By Rameesh Kailasam
Even as smartphone penetration continues to grow exponentially across the globe, the pandemic has accelerated the adoption of the app-based digital economy. An app marketplace is like a real-world, digital-only shopping center; it houses many stores and behaves like a distribution platform for any mobile / computer software (commonly called applications). The mobile app industry has generated billions of dollars in revenue for the app markets. Apple and Google may not have initially seen their app stores as key revenue generators, but in 2020, Apple iOS and Google Android app revenue alone reached $ 111 billion, with Apple holding a 65% share of the revenue value while Google is numerically higher among users due to the widespread penetration of Android.
An application pays for its existence from its creation to the various stages of its growth continuum. Much of the payment is for development around the operating system, listing on the App Store, promoting the app on the store, advertising, promoting app downloads, distribution, use of other features such as research, maps, marketing, payment gateways, commission discounts and government taxes.
Apple’s App Store initially charges a 30% commission on apps and in-app purchases of digital goods and services, which drops to 15% after the first year. For Google, the commission rate and model is similar to Apple’s. In both cases, real world goods are exempt and only virtual world goods and services are covered. In the case of the Samsung Galaxy Store, the commission is 30%, but with some room for negotiation. The Amazon App Store is similar to Apple and Google. Microsoft this year announced a commission cut to 15%, including 12% on games; however, the 30% rate remains for purchases on XBox consoles.
Application developers believe that the strict policies that lock you into a payments environment are restrictive in nature. In addition, aspects such as “distributed read apps” using their billing system as a method of payment if they require or accept payment for access to features or services, including any app functionality, digital content or goods, bind them unfairly.
Some kind of blockage on the payments side may seem like paying an MDR of 30% or 15%. If one were to analyze what type of apps might fall into this subscription category, it would include apps in the educational space, which have come online and are essential for a developing country like India. , marriage which is an essential social requirement, health and fitness (of the highest priority these days). In addition, come many other areas essential for information, news, mental well-being and engagement such as news, music, games and even business.
Financially, this could translate into more than 50% of the earned revenue going to the companies that own these application markets, which can also bypass taxation depending on how these are structured and implemented.
The best solution is for the customer and the application developer to have the freedom to choose, as is currently the practice without any forced locks. Such payment foreclosure mandates may also conflict with RBI regulations and consumer protection regulations. The proposed model is exponentially high at 30% and 15%, compared to 2-4% which appear to be overall upper limits for fees charged by payment providers and credit card networks. Mainly, such commissions are not warranted as there is already a thriving revenue model. Such forced commission models can have a devastating effect on the emergence of the startup and app ecosystem.
The challenge emanating from these captive app markets today is being felt by the startup ecosystem which is also complaining about a lack of algorithmic transparency and a growing stranglehold through bundled services and payment locks.
Recognizing this, the South Korean parliament recently approved a law that prohibits major app stores from requiring developers to use their payment systems only to process the sale of digital products and services. This means that app developers won’t be required to pay 30% and 15% commissions on every payment to these app marketplaces.
In Japan, the rules also previously prohibited “reading apps” in which consumers consume content purchased elsewhere. This month, Apple announced in Japan that it will drop the rule starting early next year as part of the conclusion of a Japan Fair Trade Commission (JFTC) investigation.
Epic and Apple are engaged in a legal battle that appears to be continuing despite a district court ruling in the United States. Epic had given its Fortnite players the choice of paying via iOS and Google Play or Epic direct payment, passing on the savings to avoid paying the disputed 30% or 15% requirement.
It will be important for India to take a close look at these developments as India now has the fastest growing startup and unicorn ecosystem that needs to be isolated from these business practices. Today, we all use various applications in our daily professional and social life. With such forced foreclosure models and exclusive payment controls, consumers can be tricked into paying unfairly high prices, and freedom of choice will be the ultimate victim.
The author is CEO, Indiatech.org