Photo Credit: Donald Trung/Wikimedia Commons
Apple and Google own pretty much 100 percent of the market when it comes to app distribution, and they use that control to take hefty fees — up to 30 percent — from dollars you spend on app downloads and in-app purchases through Apple’s App Store and Google’s Google Play.
Apple and Google can command that fee because they require everybody in their app stores — that’s where anyone with a cell phone downloads new stuff with which to play and work — to use their in-house payment systems. Essentially, they control the road between consumers and developers — which is your phone, its operating software, and the app store — and they built a toll booth on it. When companies attempt to circumvent that toll booth by setting up their own payment system within an app, like Epic Games did with Fortnite, they get cut off from this 21st century company store system entirely, and therefore are severed from their own customers. Just so you understand how lucrative and egregious this is, credit cards corporations take between a two and three percent cut of transactions.
There are now bills in seven states including Illinois, Massachusetts, Minnesota, and New York, that would put a dent in this lucrative market, in the name of entrepreneurship, innovation, and consumer savings. The bills in question would allow app developers to use different payment systems to accept money, thereby creating some competition in fee collection; if folks had choices, perhaps Apple and Google would be forced to lower fees. Some versions of the legislation, such as those in Minnesota and New York, would also require that users be allowed to download entire alternative app stores, which Apple currently prohibits. Going forward, for instance, an app developer could choose to use PayPal or something they build themselves, two things that are currently not allowed unless Apple gives the company a special deal.
By preventing Apple from setting up a toll booth between businesses and their customers, more companies would be able to grow and your money would support the businesses you buy from, rather than a monopolist that happens to own a chunk of internet infrastructure. As a result, this would give states a positive way to compete for business. Instead of offering up multimillion dollar tax breaks to companies that might well have located in the state even minus the benefit, states could simply change their laws in a way that benefits both consumers and entrepreneurs to make themselves more enticing to new and growing companies.
As I explained in this New York Times piece with my colleague Matt Stoller at the American Economic Liberties Project, laws like this could be a factor for new or existing tech companies that want to get out from under the boot of Apple and Google when they choose to locate in a particular state:
The idea that these measures could entice companies to relocate isn’t theoretical. David Heinemeier Hansson, a co-founder of Basecamp, a software company in Chicago that has fought with Apple over its payment system, has said the company would like to move its operations to a state with such a law on the books.
This is an opportunity for states to spend no money in order to accomplish something they’ve been trying to do for decades using precious public resources: create new high-tech jobs and support small, innovative businesses by helping them escape the onerous terms imposed on them by Apple and Google. It turns out the secret sauce to economic growth is what state leaders have done for hundreds of years, which is to put fairness, not monopolies, at the center of lawmaking.
It’s a significant move to let businesses escape the cut of everyone’s revenue to which giant tech firms feel entitled to take. States enacting this sort of legislation are both fostering real innovation and the creation of exciting new jobs without resorting to corporate giveaways.
This isn’t an out-there notion. There’s a history of competition measures like this working before; in fact, one helped make Silicon Valley what it is today. As historian Margaret O’Mara reported in her book “The Code: Silicon Valley and the Remaking of America,” California’s ban on non-compete clauses in employee contracts made it easier for employees to switch jobs. That, in turn, allowed new tech firms to thrive because workers could hop around, rather than have their ideas buried in a stale, old behemoth. As the Times put it in its review of O’Mara’s book, “The turnover was staggering at Valley start-ups compared with established corporations such as I.B.M. on the other side of the country. But the creativity unleashed in the process left other regions far behind.”
Encouraging states to compete on the best policies to promote worker rights and small business creation in lieu of offering corporate subsidies doesn’t just save money. It can spur innovation and greater prosperity in and of itself. There are, of course, loads of other policy areas in which this same dynamic applies –– infrastructure, transit, housing costs, and child care are just a few.
In the meantime, just the introduction of these measures, as well as a broader antitrust push at the federal level, appears to be changing business behavior, as Google recently altered some of the fees it charges in its stores, cutting its 30 percent take down to 15 percent for some businesses. I can’t prove that there is a direct line between the bills and the changes, but it makes sense that Google would try to preempt scrutiny in this way, much like Apple did last year. (When I reached out to Google for comment, they never responded.) This is an example of how positive competition between states can foster innovation and job creation, rather than ruinous corporate subsidy competition that leaves us all losers.
A version of this post originally appeared on the author’s Substack, Boondoggle.
Pat Garofalo is the author of The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, the Boondoggle newsletter, and the director of state and local policy at the American Economic Liberties Project.