Competition Commission orders Google and Apple App Store changes in South Africa

Google Play and Apple App Store are unconstrained in the commission fees they charge app developers, and they limit competition, South Africa’s Competition Commission has found.
To address this market distortion, the commission has ordered Apple and Google to implement several changes in their app stores for mobile devices.
These findings and remedial actions were in the commission’s Online Intermediation Platforms Market Inquiry report, released on Monday.
“In South Africa, mobile devices are the primary means through which the majority of people engage the digital economy,” the Competition Commission stated in its report.
On these devices — smartphones and tablets — it is through apps, distributed through app stores, that digital content and services are provided.
“For businesses and app developers that wish to be part of this lucrative and growing software economy, it is also through the app stores that they access consumers,” the report said.
The commission noted that Google Play is the default app store on Android, accounting for most devices active in the country.
Although it is possible to install third-party app stores, this requires “side-loading” — a practice generally discouraged because of its security risks.
The Competition Commission also noted that many cheaper devices run on Android, resulting in the platform attracting more users.
“Whilst Apple accounts for fewer smartphone devices, it accounts for a much higher share of app downloads and app store revenue due to the high-end target market,” it stated.
“Both are essential for local app developers accessing the global app market.”
These app stores’ revenue models involve charging a commission on sales, including on purchases made within the apps known as in-app payments or in-app purchases.
They charge no fees for free app downloads.
“This is because stores do not want to discourage free apps that add value to their devices,” the report stated.
“Revenue from digital content delivered through the store is [also] measurable by the store whereas apps used to sell physical services are not.”
To ensure they get their cut, app stores do not permit alternative payment processing services on their stores for in-app payments.
“The exclusion of alternative payment processing methods not only ensures that the commission fees cannot be bypassed by design, but also that the application store owns the customer relationship unless additional logins are required.”
Google Play and the Apple App Store permit apps to access digital content purchased through a different channel, such as a website.
This exception applies to apps whose primary functionality is the distribution of digital newspapers, magazines, books, audio, music, or video.
For example, you can subscribe to Netflix through its website and access its content via the app.
Some apps, like Amazon’s audiobook subscription service Audible, require that customers subscribe this way to avoid paying 30% of their subscription revenues to Apple and Google.
“However, the stores have imposed anti-steering rules to prevent app developers from circumventing their [in-app purchases] by steering consumers to these outside options,” the inquiry noted.
Therefore, app developers may not direct you to their website to make payment.
If they try to implement such functionality in their apps, Apple and Google will block them from being listed in their app stores.
“This means that where discovery of the app takes place through the application store, consumers will be ignorant of alternative payment options, limiting their discovery and use,” the inquiry found.
“In this manner, the anti-steering rules restrict competition from alternative payment methods for the app available through other channels.”
According to the commission, the result is high commission fees that are either likely to raise the pricing of apps to the detriment of consumers or reduce the earnings of app developers, which impedes investment and innovation.
“There have been adjustments to the anti-steering rules following litigation,” the report stated.
Apple and Google now allow app developers to communicate with consumers through means other than the app itself.
“Apple now permits a narrow group of reader apps globally to provide an external link to their website for the purpose of subscribing or purchasing content, but Google does not.”
Curation for local apps
In addition to the issues around commissions and anti-steering, the inquiry highlighted the lack of local app curation as a problem.
“Given the market feature of millions of apps overall, and thousands in any single category, being sold through monopoly application stores on different device OSs, discoverability and visibility on those application stores is essential for apps to compete effectively,” the inquiry found.
“The application stores provide for discoverability through two main features, namely curation and search.”
Curation is where store editors identify and promote quality apps through featured apps listings, category recommendations, new apps, classics, and apps of the day.
“Given the importance of search for discoverability and the volume of apps in any search results, developers have made increasing use of ads which appear on the search page itself as suggestions and at the top of search results,” the report said.
The inquiry found that neither the Apple App Store nor the Google Play Store has local curation besides automated curations based on sales or downloads for the SA storefronts, and some geo-relevance criteria applied to certain search terms.
“[This is] despite the hundreds of millions in revenue generated from South Africa each year,” the commission said.
“Local apps may have particular relevance for domestic consumers but the lack of local curation means this would not be a factor in the editorial process, with global apps served up instead.”
The result, the inquiry found, is that competition from domestic apps is impeded.
“On search, South African paid and gaming app developers have highlighted the challenge of competing against well resourced global competitors.”
The inquiry imposed the following remedial actions on Apple and Google:
- Google Play and the Apple App Stores must stop preventing apps from directing consumers to pay on the app’s own website.
- They must ensure continued free use by consumers of content purchased from that website.
- Implementation in South Africa of measures taken in Europe to comply with similar provisions in the Digital Markets Act, including fair and reasonable pricing, will be considered as compliance with the above remedial actions.
- Google and Apple must also provide a South African curation of apps on their app stores and advertising credits to South African app developers.
No mention of Steam
It was interesting to note that the Competition Commission’s report did not mention Steam, a marketplace for PC games developed by Valve Corp.
Microsoft’s Game Pass is also emerging as a dominant player in video game subscription services.
While there are many such competing platforms on the PC, Valve currently dominates among marketplace operators.
Although Steam has endeared itself to gamers by offering excellent discounts during regular seasonal promotions, Valve has been accused of many of the practices the inquiry cracked down on.
These include price parity clauses that prevent developers from listing their games for cheaper elsewhere, even when those platforms charge less commission.
In 2021, a class action lawsuit brought by Wolfire Games accused Valve of threatening to remove games from Steam if developers sold their titles for cheaper through other digital storefronts. The case is ongoing.