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Mike Lee says Apple, Google app store strategies are an abuse of market power

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Sen. Mike Lee, R-Utah, arrives for a Senate Judiciary Committee hearing on voting rights on Capitol Hill in Washington, Tuesday, April 20, 2021. Lee joined a U.S. Senate subcommittee Wednesday on allegations of anticompetitive conduct by Apple and Google as witnesses from Spotify, Match.com and Tile testified on their experiences with the U.S. mobile app superpowers.

Bill Clark, Associated Press

Apple and Google were back on the congressional hot seat Wednesday to respond to allegations that both companies operate their smartphone app stores in ways that suppress competition and help the U.S. tech behemoths reap billions in profits.

Utah GOP Sen. Mike Lee — ranking member of the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights, which hosted the hearing to examine app store competition — said the issues are critical to Americans who increasingly manage their lives on their mobile phones.

“For better or for worse our smartphones have come to dominate our social and economic lives and apps are increasingly becoming the most popular ways to use those devices,” Lee said. “The power that Google, Apple and a few other large tech companies hold over the way Americans live their lives is itself simply unprecedented.

“And legislators on both sides of the aisle are right to be concerned. And right to be interested into inquiring into some of these issues.”

Lee said decisions by both Google and Apple after the Jan. 6 Capital insurrection to remove app store listings of social media site Parler, an alternative to Twitter that’s won wide favor among U.S. political conservatives, was an example of behavior that while in itself is not an antitrust violation, represented an abuse of market dominance.

“When we see this kind of market power being used in harmful, if legal, ways it’s only fair to ask whether it’s also being used in illegal ways that might harm competition,” Lee said. “Sometimes this is what raises the first flags. If you see someone acting with wanton disregard for competitive forces that might otherwise come into play, what else might be out there?”

Subcommittee chairwoman and former Democratic presidential candidate Sen. Amy Klobuchar said the findings of a U.S. House report on U.S. Big Tech companies found that it cost Apple around $100 million a year to operate its app store, which is the exclusive provider of apps for iPhone users, while the operation generated $15 billion to $18 billion in annual revenues. Apple’s App Store and Google Play both assess fees of 15% to 30% on so-called “in-app” purchases made in apps sold through on their platforms.

The Minnesota senator also cited the size of the fast-expanding global app market, one that generated $580 billion in revenues in 2020 and was estimated to swell to $900 billion by 2023.

Klobuchar said it was not the high level of success but rather the suppression of competition through positions of market control that was the focus of the committee’s concerns.

“Both Apple and Google maintain strict control over their app stores,” Klobuchar said. “As a result, Apple and Google operate as gatekeepers, with the power to decide how or whether apps can reach iPhone and Android phone users, and at the same time they offer many apps that directly compete with those sold through their app stores.

“Of course, this gatekeeper power can and often is used to provide a secure environment in which legitimate apps can be distributed to consumers. But today we will focus on how Apple and Google can use their power to, one, seclude or suppress apps that compete with their own products, and two, charge excessive fees that effect competition in the app economy.”

Three witnesses from the app developer side of the equation, representing music streaming service Spotify, online dating app innovators Match Group, Inc., and bluetooth tracking device company Tile, all leveled allegations of app store practices they said were aiming to unfairly limit their businesses and/or assess fees that ensure their products were more expensive than competing apps from the store operators.

Horacio Gutierrez, head of global affairs and chief legal officer for Spotify, said Apple manipulated rules to compel Spotify to use its payment platform, for which the company collects a 30% commission, which ultimately led to Spotify having to raise its subscription prices to cover the costs. And soon after that, Gutierrez said, a new competitor popped up.

“It was not a coincidence that at the same time Apple was forcing Spotify to use (in-app purchases) Apple (also in 2014) acquired a music streaming service, Beats Music,” Gutierrez wrote in submitted testimony. “In 2015 — a year after Apple had effectively forced Spotify to increase its price — Apple introduced Apple Music, a streaming service competing directly with Spotify, priced at $9.99.”

Kirsten Daru, Tile’s chief privacy officer and general counsel, said her company had a cooperative and even “symbiotic” relationship with Apple and its app store operation for years and was even selling its tracking devices through the popular brick-and-mortar Apple stores until things changed dramatically in 2019.

That was the same time, according to Daru’s written testimony, that rumors started surfacing that Apple was developing its own software and hardware that would compete directly with Tile. Daru said Apple kicked Tile out of its physical stores and hired away one of Tile’s star engineers.

“Shortly thereafter, a new FindMy app was introduced with (Apple’s) iOS13 that included Tile-like features,” Daru wrote. “FindMy is installed by default as part of its operating system on all Apple phones, and cannot be deleted.”

Following that release, Daru said changes made by Apple further denigrated Tile’s user experience.

While Apple bore the brunt of critical testimony offered during Wednesday’s hearing, both Apple and Google representatives pointed to the roles they’ve played in creating opportunities, and distribution channels, for thousands of app developers and millions of apps.

Kyle Andeer, Apple’s chief compliance officer, said Apple’s control over the app store was necessary to ensure that its safety and performance standards were maintained and said the commissions charged by the company were balanced out by the “billions” the company had spent in developing its products and services.

“We review every app in the App Store to make sure it meets standards for privacy, safety, security, and performance,” Andeer wrote in submitted testimony. “Each week, we review about 100,000 submissions, and we reject about 40% of them because they don’t meet those standards.

“And we know that our approach works: studies show that iPhone has far fewer malware infections than other devices. Alternatives like side-loading would render the strong privacy and data security protections we offer customers moot, and given all of the threats to data these days, we don’t think that makes sense.”

Both Lee and Klobuchar are working on new federal legislative efforts aimed at curbing the power of big U.S. tech companies, and Klobuchar noted other potential changes that would help increase the operating budgets of the two agencies that oversee and enforce federal antitrust law, the Federal Trade Commission and U.S. Department of Justice.