Tuesday, September 20, 2022

Apple contributes to eurozone inflation through 20% price increase that app developers can't control due to abuse of App Store monopoly

We're way past the point at which Apple's abuse of its market power is merely a problem affecting "competitors" or a few consumers. The effects of the problem have reached a scale that we must take a macro-economic perspective, as did venture investor Alex Gurevich a few months ago when he discussed the plausible hypothesis of Apple's App Tracking Transparency (ATT) program contributing to a recession.

Late on Monday--the very day that Apple's astroturfing through ACT | The App(le) Association was exposed by Bloomberg--Apple announced "upcoming prioce and tax changes for app and in-app purchases." At least Apple's announcement is forthright enough to say that "[a]s early as October 5, 2022, prices of apps and in-app purchases (excluding auto-renewable subscriptions) on the App Store will increase in [various countries on different continents], and all territories that use the euro currency."

As 9to5Mac's Filipe EspĆ³sito and others have already noted, the lowest price tier (tier 1) increases from €0.99 to €1.19, and as far as I can see, that 20% increase of in-app payment and app download prices in the eurozone is consistent all the way up to the maximum tier, which--as MacRumors' Joe Rossignol mentioned--goes up from €999 to €1,199.

There is an exception for auto-renewable subscriptions, but that's just a limited part of App Store revenues as those higher prices will affect new subscriptions. By and large, Apple now wants 20% more.

This is also an antitrust issue because Apple doesn't allow app developers to control their prices in local currencies. As an app developer (I've personally configured IAP items on multiple occasions), you only get to selec a tier--and Apple then performs the conversion. Now, an app developer with most of its customers in the eurozone would presumably think very hard before increasing the entry-level price from €0.99 to €1.19, given that it's psychologically very advantageous to stay below €1. That is, of course, why Apple has waited for a while, and now goes substantially beyond €1: once you go over that threshold, whether you charge €1.09 or €1.19 doesn't really make much of a difference for demand. But again, many app developers might actually prefer to just keep their euro prices below those psychologically critical numbers.

Those higher euro prices are not justified by consumers' purchasing power either. The average U.S. per capita GDP is a lot higher than that in Europe (even substantially higher than that of Germany, which is a relatively wealthy one among large European countries).

Apple has its own formula: it knows that in the U.S. the iPhone is a lot more affordable than in various other major markets, and in the U.S., also as a result of Google's fauxpenness not really working, Apple now has market leadership even by volume. Compare Dial's iPhone 14 Index is instructive: it's a table that shows what percentage of an average annual salary a person has to pay to afford an iPhone 14 in local currency. In Nigeria, that figure is 69.12%, with other not-so-rich countries like Kenya and Bangladesh following. By contrast, the figure is only 1.84% in the USA. In Europe, it's from about 1.6% in places like Switzerland and Luxembourg (small but super-affluent populations) to 26% in Turkey, 29% in Albania, and 46% in Armenia. In Germany and the UK, the number is close to 3%; in France it's above 3.5%; and in Italy and Spain it's between 4% and 5%. In other words, the average-earning Italian or Spaniard has to work 2 to 3 weeks to afford an iPhone 14.

Only a limited part of the difference can be explained away with different Value Added Tax or sales tax regimes.

It's simply that Apple has a strategy of appealing only to the parts of certain countries' populations that earn substantially more than the average person in that country. Disparity as a driver of profits. Classism--which is also the primary reason Apple refuses to make its messenger more interoperable with Google's Android messenger. Forget interoperability, just "buy your mom an iPhone," as Tim Cook recently put it.

There's no denying that the U.S. dollar is fundamentally stronger than the euro. I'm not against the EU, but I have always been against the euro because it puts the cart before the horse (common currency before common economic and fiscal policies). European integration culminating in a common currency could and probably would have worked, but not the other way round. If there's one EU institution that I despise, it's the European Central Bank. If Apple wants to raise its own prices in the eurozone, that's one thing. But it's unacceptable for Apple to deprive app developers of the opportunity to decide what's best for their products in the eurozone.

Apple is the dictator that rules everything.

This issue of Apple deciding on currency conversion even came up in the Epic Games v. Apple litigation in the Northern District of California, the antitrust case that will be heard by the United States Court of Appeals for the Ninth Circuit in one month from tomorrow, with the Department of Justice supporting Epic. Judge Yvonne Gonzalez-Rogers, who got a whole lot wrong, understood the problem at least in part:

  • In footnote 199 of her Rule 52 Order, the incorrectly says that "[t]he tiers generally require the same price across all countries."

  • But two footnotes later, she doesn't buy Apple's claim that currency conversion is a benefit of Apple's IAP regime:

    "To the extent this true, Apple has not explained why it cannot afford more flexibility in unique circumstances. Mr. Gray testified that Apple selected 99 cent tiers based on its prior experience without apparently consulting developers."

  • Footnote 554:

    "In its proposed findings of fact, Apple claims that IAP helps developers with currency conversion and tax collection, but its record citations do not support that claim."

The issue is becoming more serious than ever as we live in a difficult macro-economic environment.

I'd also remind everyone of my May 1, 2021 blog post on how Apple decided to deal with some countries' digital taxes at app developers' expense: Apple raised its effective App Store commission rate in certain geographic markets to (respectively) 31.4%, 32.1%, and 35.25% in September

It will take time before the EU's Digital Markets Act opens up the iOS app distribution market, but once it happens, we'll be sure to see entry-level IAP offerings below the €1 mark. I'm quite sure an iOS version of the Epic Games Store would make it possible, as would other app stores as well as developers electing to distribute directly ("sideloading").

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