) IR paragraph, 3.119.
supported its older iPhone models with frequent software updates even years after its release, whereas companies that develop Android phones are recognised as making their phones obsolete in just two to three years.^32 This difference in approach is an additional reason why users choose iPhones over others.^33
Functionality and ease of use
- Functionality and ease of use are key drivers of consumer choice. The IR recognises the importance of innovation in driving device and OS functionality and the efforts that Apple has made in this respect. Apple seeks to make Apple’s devices more attractive to users over devices that use Android by offering a superior ease of use and multiple innovative functionalities.
- A hallmark of the iPhone since its release in 2007 is its ease of use. A user can open the iPhone, set it up in a handful of easy to understand steps, and immediately have a device that works; there is no need to go through many set-up screens and choices. To enable this “out of the box” experience, the iPhone includes a number of pre-installed apps, like the Phone app, the browser or the camera. For example, Apple invested significant resources in building a web browser which, when pre-installed immediately launches the web page selected in Apple Maps or Messages, without the user having to open the browser app and input or paste the web link into the URL box.^34 This seamless and easy-to-use experience is a key driver of consumer choice, with survey evidence showing that 45% of users cite this as “one of the main criteria in their choice of mobile phone”.^35 Apple supplements this immediate functionality with the ability to add to the user’s personal smartphone experience by offering millions of apps through the App Store.
- Accessibility is another area where Apple leads the way, with many built-in features such as VoiceOver, Reduce Motion, Spoken Content, shortcuts and workflows, Assistive Touch, Accessibility Keyboard and active listening features, all designed to make the iPhone easier to use.^36 These many functionalities rely on the hardware and software integration that Apple’s ecosystem allows.
- Similarly, with respect to the quantity and quality of content available in a mobile ecosystem, Apple’s continued investment in the iPhone, not to mention significant investments in tools and services, have made the impossible, possible over the last fourteen years. Many of the apps available on the App Store today would not have been possible in 2008. Apple’s investments in R&D and technology year after year has resulted in an incredibly rich assortment of high-quality apps. Recent examples include the development of health-tracking apps (using ECG and oxygen sensors in wearables), apps that use augmented reality technology to let users visualize in the world around them things that would be impossible or impractical to see, professional photography apps (using Camera developments, such as portrait mode), increased security on pay-by-phone parking and other apps (using Sign-in with Apple), and apps offering customized shared in-app experiences, such as watching or listening to media streaming simultaneously (through SharePlay APIs). In 2008, Apple released a software development kit with 10, Application Programming Interfaces (“APIs”) which supported the development of 500 apps available through the App Store. Today there are more than 150,000 APIs available to developers. And there are more than 1.8 million apps available on the App Store.
(^32) See, https://www.techtimes.com/articles/263017/20210717/android-vs-apple-why-phones-limited-
support-compared.htm (^33) See, https://www.vice.com/en/article/dypxpx/google-is-forcing-me-to-dump-a-perfectly-good-phone (^34) Of course, users can change the default browser from Safari to another browser in Settings if they so wish. (^35) IR paragraph 3.10 and fn 81. (^36) See, https://www.apple.com/accessibility/.
Security and privacy
- The IR grossly downplays the importance of security and privacy from a user-choice perspective, including them together with other aspects within the category of “features, functionality and performance”. However, in Apple’s view these features are essential drivers of choice and of Apple innovation, such that they warrant consideration separately.
- Apple’s emphasis on privacy is not new. It has long been a key differentiator for Apple. Back in 2010, Steve Jobs stated “ [w]e’ve always had a very different view of privacy than some of our colleagues in the Valley. We take privacy extremely seriously. … Privacy means people know what they’re signing up for. In plain English, and repeatedly ”.^37 The defining principle for Apple is that the user is empowered to choose how their data is treated and is given sufficient information and options to allow them to make an active choice.
- Apple adopts an approach of “privacy by design”, which reflects this stance. Apple’s belief is that users should not be subjected to invasive data collection practices without their knowledge or consent. As a result, every Apple device combines hardware, software and services designed to work together for maximum security and privacy and a transparent user experience in service of the ultimate goal of keeping personal information safe.^38 For example:
- Apple is committed to on-device processing of user data to the fullest extent possible. Apple’s focus on privacy means that it actively avoids gathering user data where possible. This holds across Apple’s apps and features, such as Apple Maps, Apple’s Photos app, Messages, Siri, and Apple Pay.^39 If data is needed to make a service work, as far as possible Apple associates the collection with random identifiers and not the user’s identity.
- Apple has introduced significant innovations over the years, including Touch ID, Face ID, iCloud Keychain (which securely stores and autofills passwords across devices), private browsing, and fingerprinting defence to prevent advertisers and websites from combining multiple data points to “fingerprint” a given user; all of which are aimed at improving the security of devices and the information held on them.
• Apple has introduced specific privacy features over the years, including: (i) Sign-in with Apple,
which hides a user’s email addresses from developers to reduce tracking of activity in apps; (ii) Intelligent Tracking Prevention (ITP), which limits tracking across websites while still enabling websites to function normally. ITP is turned on by default, there is no need to change anything in Settings or Safari preferences to receive tracking protection;^40 (iii) Privacy nutrition labels, which provide users with information about how an app tracks, collects, and uses data; (iv) App Tracking Transparency , which further provides users with the ability to decide how their data is treated by requiring apps to show a prompt to users to choose whether to allow a developer to track their activity across other companies’ apps and websites; and (v) Personalized Ads Choice , which provides a prompt requiring users to choose between allowing the use of first-party data for Personalized Ads On or Off. Apple holds its own apps to this same set of standards. In the case of Personalized Ads Choice, it is holding itself to a higher standard than third party developers. Section E below provides further detail on Apple’s recent privacy initiatives.
(^37) https://www.digitalmusicnews.com/2018/03/25/steve-jobs-user-privacy-2010/. (^38) For further detail, see https://www.apple.com/privacy/docs/A_Day_in_the_Life_of_Your_Data.pdf (^39) For further detail, see Apple’s comments on the market study statement of scope document. (^40) https://www.apple.com/safari/docs/Safari_White_Paper_Nov_2019.pdf.
- Apple’s choices are explicitly intended to further the interests of consumers – from opening its proprietary technology for use in third-party apps, while preserving quality standards; to pioneering privacy innovations that empower consumers to make informed choices about their data.
- Apple also has a strong incentive to provide access to app developers to features and functionality within the device – such as the camera, sensors or GPS technology – as these apps then serve to improve the quality and experience of Apple’s mobile ecosystem.^46
- Developers have benefitted enormously from Apple’s approach. Apple has made it easy for them to create applications using Apple’s proprietary technologies and intellectual property. And it has made it easy for them to access customers around the world. Apple gives developers access to customers in 175 countries worldwide, with consistent rules, pricing and guidance across the globe, reducing costs and making it easier for developers to succeed across borders and to enter new markets. As a result, developers earned over £1.6 billion in billings on the UK App Store in 2021 alone.
(iv) Implications for the second half of the market study
- The importance of competitive differentiation between Apple and Android ecosystems and the way this benefits consumers and developers must be appropriately addressed in the second half of the market study. In particular, the CMA’s consideration of potential remedies must recognise that users have a choice between iOS and Android, which are evaluated by users on significant parameters such as performance, security, and privacy. Apple strives to address the needs of those constituencies of users who particularly value such elements through its approach to integration.
- This high-value offering to users is secured through Apple’s specific approach to its ecosystem, including its reliance on integration and the inclusion of complementary services that make its overall offering more attractive in competition with others. The CMA must therefore be aware that if it undermines Apple’s approach through potential remedies (for example, by mandating alternative app stores on iOS devices), the CMA would, in fact, be removing that qualitative choice from consumers, and positively mandating an increased privacy risk for such consumers.
(^46) IR paragraph 2.39.
C. The IR’s Consideration of the App Store
- With respect to the App Store, the IR highlights a number of areas for follow-up in the second half of the market study, including: (i) the effects of pre-installation across app categories; (ii) the importance of app search navigational and categorical queries; and (iii) the use of data by Apple’s app development teams. Apple looks forward to engaging further with the CMA on these topics. In this response, Apple addresses some fundamental misconceptions in the IR’s preliminary assessment of the App Store.
- The IR’s consideration of the App Store suffers from a failure to recognise the importance and extent of competition between Apple and other software distribution platforms to attract developers. At least 22 other digital distribution platforms launched between 2008 and 2011, including Google’s Android Market (now Google Play), Nokia and Samsung’s Ovi Store, Galaxy Apps Store, Amazon’s App Store, and Nintendo’s eShop for its 3DS device. Apple also competes against PC and console app platforms such as Microsoft’s Xbox and Sony’s PlayStation, and other tablet devices. Apple seeks to attract new developers and to encourage existing developers to invest additional resources to enhance their existing apps or develop new apps. It does so by introducing new or improved features and services, and by adjusting its commission downwards for various categories of developers. This competitive interaction has played out to the benefit of developers.
- In terms of features and services, Apple offers developers access to hundreds of thousands of APIs that simplify and accelerate the development process. Through the global footprint of its Developer Relations Team, Apple is also committed to providing further support to app developers, and is constantly working to improve App Store functionality and associated search performance. The extent to which this is driven by competition is clear. For example, Apple introduced wireless charging in 2017, which was already available on Samsung devices, offered female health tracking on Apple watch in 2019 following the introduction of similar features by FitBit and in 2020, answered Google’s Instant Apps with App Clips. On other occasions, Apple has led the way, as, for example, with app ratings, where Google introduced its new feature to weight app ratings following Apple’s revision of its app ratings feature, and with editorial features, where again Google followed Apple in expanding these features.
- With respect to pricing, Apple has introduced new rules that allow developers to avoid or reduce transactions that are subject to a commission. Apple’s unfailing practice over the last fifteen years has been to consistently reduce commissions, either through rules such as the Reader Rule and the Multi-Platform Rule, or programmes like the Video Partner Program and others that involve reduced commissions. Again, the competitive interplay here is clear. When Apple announced in 2016 that it was reducing the App Store commission to 15% for subscriptions in their second year, Google responded by matching the policy. In 2020, Apple responded to Google’s launch of promo codes with the introduction of subscription offer codes. More recently, following Apple’s announcement of the Small Business Program, Google announced that it would lower commissions to 15% for the first $1 million of revenue earned by developers.
- In positioning its competitive assessment of the App Store, the IR makes two fundamental conceptual errors. First, its focus on the role of Apple as a “distributor of native apps” into the App Store ignores the competitive constraints under which it operates. Second, the IR treats Apple’s App Store as a standalone object separate from devices, which entirely fails to appreciate Apple’s device-centric business model. The sub-sections below highlight key elements that must be borne in mind in order to properly frame an assessment of Apple’s position and conduct.
the App Store, Spotify and Netflix have in essence disintermediated the App Store, continuing to appear in the Store but in reality acquiring the bulk of their subscriptions outside the App Store (and thus avoiding paying any commission).^50 Spotify, for instance, turned off entirely the option for consumers to subscribe via Apple’s IAP in 2016, and has relied instead since then on Apple’s reader-rule to allow users to access content on Spotify’s iOS app.^51 Spotify has continued to thrive, attracting subscribers in the UK from other channels.
Figure 3: Spotify overall Premium subscribers on iOS, vs Premium subscribers acquired through IAP (UK)
Source: MIDiA for Spotify UK subscriber numbers, survey evidence for the share of Spotify UK subscribers with an iOS device, Apple data for the number of IAP subscribers.^52
- Video streaming services (“VSSs”) similarly distribute their digital content, including subscriptions, mostly through the web. Netflix and Sky Go have stopped offering the option of purchasing digital content through IAP at all. Figure 4 shows the breakdown of overall revenue earned by third-party VSSs from iOS users in 2020: in 2020, the total net commission revenue to Apple was only about 2-3% of third party VSS providers’ revenues earned from iOS users. Third-party VSSs paid no commission on the vast majority of VSS revenues earned from iOS users in the UK in 2020, although these users can freely stream videos on their iOS devices.
(^50) Spotify used IAP only for a short period of time and stopped offering it in 2016. Only few legacy customers
are still on IAP, see https://www.cnet.com/tech/mobile/apple-fires-back-spotify-pays-fees-on-less-than-1- percent-of-members/. The reader rule allows app developers including Spotify to provide access to digital content like music, videos or e-books purchased outside the app to their users without incurring a commission by Apple. See e.g. https://developer.apple.com/app-store/review/guidelines/, 3.1.3 (a) (^51) This holds also at a global level, see https://www.statista.com/statistics/813828/spotify-revenue-quarterly/
and https://www.statista.com/statistics/244995/number-of-paying-spotify-subscribers/ for statistics (^52) The number of Spotify iOS subscribers is based on the share of Spotify subscribers in the UK whose primary
device is an iPhone, elicited from a 2020 survey conducted by Apple in the context of EC proceedings. It is assumed, for the purposes of Figure 3, to be constant over time. The total number of Spotify UK subscribers is interpolated based on quarterly data from MIDiA.
IAP Turnoff
0
Spotify Subscribers UK
2016 m 1 2017 m 1 2018 m 1 2019 m 1 2020 m 1
iOS Subscribers IAP Subscribers
Figure 4: Third-party video streaming revenue and commission in the UK (2020)
Source: Analysis of Statista and Apple data.^53
- Gaming apps multi-home on several platforms (smartphones, game consoles and PCs) and developers can exploit the fact that content purchased on another platform can be accessed by users of the app within iOS without incurring additional charges by Apple to the developer or user.^54 Dating service providers rely on a similar approach, as users of dating apps can use their dating subscription plan previously made via web app or the provider’s website in their iOS device.
- The IR’s assessment of “the distribution of native apps” as an activity where “Apple has market power” ignores this reality. Apple, as the owner of the App Store platform, is concerned about quality, integrity, safety, and overall experience. It has strong incentives to ensure that apps can be distributed through the App Store only if they meet sufficiently high standards. However, developers choose how to monetize their apps. If they choose to charge for download, Apple will take a commission on that sale. Alternatively, developers can use the App Store for app discovery and distribution and have their app loaded for free, whilst monetizing their service also on different platforms and allowing users to import and consume the content on the iOS app free of charge. Apple is constrained by these alternatives, and over time it has indeed reduced the commission it charges to app developers for in-app sales of digital subscriptions (a reduced commission of 15% as of the second year;^55 a reduction to 15% also for developers whose revenues were below 1m USD in the previous year;^56 a lower commission also for participation in the Video Partner Program for providers of premium video content^57 ).
(^53) The bubble size is proportional to the number represented. Third-party VSS revenues for 2020 calculated
by deducting Apple TV+ revenue from aggregate 2020 UK VSS revenue (from Statista). Third-party VSS revenues on iOS estimated by multiplying third-party VSS revenues by the share of iOS users among third- party VSS users in a survey conducted for Apple. IAP gross billings and commission include Netflix, YouTube, Disney+, Amazon Prime Video, Sky Sports and NOW TV All figures in GBP. (^54) These apps can rely on the multi-platform rule and monetize their content by selling it in the app via Apple
IAP and in parallel also outside the app on other platforms. See https://developer.apple.com/app- store/review/guidelines/, 3.1.3 (b). (^55) See e.g. https://developer.apple.com/support/downloads/terms/schedules/Schedule-2-and-3-20211213-
English.pdf, 3. (^56) See e.g. https://www.apple.com/newsroom/2020/11/apple-announces-app-store-small-business-
program/ (^57) Apple, “Auto-renewable Subscriptions,” available at https://developer.apple.com/app-
store/subscriptions/, accessed on January 7, 2022 (“The net revenue structure for auto-renewable subscriptions differs from other business models on the App Store. During a subscriber’s first year of service, you receive 70% of the subscription price at each billing cycle, minus applicable taxes. After a subscriber
Total third-party video streaming revenue in the UK Third revenue on iOS in the-party video streaming UK Gross billings via IAP by third-party VSS providers
Apple commission revenue on IAP billings ( 2 - 3 % of total revenue from third-party VSS subscriptions with iOS users)
provide any relevant basis on which to assess device level competition, for the reasons described in Section B above.
- Third, App Store terms and in particular the headline commission rates are substantially the same across the world and these reflect the constraint Apple faces from device competition at a global level. It is therefore wrong to claim that the intensity of local UK device competition would be insufficient to constrain Apple’s conduct on the App Store.
(ii) Apple’s API restrictions are not a form of “self-preferencing” or “third-party preferencing”
- The IR echoes the arguments from Spotify and a handful of like-minded developers that Apple engages in so-called “self-preferencing” behaviour by failing to immediately make all of its proprietary technologies available to millions of third-party developers. As a preliminary matter, Apple notes that it works hard to make technologies available to third-party developers and has a strong track record of doing so. It is in Apple’s interests to do so, as the greater the range of high- quality apps available on the App Store, the more attractive the overall iPhone experience will be for users and the better it is able to compete against other devices. Apple has invested significant engineering time and resources to make more APIs available to third-party developers, and each year Apple has opened more and more APIs to developers. Today, there are more than 150, APIs available to developers, and that number continues to grow. This is clear evidence of Apple fostering competition by developers, rather than restricting or distorting it.
- More fundamentally, if Apple were engaged in “self-preferencing” behaviour, one could expect some strengthening effect in the market position of Apple’s apps that compete with third party apps. This is simply not happening, and the IR does not suggest otherwise. Indeed, it would be hard to do so given the competing apps from well-established players such as Microsoft, Hulu, Spotify, PayPal, Amazon, Skype, Google, and Meta, who often have a much greater share of the market in those downstream app categories (with Spotify, for example, holding over 60% of the music streaming market in the UK;^62 Amazon accounting for almost 90% of UK e-book sales;^63 and Microsoft with 89% of office productivity software^64 ).
- It cannot be seriously argued that Apple must grant the same level of access in the same timeframes to third parties as it does to its own integrated apps. Apple must be careful when providing access to software technologies to ensure that the security, safety, quality, device performance, and integrity of the user experience is not compromised. This takes time to develop, refine, and test. It takes time to develop public APIs before being released because, once released, third party developers rely on the underlying functionality of the APIs always being there to power their own apps. And there are some technologies that Apple does not make available to third- party developers if doing so would compromise the security, safety or privacy of Apple’s users.
- The IR simply repeats the criticisms from a handful of developers in relation to Apple’s approach to providing third-party access to hardware and software. It then concludes that “ in some cases …. total restrictions on third-party access are likely to significantly distort competition and that there could be less restrictive approaches to controlling access to APIs which would foster competition ”.^65 The question is not whether, in theory and absent any context, there are less
(^62) See: https://www.kantarworldpanel.com/global/News/Spotify-is-shaking-off-the-competition-in-the-UK-
audio- (^63) See: https://publishdrive.com/amazon-ebook-market-share.html (^64) See https://www.computerworld.com/article/3637079/as-google-moves-to-reshape-workspace-barriers-
to-business-adoption-remain.html (^65) IR paragraph 6.49.
restrictive approaches, but rather whether any restrictions that Apple does place on third-party access are objective and whether they, in fact, constrain competition. It is clear from the IR, that the evidence relating to the APIs under review does not come close to supporting such a conclusion:
- The IR relies on a single unnamed developer’s assertion to conclude that NFC access could be given to third-party mobile wallets without jeopardising security. Apple has provided detailed evidence as to why this is not the case and why any unlocking of NFC card emulation mode by Apple for use by third-party contactless payment applications would expose Apple device users to new attacks against their digital footprint and would create a new high-value attack surface in the Apple user ecosystem. Potential alternatives, such as the HCE solution, developed by tech providers and banks, have a security stance that is acknowledged widely as having fewer protections, with inconsistent deployments of those protections it does offer, contained in apps that are subject to the choices and capabilities of each developer (whose own data protection and security programs may be insufficient).
- With respect to the Ultra-wideband (UWB) chip, as the IR recognises, Apple has already begun to provide access to third parties to the chip. It released specifications for chipset manufacturers last spring and began certification of products last fall.^66 Third parties have already announced products that will take advantage of UWB in iPhone.^67
- Apple’s decision to test split-view multi-tasking with a limited group of third parties before opening up access more widely is a sensible and valid approach to security, and does not even begin to support a conclusion that this “ potentially distort[ed] competition ”, as suggested in paragraph 6.45. Indeed, such a suggestion runs counter to the IR’s earlier finding that “ In some instances, [Apple] may also give a competitive advantage to certain privileged third-party apps, but we have not heard concerns about restrictions on API access distorting competition in this way”.^68
- With respect to third-party voice assistants, enabling access to certain device functionality implicated in the IR would entail considerable privacy risks. For example, allowing third-party apps to have always-on access to the microphone of iOS devices or to read user texts in the Messages app would immediately nullify Apple’s data privacy policies because it could no longer guarantee that user utterances and data exposed to the device microphone or in the Messages app (including sensitive health or financial information) would be collected, processed, and protected according to Apple’s stringent privacy standards. Indeed, data- harvesting companies like Google and Amazon operate with entirely different business models regarding user data.
- To the extent there are differences in access to Apple’s proprietary technologies between third- party apps and Apple services, such differences are objectively justified by the need to ensure the safety and performance of Apple devices and the privacy and security of users.
(iii) App Review must be assessed in the wider context of its role in protecting users and developers
- The IR suggests that App Review functions as a gatekeeper and this “ could result in Apple … giving preferential treatment to [its] own apps [and be] liable to hinder innovation by app developers more broadly ”^69. The assumption underlying this concern (that Apple would want to disadvantage
(^66) https://developer.apple.com/nearby-interaction/ (^67) See https://www.engadget.com/tile-pro-ultra-wideband-tracker-new-devices-100025451.html (^68) IR paragraph 6.27. (^69) IR paragraph 6.74.
