The UK government has published a detailed report outlining how Apple and Google exploit their combined stranglehold on the global mobile ecosystem outside China, but seems unclear what action to take as a result. Indeed, it seems intent on finding a compromise rather than instigating direct antitrust action.
Compiled by the country’s Competition and Markets Authority (CMA), the report accused both companies of actively limiting competition in their respective markets to the detriment of their customers and is following up with market investigation into Apple in July, as well as some unspecified action against Google.
“Apple and Google hold all the cards. As good as many of their services and products are, their strong grip on mobile ecosystems allows them to shut out competitors, holding back the British tech sector and limiting choice,” said Andrea Coscelli, CEO of the CMA.
The implication is that consumers would enjoy even better services and faster innovation in the event of this duopoly’s power being curtailed. But there is a caveat, which Google and especially Apple have been exploiting, called privacy. This has been the nub of the antitrust argument with other authorities around the world, including the European Union and USA, with both companies contending that allowing third party apps access to their ecosystems via sideloading would expose users to security risks and jeopardize the privacy of their data. Sideloading is the installation of software on a device bypassing the approved app store or distribution channel.
Apple, in particular, has incorporated privacy into its marketing and promotional campaigns, ensuring personal data is processed only on users’ devices as far as possible and even then shielding it from apps except with the user’s express permission. Apple insists on security by prior design rather than subsequent addition, as with prohibition of sharing cookies or precise location details during searches in its Safari browser.
There is also Intelligent Tracking Prevention, which according to Apple applies machine learning to inhibit cross-site tracking, whereby advertisers can identify the products or services a user has bought in order to bombard them with relevant ads as they browse. This safeguard operates by hiding device IP addresses from trackers, and is done by default.
Citing such capabilities, Apple CEO Tim Cook argued in 2021 that sideloading “would destroy the security of the iPhone and a lot of the privacy initiatives that we’ve built into the App Store where we have privacy nutrition labels and app tracking transparency, where it forces people to get permission to track across apps”.
Similarly, Kent Walker, president of global affairs and chief legal officer at Google and parent company Alphabet, has argued that proposed US antitrust legislation, as outlined in the American Innovation and Choice Online Act, would prevent the company from integrating security features into its apps and services by default, such as its SafeBrowsing service, along with spam filters in Gmail and Chrome, which block pop-ups, viruses and malware. Walker went on to argue that this legislation would also result in some users having inferior versions of its leading products such as Google Search and Maps, which have achieved their current capabilities as a result of massive investment and resource.
Such arguments revolve around control over the ecosystem as much as access to the market for third parties. Sideloading is really about flouting the rules and does indeed open users up to risks, as well as opportunities to obtain products that may not available via the respective official channels, the two app stores. It is worth pointing out that scope for sideloading differs significantly between Apple and Google, as a result of their distinctive business models.
Apple’s model is all about selling devices and to this end has enforced an iron grip over the ecosystem designed to keep third party devices out, but which also inhibits sideloading. Apple’s devices are locked down with no sanctioned way of sideloading software, which is therefore sometimes referred to as jailbreaking, whose legality varies between countries.
Google, on the other hand, makes most of its money from advertising even though it does now make its own phones. Other, larger phonemakers, such as Samsung, also ride on the Android-based ecosystem, which is therefore far more open than Apple’s and allows sideloading of non-authorized apps with little effort. That is why Google is less well-placed than Apple to play the privacy card in its opposition to antitrust legislation and prefers to talk up the quality of the services.
As a result, the antitrust cases against Apple and Google, currently heating up both in Europe and the USA, are substantively different. Google does allow Android users to install third app stores on their devices and indeed many devices come with two or more pre-installed. The argument therefore touches on access to the official Google Play Store, but more particularly from rival search engines and ad platforms, which require access to relevant data.
For Apple, on the other hand, attention is focused on the iron grip it imposes on its ecosystem and ability for users to roam outside the App Store on iPhones and iPads.
This has come to the boil in the EU through the Digital Markets Act, which was agreed in March 2022 but will only come into force when enacted by member states, anticipated early in 2023. This is the EU’s most sweeping digital legislation since the General Data Protection Regulation (GDPR), which came into force in 2018. That introduced the world’s toughest laws protecting consumers’ personal online data, and has to an extent served as a blueprint for other regions. Ironically, this earlier legislation has helped Apple, in particular, argue that its closed ecosystem offers the strongest enforcement of user privacy and adherence to the GDPR. This latest legislation in one sense unpicks that by aiming to stop the big tech platforms generally from using their various interlocking services to shut emerging rivals out, which can mean removing constraints over data access currently in place.
Indeed, this far-reaching Act has implications that extend beyond the initial intentions, in – for example – its impact on messaging apps such as Facebook’s WhatsApp, whose appeal lies partly in use of strong encryption to protect user data against eavesdropping.
The EU’s Act imposes an extensive obligation for such apps to introduce interoperability for text messages, group chats, video calls and other exchanges, the idea being to allow new smaller players to come in and compete with the big ones without the ‘Catch-22’ of having to establish critical mass first to become useful. But this will require user permission to participate in such interoperability, since that loosens control over personal data, which could ironically deter wider adoption of emerging niche messaging apps anyway. It can be seen therefore that the privacy argument on the part of the big tech players will be hard to dislodge.
The impact of the Digital Markets Act itself is confined to the big players, defined as having annual revenues in the EU of at least €7.5bn in each of the last three financial years, or average capitalization at least €75bn, in order to avoid burdening smaller companies. In fact, the EU originally stated the legislation was confined to Google, Apple, Facebook (now Meta), Amazon and Microsoft, collectively referred to as GAFAM, although over time new players will qualify for inclusion.
Microsoft has come back into the antitrust frame in recent years after having been an earlier target in the 1990s when its Windows environment dominated desktop computing, at a time when Apple was in retreat. Having then been in decline itself early in the noughties, Microsoft has re-emerged as a major force in AI and cloud computing, which has attracted the attention of regulators and competition authorities this time around. It was just in March 2022 that European rivals filed an antitrust action against Microsoft, alleging that its contractual and business practices make it difficult and expensive for its customers to opt for a competitor.
Customers themselves tend to be ambiguous over such actions, because in the short term at least their impact can be counterproductive. There is certainly little evidence of widespread customer concern over Apple’s and Google’s dominant position in the mobile ecosystem, as can be gleaned by looking at market shares.
Generally, Android remains dominant, despite losing some ground to Apple, with around 70% of the global mobile operating system market. But this masks big regional differences, with Android still holding over 80% share in the price-conscious developing economies of parts of Africa, Asia and South America, but having been actually overtaken by Apple in North America. This suggests that more affluent consumers are buying into Apple’s argument that a locked-down platform is in their interests or is certainly not a negative factor.
The tension between competition and security has also just arisen in Germany, in an action separate from those of the wider EU, instigated by the country’s Federal Cartel Office. This is investigating how Apple tracks third party apps that sit alongside its own internally developed apps within its App Store. This action was elicited by Apple’s tracking rules, introduced in April 2021, that compel third party apps to ask users for permission before they track their behavior to serve them personalized ads. The point is that Apple does not impose this requirement on its own apps, which are therefore favored by these tracking rules.
It was, in fact, major rivals themselves – including Facebook, YouTube, and Twitter, under separate investigations – that were instrumental in promoting this action, showing that the big tech firms are quite happy to engage in action even as they rail against what they consider punitive and counterproductive impositions by regulators.
For the UK’s CMA, the attention is on the interface between the ecosystem and external apps or services, with the argument that Google and Apple can reconcile the conflict between security and openness if they are compelled to do so. There is also a sense that third parties should be allowed to add value to established services they cannot realistically compete with directly.
We are seeing this to some extent in the automotive sector, given that vehicles have become distinct mobile platforms in their own right. This has prompted concerns that Google and Apple, especially, will muscle in there and dominate with their mapping and navigation systems. But there is scope for collaboration with the vehicle makers, which Google is promoting through Android Automotive, a standalone version of its operating system that comes pre-loaded with some new cars, such as the EV (Electric Vehicle) Polestar 2.
Some major automotive OEMs, such as Tesla, have integrated Google Maps with other navigation systems in the kind of model regulators might like to encourage for smartphones. Tesla uses Google Maps to display maps on its in-car display, but other map data sources for the actual navigation, currently Mapbox for data and its own subsidiary Valhalla for routing.