European Commission may be about to put the squeeze on Apple for its App Store rules The European Commission is said to be preparing to file charges against Apple alleging that its "steering" rules, imposed on third-party developers distributing software through the App Store, violate Europe's Digital Markets Act (DMA). The DMA, which took effect in March, is a European competition law that requires large …
I can't download digital music from Amazon (and hosted by Amazon, entirely separate from Google) using the app because if I buy digital content via an app, Google expect their 30% cut.
It's patently ridiculous that I find music on the app, then have to find it again on the website in order to buy it, then go back to the app in order to listen and/or download it. As Google is not involved in any part of this, why do they think they deserve nearly a third? This wouldn't fly if they tried to claim 30% on physical purchases (from Uber to pizzas to a new sofa, that would be slapped down so hard), so why are digital purchases considered different? It would be one thing if Google was managing/hosting the content, but they're no part of this. It's easy money "because our terms say so".
US companies regard fines and regulatory penalties as a component of the normal costs of doing business. They break the rules knowingly, but hoping that either they'll get away with the misdeed, or that the gains will be sufficient to offset the fine - which is often the case.
Regulators (or more so politicians) need to understand that fines are not a deterrent. Fines are rarely if ever at the 5 or 10% of turnover that the legislation allows (and there's specific reasons why that is so) and therefore regulators need to use or seek powers to suspend non-compliant companies from doing business. This really doesn't need to be for long, but it's a whole lot more public, embarrassing and commercially pressuring if say the App Store has to be shut for ten days, with a message as to why that is so.
I've said it before, and I have no doubt I'll be saying it many times again, but c-suite jail terms are the only effective deterrents against corporate malfeasance. Write the laws so that if a regulator decides that a company has knowingly breached them, ALL c-suite executives face a minimum of a year in chokey. Let them pass that off as simply the cost of doing business.
"so that if a regulator decides that a company has knowingly breached them, ALL c-suite executives face a minimum of a year in chokey"
I wish. Working as a regulator myself, after many years of being regulated, I can see some holes here. "If a regulator decides..." doesn't work too well unless penalties are low. If the penalties are stringent then they can and will be challenged in court, and then the regulator has to prove the case beyond reasonable doubt, and "knowingly" is exceptional difficult to prove.
Lose such a case, and then the regulator pays the company's costs (in the UK, at least), the regulator's name is mud, and all companies decide they can get away with the behaviour of the acquitted company.
You've missed the point - that is indeed how EU fines are allowed for, but clearly they don't deter wrongdoing. Retail energy markets in the UK have attracted hundreds of millions of pounds of fines over the past decade, financial services have attracted billions in fines in the UK, EU and and US, yet behaviour in these sectors barely changes. The tech sector are like financial services always being investigated and fined for something bad.
Take the recent €1.8bn fine the EU levied on Apple applies to activity running for a decade. That was half a million per day. Given that net profit after tax was running at an average somewhere around $191m per day, the fine isn't going to hurt much. Moreover, over the past three years, annual profit after tax has run at around $96bn, so they'll barely notice the fine.
A further observation is that Apple revenues over the past ten years are around $2.8 trillion, so the fine COULD have been 10% of that, but it wasn't - it was 0.064%. Which goes back to my comment that "up to" means nothing. Of course, if the EU did try and impose a circa €300bn fine on Apple, do you think they'd get away with that? I doubt any court would rule that to be proportionate, and even if it were upheld, I suspect the EU might find that the US retaliated against major EU companies (but that would be coincidence, of course).
"I doubt any court would rule that to be proportionate"
If it's what the rules say then I'd have thought a court would have no option but to back it. What's needed there is for the rules to be quite explicit about how fines up to the percentage are determined - say so much for first offence and incremental proportions for persisting with the offence.
The rules simply aren't that strict. "Up to" includes the figure zero, and just as courts aim to be impartial and proportionate, they do require the same of regulators. If companies don't like the action of a regulator, they can and will use legal process against them. As an example, my regulator currently has a major household name company taking us to judicial review over something. I'm pretty sure that circa 90-95% of the public would support our (the regulator's) position, the company is hoping to persuade the judge that our interpretation of the rules is incorrect.
Whilst the purpose of regulation is to primarily to monitor, encourage and support compliance, there's obviously the enforcement aspect. But in that enforcement role, the regulator is acting as part of the legal system (I've got colleagues who give the PACE cautions before interviewing people over suspected regulatory breaches). So just because the written laws allow fines up to 10% of turnover, there's almost no conceivable circumstance where a fine of that magnitude could actually be justified before the courts. When deciding on a penalty value, there is provision in law for aggravating or mitigating circumstances - such as early guilty plea discounts, or repeat offender multipliers (say in the 10-20% range).
You also have to remember that the regulators, courts, and public prosecutors are out-gunned by large companies - the public sector pays derisory salaries, rarely offers performance related pay, have few staff compared to the private sector, whereas a big tech company will be lawyered-up to the hilt, using big name attack dog lawyers on success bonuses. It's not an even contest between a public sector lawyer team of a head of legal on £75-85k, supported by a lawyer on £50-60k, and a Magic Circle partner on £750k+, supported by a large team, and any technicalities with a top barristers' chambers.
In terms of what's needed, no matter how much you might think it warranted, the politicians are not going to sanction much higher fines. You already know who spends millions lobbying them, pleading their case, buying their favours. Look at that miserable maggot Clegg and what he's doing now.
Earlier in this thread somebody had suggested a sales ban. I think that has to be worth a try, I've been in an industry where a regulator used that sanction on a company (only once) and I can assure you that despite the short time period, it froze the rest of the entire industry with terror. Everything about most companies is centred around sales and new business, attack them there, that's where it hurts.
Just like the rules might say that for a certain crime the sentence is "up to" 25 years, but sentencing guidelines suggest much less. For instance, the felonies Trump was found guilty of allow a sentence of "up to" 4 years, and he was convicted of 34 of them. But I doubt even the most ardent Trump hater would think it is fair if the judge sentenced him to 136 years.
I mean I can see the logic of "well if you fined them the maximum then companies will never do that sort of thing again" but that's like saying "if you sentence people to death for every felony then people will stop committing felonies".
No, I think it's perfectly fair if T***p gets 136 years.
I mean, even 20 years would be life for him, 4 years might be. And for the good of the country, he needs to be kept away from society for the rest of his life. And of course presidents should face MUCH harsher penalties than normal humans - and this is a country that has put Walmart shoplifters in prison for 12 years.
While there is obviously a cost to running the App Store and approving the apps and general cyber housekeeping, it strikes me that if the App Store owners hadn’t set the levies so high, lawmakers wouldn’t be so uppity about it.
Even more so since Google’s idea of cyber housekeeping seems to be “oh what’s that mess over there?”, and Amazon’s idea of browsing App Store, book store, in fact anything is “you touched/looked at/thought about it, you bought it”.
It’s how retail works. You’re complaining how *retail* works. Anyone who has ever worked on the business side of either wholesale or retail is fully aware that 50% retail markup (=33% of final retail price) is considered norm for most items in an everyday shop. Literally the retail pricing process in a shop is: choose a shopwide policy for markup (pick 50% to start), add that markup to all wholesale item prices, then get rid of the ones that don’t sell at proper price by putting them on sale (and don’t stock those again). This leaves room for 10-15% profit margin after costs. It’s how a shop works. Sell at significantly lower markup than 50%, and you’ll make a loss after costs.
The only thing I can think of that is much lower is food,where 15% markup is norm; clothing is normally 100%+ retail markup and 200-300% at high end (300% markup means the retailer gets 75% of the final price).
So what you’re actually complaining about is that
A) You don’t understand why a webshop cost-of-selling isn’t zero (then go and do some research, it’s *slightly* lower than bricks and mortar but you still need 30-40% markup for e-commerce.
or B) You think that Apples App Store business model is somehow a special case, and has very low cost of sales compared to most e-commerce, because it is selling digital.
In either case, I invite you to go invest in Etsy. It’s a web platform for e-commerce of very small crafts stallholders, doesn’t hold any physical stock, doesn’t take any risk on whether things sell or not. Charges are complex (more than the “boilerplate Ts and Cs) but net out they charge their “stallholders” about 20% of final selling price. They don’t do anything else to confuse the financial picture. They’re an acceptably successful business, but only moderately. Their actual profit margin is 9%. That is *not good*. I won’t be investing in that. So that’s what a fully-web based platform business which makes *20%* charge on final selling price looks like. Very far from a license to print money. 30% seems decent, maybe they could cut to 25% if they had to. But 20% would be the end of them as a global selling platform; and they’d be out of business @15%.
No, that is NOT how retail works. By not being able to quote precise profit margins on many retail industries (and I've been in enough of them to know) it shows that you actually are simply being apologist.
Apple's app store policies are the equivalent of being a LANDLORD, not a retailer. Apple has made a space, the App Store, where individual businesses can set up a "booth" to sell their wares. Apple has set up the equivalent of a market exchange, walk in and examine the wares from thousands of independent merchants.
The PROBLEM is that Apple not only wants rent and a percentage of the cost of each sale that happens under its roof, they want their cut for PERPETUITY for anything associated with the object sold. Apple's policy is the equivalent of one of the exchanges in the market selling tools, and Apple expects a cut of profits if the tool is then used to make an object that itself is sold later!!
Apple deserves its cut for any sales that happen inside its App Store. Period, as you say that's retail business.
But they have NO right to a cut from any transactions that may occur, if purchased directly from the merchant, once the original purchase of the product which can enable said later purchase is made. Its like VeriFone selling credit card terminals to Wal-Mart and then expecting a cut of every card transaction processed through the terminal! Once the original product is sold, that original seller has NO right to force continued payments to itself if the transaction fundamentally has no connection with said original seller.
If Ford sells a car but Bridgestone makes replacement tyres, Ford has no right to ask for a cut when a tyre is sold through Bridgestone's own retailers.
See the comparisons? If the developers make a method to sell products after the purchase of the app for use inside said app - in-game add-ons, music files, additional function modules, whatever - Apple simply doesn't deserve a cut simply because it is running on their hardware. Otherwise IBM would still be getting a cut of all software because of the PC architecture.
It's absolutely ridiculous and needs to be crushed. Not just stopped, CRUSHED.
“By not being able to quote precise profit margins on many retail industries”
I’ve literally done exactly that, on a precise comparator, Etsy. Etsy *exactly* “ individual businesses can set up a booth to sell their wares….set up the equivalent of a market exchange, walk in and examine the wares from thousands of independent merchants.”. As I’ve explained, Etsy extract 20% of final selling price from the stallholders, and that results in a rather modest business which is slightly profitable but really rather underweight. I’ve used this as an example to show that Etsy’s 20% rake is *insufficient* to make it a great business. The truth is that it is capped at that rate, because most of its stallholders are near-hobbyists with unviable businesses themselves, and can’t pay any more. 20% is not enough, 30% may be slightly over.
Landlord / retailer. I won’t go into too much detail, save to say that most large department stores, certainly John Lewis, are *exactly* landlords for their brands in this sense. If you buy trousers from John Lewis, the wholesaler has paid from them to be on display, JohnLewis take a cut of the purchase price but at no point owned the trousers or take any sales risk.
Oh no, I'm talking mainstream retail, you started trying to quote profits but I'll give them to you now, the hidden functionality behind many of the major industries you deal with, to show you how much I've been involved
First, 100% markup is called a "keystone", or "key" for short. I'll use that here as that's the way retailers talk to one another and between seller and retailer. All percentages shown are MSRP.
Consumer electronics ("brown goods"): 35%
Appliances ("white goods"): 35%
Furniture ("case goods"): triple keystone
Jewelry: triple keystone
Fine clothing: triple keystone
Recorded media: 30% (when purchased through OneStops)
Travel: 0
Yes I've been in all those industries and a few more (or their 'subdivisions').
Yes, brown and white goods only get 35% at MSRP but they make it up in other ways:
"Spiffs", commissions / bonuses paid by the manufacturer directly to the salesperson for each sale or attaining a sales quota
"Ad co-op", reimbursements for advertising when using approved ad copy, company logos or media
Rebates may be available to the retailer at the end of the year for reaching a sales quota. Small retailers can also get this discount by grouping together regionally into a "buying co-op", where they group their buying power into volume and then run a group warehouse to handle distribution to their members.
All these rebates and discounts aren't a lot individually, maybe 5% on average, but when you're only allowed 35% to MSRP and you may have to discount from there to get the bushiness, every little bit helps. This is where some trickiness can come in, when you try to comparison shop a product yet somehow the model number is different: the co-op gets the manufacturer to make a slight change, even if just the number, to resist comparison shoppers
Travel is "0", no profit - sold at retail. Instead, the agent gets a commission on the sale: 15-20% is usual. If a customer buys "direct" then the airline / hotel / cruise line etc just gets to keep that money instead.
Manufacturers can pay for retail display space (we did once) but at NO time do they / did we take a slice of the retailer's profits from the sale - not ever. That's double-dipping and I'm sure would hit against the Sherman act of horizontal integration here in the U.S.
I could go on about retail, as my family was in it for 1/2 a century and now I'm on the manufacturing side in a different (retail) industry, but you get the idea...
So……I don’t disagree that markup is somewhat dependent on sector. And three of the ones you list as 30-35%, equals 25% margin, v similar what I said. There are indeed some special-case industries. The point I made is that Apple’s 30% margin, aka 43% markup is nothing out of the ordinary in retail and even on the low side across a broad variety of sectors.
I specifically noted that 20% margin, aka 25% markup, is near breadline and *none* of the sectors you mention can live on that.
I’ll get even more specific than sector: as a fashion brand selling into John Lewis, you’ll be paying 25% commission “rack rate” (there’s a bit of negotiation wiggle-room if they know you and sell well, but less than you’d hope). So that’s 33% markup. But *plus you are paying rent for the display space* in JL. They literally are a landlord. And that’s not even the difficult bit: crucially *brand* takes the stock risk, not JL. All unsold stock comes off brand bottom line, not retailers.
I’m not familiar with how the business and law works in the USA. But here in the UK, yes absolutely the “landlord + commission” model is completely dominant in upmarket fashion. From our POV you’re looking at it the wrong way up: it’s not manufacturer getting a second slice of the pie; it’s that the “retailer” is nothing of the sort, they never own the goods and therefore take no sales risk - rather it’s the “retailer” double-dipping as they *both* earn by selling display space *plus* commission on goods they never owned.
Our bricks-and-mortar books retailers work exactly the same way (Waterstones do not own any books they “sell”). And worst of all, our grocers work similar: Tescos “sell” vegetables that they get commission from, and at the end of the day if they go off they get thrown in the bin and the farmer gets nothing. Tesco decide where in the store to show somebody else’s vegetables, which the farmer has no control over *and* Tesco decide when to discount and the farmer takes the price hit.
YMMV in the USA. But large retailers in the UK have all the pricing power on Ts and Cs.
@Snake, @Justthefacts
Thank you both for the informative debate, you both got my modest upvote by way of thanks. If I were choosing sides, I think Justthefacts has the more compelling argument even though I don't like what it means, equally I remain to be convinced of the costs of e-tail distribution that would support app store margins. To an extent, I feel that app stores (and related operations) build their cost base through discretionary and probably unproductive marketing simply because there's so much money coming in.
If I buy a, say, music player of some kind from Etsy, I don't have to then pay Etsy 20% for every piece of music I later purchase for the player (unless I'm buying the music from Etsy).
Apple charges for buying apps through their store. Fine. Apple charges for buying content through their store. Fine. Apple charges for buying content from someone ELSE's store? No.
Because in the PC market, getting shelf space for their software at places like Best Buy was very difficult, and the software vendor didn't get to keep anything like 70%. Now granted Best Buy wasn't getting any piece of after sale revenue, but back then after sale revenue wasn't a thing.
Heck it took a while before that particular cancer made it to the app world. You used to pay for an app, and that was the end of the transaction. The problem was that developers saw that once everyone who wanted their app had bought it, sales slowed to a trickle and they had to continue to support it. For whatever reason, the "upgrade version" thing never made it to the app world, Geekbench is the only app I can think that would version itself so if you had bought Geekbench 5 for instance you'd have to pay for Geekbench 6, which was a different app not a new version you'd automatically download.
Everyone else went to the subscription model, or the in-app purchases model, making their apps "free". And apps became way more expensive as a result - you download some simple app and it expects you to pay $7.99 a month for it and I don't think I'd pay $7.99 to own it! But you don't know how good it is until you download it, and often don't even know what the subscription price will be until you download it. So you download a bunch of stuff you end up immediately deleting. The app world has become much worse as a result.
Now developers are complaining they want to keep all the post sale revenue. The problem is THAT'S ALL THERE IS. Hardly any apps charge you to download, they charge for an "in app purchase" to make it usable, or give you a 3 or 7 day trial and then you have to subscribe, or whatever. They expect to be able to collect all that money themselves, but have Apple/Google provide the whole app store infrastructure for millions of "free" apps they collect nothing from. That model is obviously not sustainable either.
Bullshit.
Developers were not "overjoyed". They put up with it, because they didn't have a choice if they wanted to sell apps for iDevices.
Brick and mortar retail never made anywhere close to 30% on software, at least not after 1999 which was when I was involved in it. We were lucky to get 10%, it was usually closer to 5%. The computers were just as bad, Apple got over 90% of the price of a Mac, the only exception were the most expensive G5s and Mac Pros, those were sometimes a bit over 10%. When the Mac mini came out, if somebody bought a base model at Apple MAP with an AmEx card we lost almost 1% on the sale.
The ONLY things that made money were RAM and hard drives. Our markup on RAM was about 50% (and we were still undercutting Apple's RAM price, usually by a lot). Soldered RAM was the end of the line for us, Apple finally managed to put us out of the retail business after trying for over a decade.
I too am not pleased with Apple continually giving the middle finger and it seems governments are powerless. Be careful what you wish for, with so many retirement accounts holding mutual funds that are heavily weighted in Apple stock, a big smack-down to Apple will probably affect a lot of retirement accounts.
It isn't like you won't have years of advance notice. If the EU issued some massive fine for Apple, there would be years of appeals before it become final. Plenty of time for some judge to reduce the fine as excessive, different people rise to positions of power within the EU and decide to strike a settlement for much less, etc.
So there's no worry that a huge fine will be announced and result in the stock price falling by 25% in a single day. Maybe 4-5%, which would hardly upset anyone's retirement plans, because the market knows how long it would take before Apple is forced to actually open the checkbook and how likely it would be the amount is reduced.
Apple’s fine and other fines to tech giants are all distraction.
Fines are costed in by these businesses.
The EU are pretending to do something.
The leaders of the EU are all heavily invested in Apple stock and all the tech giants. Check their net worth. They’re never going to penalise these businesses heavily.
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