App marketplaces in the spotlight: ACCC releases second interim report on digital platform services

By John Gray, Ben Hamilton and Tamara Charlwood

The Australian Competition and Consumer Commission (ACCC) has released its second interim report under the ‘Digital platform services inquiry’ (Report). The Report discusses how Apple and Google’s substantial market power in app marketplaces is affecting competition and impacting app developers and consumers.

The ACCC found that app stores like 'Google Play' or 'Apple App Store' are the gateway through which most app developers must pass to reach consumers and that Google and Apple operate effectively as a duopoly in the markets for mobile operating systems and for the distribution of mobile apps.

In this article, we summarise the key findings and recommendations of the Report.

Context

Since 2017, the ACCC has been examining the role of the dominant digital platforms in Australia and the effects on consumers and competition, culminating in the ACCC’s landmark Digital Platforms Inquiry Final Report. Just prior to COVID-19, the ACCC was empowered to conduct a further, five-year inquiry into the services offered by digital platforms (Digital Platform Services Inquiry), initiated by the Competition and Consumer (Price Inquiry—Digital Advertising Services) Direction 2020 (Cth).

The first report of the Digital Platform Services Inquiry focused on online private messaging and social media services and the types of consumer harms which were emerging.

Key concerns

In the Report, the ACCC found that Apple and Google have substantial market power in respect of mobile app distribution through their app stores.

The ACCC raised the following concerns:

• unfair practices and policies, including restricting the ability of app developers to access app users, a lack of transparency of app approvals and inadequate dispute resolution;
• pre-installation and default settings of app stores may entrench market power, limit consumer choice, and reduce potential for innovation in the downstream markets;
• access to commercial information by Apple and Google as operators of app stores may be leveraged in apps created by Apple or Google to the disadvantage of rival app developers;
• inflated app prices partially as a result of certain in-app payments being required to be processed through Apple and Google’s respective payment systems with a commission of up to 30%;
• consumers are vulnerable to malicious or exploitative apps, due to potential deficiencies in protection by Apple and Google’s app store review and surveillance processes. Data privacy and tracking concerns were also raised; and
• the complaints handling process may not be adequate in providing streamlined, consistent processes for consumer complaints on the one hand, and supporting developers to fulfil complaints handling functions.

Six key recommendations

The ACCC made extensive recommendations throughout the Report, and highlighted six potential measures as follows:

• an obligation on app stores to allow developers to provide users with information about alternative payment options;
• avoid self-preferencing and provide better app discoverability through greater transparency of key algorithms and processes, including impending changes to the key parameters used, so app developers may adapt in a timely way;
• consumers need to be able to rate and write reviews on all apps put on the app stores, to enable third-party apps to compete on their merits with Apple or Google apps and ensure informed consumer choice;
• ‘choice screens’ which enable consumers to choose or change any pre-installed default app on their device that is not a core smartphone feature. This aims to provide consumers with more control, choose apps that best meet their needs, and robust competition in downstream markets for apps;
• Apple and Google should take steps to more proactively monitor apps successfully on the app store for continued compliance with policies. This includes through monitoring consumer app reviews and the implementation of a process for active consideration and intervention if certain triggers are met (eg number of consumers affected, duration of noncompliance); and
• information collected by Apple and Google in their capacity as app store operators should be ring-fenced from other operations and business decisions, to minimise the risk of use of information for unfair competitive advantage.

What does this mean for my business?

If your business develops apps, you may benefit from the recommended regulatory changes. For app users, improved app store processes may enable more effective action against malicious apps or apps which impersonate you or your business. In addition, changes to the complaints handling processes available to app developers and consumers would better facilitate the resolution of disputes with Google, Apple and third parties.

Keep an eye out for our next thought leadership article drilling into the detail of the potential impacts of the Report and the ACCC’s recommendations.

Where to now?

The ACCC will revisit the issues raised in the Report during the five-year Digital Platform Services Inquiry and will take into account steps by Apple and Google to address the concerns identified.

The prospect of future regulation should not be discounted: ‘Regulation may be required if Apple and Google fail to take steps to address the concerns identified,’ as ACCC Chairperson Rod Sims has said.

Hall & Wilcox is experienced in assisting clients with navigating their business on digital platforms. For more information, please contact our Technology & Digital Economy team.