Last Wednesday, on 9th February, Microsoft released new pro-developer guidance for its Windows Store. The move came in response to the Open App Markets Act released by the US government earlier this month to remake mobile computing, targeting monopolistic app store practices of tech giants like Google and Apple (1).
While this bill can make marketplaces increasingly open, experts worry that it can lead to less security.
Microsoft’s new guideline promises not to use any nonpublic data to promote its own applications over others. And app developers will also not need to use the software colossus’s built-in payment processor.
Notably, the “Open App Markets Act” targets these practices and bans excluding apps downloaded outside the main app store. Google and Apple ban these apps, whereas Microsoft allows them.
Likewise, the bill includes a carveout for gaming platforms designed to exclude Xbox, where Microsoft practices several would-be-banned practices.
According to Skopos Labs, a data analytics firm, the likelihood of the bill’s passage, despite its bipartisan sponsors, is only at 4%. However, Microsoft’s new guidance and recent litigation against Google and Apple hint at a gradual shift towards market decentralization.
It will allow consumers to access a wider range of apps built by smaller developers who can readily compete with tech giants (marketplace owners) or utilize open marketplaces. At the same, Google and Apple warn that it would allow developers to bypass security and privacy safeguards.
Meaning while these new changes could give people greater privacy and freedom, consumers will be responsible for their security until regulators call for increased safety features.
Microsoft’s New Guidelines
Microsoft aims to appear friendly to outside developers with its new guidelines while safeguarding its 69 billion USD Activision Blizzard deal (2).
In addition, Microsoft is also looking to strike an open tone to its highly-valued peers (like Google and Apple) as regulators look for ways to curb anti-competitive practices. The new guideline Microsoft released is a set of app store principles as a point-by-point rebuke of policies from its rivals that have increasingly drawn scrutiny from regulators and legislators worldwide (Read Also: Google India Under Scrutiny For Alleged Anti Competitive Practices).
Reportedly, these tenets also aim to ease regulators’ fears about the Activision acquisition deal and stop a potential antitrust slaying of the transaction.
The software giant announced the move three weeks after releasing its intent to acquire Activision for about 68.7 billion USD (3). The video game publisher releases games in the franchises like “World of Warcraft,” “Diablo,” “Call of Duty,” and “Candy Crush.” It is also worth highlighting that the deal would elevate Microsoft’s game studios collection from 23 to 30.
If this deal is completed, it would be the largest-ever deal by a tech company in recent years, with US regulators showing a willingness to push back on highly valued tech companies’ transactions (4). For instance, last year, the Competition and Markets Authority of the UL had ordered Facebook’s parent firm, Meta, to divest a GIF website operator, Giphy (5).
Activision Blizzard — already a gaming giant — has a pattern of bullying workers to evade accountability for rampant sexual misconduct. I expect this deal to be closely scrutinized to ensure that it won't harm American workers or competition. https://t.co/0KdD0GM3YR
— Rep. Nadler (@RepJerryNadler) January 20, 2022
In a tweet about the Microsoft-Activision deal, Jerry Nadler of the US House Judiciary Committee wrote, “I expect this deal would be scrutinized closely to ensure that it won’t harm competition or workers in America.”
Microsoft, for its side, has stated that the merger would place them third in terms of revenue in the game business, behind Tencent and Sony.
Microsoft’s New Principles
In the 1990s and 2000s, Microsoft had already experienced antitrust pressure related to its Windows dominance. However, it appears that lawmakers and competition watchdogs are paying less attention to Microsoft and spending more time scrutinizing Meta and other tech giants like Amazon, Google, and Apple.
App stores are the gateway for the most popular digital platforms. Congratulations to @SenBlumenthal @MarshaBlackburn for advancing important legislation, the Open App Markets Act, which would promote competition, and ensure fairness and innovation in the app economy.
— Brad Smith (@BradSmi) February 4, 2022
Brad Smit, President and Vice-Chair of Microsoft, published a series of principles in the company’s blogpost (6). He said the company wouldn’t use nonpublic information from its app store to compete with other developers’ programs.
In addition, new principles hinted that it would allow all developers to access its app store if they complied with Microsoft’s standards. It will consistently apply store-marketing rules without offering advantages to its apps or partners’ apps over others.
For Windows users, you will still use other app stores and apps downloaded from the internet, stated Smith in the blogpost.
He added that developers wouldn’t have to use a built-in payment system for in-app payments.
In September, Microsoft had announced that with the launch of Windows 11, the Windows app store wouldn’t need developers to split the revenue with the company if developers were using their payment systems. These changes seem to answer questions raised by app developers against Google and Apple (Suggested Reading: Tech Giants’ “Goodwill Gestures” Won’t Save Them From Regulators and Critics).
Last year, the company dropped the percentage it keeps from video games sales through its Windows app store from 30% to 12% to make itself more competitive with its rival Epic Games.
A document that went public through Epic Game’s lawsuit against Apple last year indicated a discussion of Microsoft executives on a proposal to make similar changes to revenue share for games users purchase through its app store on Xbox consoles (7).
Notably, these new principles won’t immediately apply to the Xbox app store since emerging legislation is not written for specialized computing devices like gaming consoles. However, Microsoft stated that it wants to apply all store principles on Xbox and Windows over time.
Open App Markets Act
The US Senate Judiciary Committee advanced the Open App Markets Act earlier this month. This bill is one of the regulator’s latest attempts to limit big tech companies’ power. It is considered a big step towards decentralizing iOS and Android app stores.
For those interested, here is the Open App Markets Act or S. 2710.
To sum up, it says that businesses that operate app stores with over 50 million US users should not engage in certain potentially anti-competitive conducts, like:
- Needing developers to use the company’s in-app payment system or conditions of using the app store.
- Penalizing any developer for offering better prices on other app stores.
- Impeding developers from directly contacting people with business proposals
- Using private data from third-party apps to build its competitors
- Unreasonable preference for its own apps in search results
In addition, if a company that owns an app store and also controls the underlying OS, it has to make it easy for users to,”
- Install third-party apps
- Choose third-party app stores and apps as system defaults
- Hide or uninstall preinstalled apps
If any company breaks the rules, they would be subjected to antitrust enforcement from the US Attorney General, Federal Trade Commission, State attorney generals, and civil lawsuits from any developer harmed by the banned conduct.
As mentioned, the bill exempts consoles like Sony PlayStation and Microsoft Xbox, which feature locked-down app stores but are specialized gaming devices. The bill does not cover the app store on every device explicitly.
It defined the term as a “publicly available software app, website, and other electronic services” on a “mobile device, computer, and other general purposes.”
“Emerging legislation is not written for specialized computing devices like gaming consoles. It is for good reasons, too, since gaming consoles, specifically, are sold to gamers at a loss to establish a viable and robust ecosystem for game developers,” wrote Smith in the blogpost.
The Bill Seems to Be Aimed At Google and Apple
Senators Richard Blumenthal (D-Connecticut), Marsha Blackburn (R-Tennessee), and Amy Klobuchar (D-Minnesota) proposed the Open App Markets Act in August 2021 as part of the US government’s bigger antitrust reform effort that includes the Choice Online and the American Innovation Act (8, 9).
However, the bill answers complaints from Android and iOS app developers, who alleged that Apple and Google charge unfair fees on in-app purchases. They also alleged that both companies lock down their platforms to completely disable them to discourage users from installing apps outside their stores heavily. While some US states have started introducing similar legislation, it is the first profound federal effort.
Developers and regulators have already argued and sued these practices for violating existing antitrust law. The most prominent example is Epic Games, publisher of “Fortnite,” which went to court with Apple last year (Suggested Reading: EPIC Vs. Apple: A Step Towards Regulating Tech Monopoly).
While several such cases are pending, and Epic’s lawsuit was shot down, this bill would establish the practice as clearly illegal.
The Bill’s Supporters
These companies’ largest detractors and competitors are overwhelmingly in favor of it.
Supporters claim that the legislation will help level the playing field by preventing two firms from dictating what can and cannot be utilized on people’s devices.
According to the antitrust-focused American Economic Liberties Project (10), the law is “part of a growing drive by policymakers to rein in Big Tech’s monopoly strength.” The Biden administration has also supported antitrust reform, hailing “bipartisan progress (11).”
In a news release, Sen. Blumenthal stated (12), “For years, Apple and Google have destroyed competitors and kept customers in the dark – pocketing enormous windfalls while posing as purportedly beneficent guardians of this multi-billion dollar market.” “This ground-breaking blow against Big Internet bullying… will aid in breaking these tech behemoths’ ironclad grip, allowing new competitors into the app industry, and giving mobile users more control over their own devices.”
“For far too long, Google and Apple have had a near-monopolistic grip on the mobile app business, suffocating competition and suffocating customer choice,” Rep. Johnson said in a separate press release (13). This measure will “hold Big Tech accountable, level the playing field for small businesses and app developers, and boost competition and innovation in the digital ecosystem, all while giving consumers more choice,” according to the bill.
Of course, Google and Apple are not fans of this new bill (14).
Opponents argue that there’s a reason Apple and Google have stringent guidelines for what can be published in their app stores: to prevent fraud, hacking, theft, and other similar crimes and abuses, all of which are (while they do exist) very rare due to the firms’ app regulations.
In response, Apple stated that it is “deeply concerned” about the legislation and focused on the potential risks of allowing users to sideload apps and use third-party app stores, allowing developers to bypass Apple’s security and privacy safeguards.
Mark Isakowitz, VP of Public policy at Google (15), said that the bill could “destroy several benefits that current payment systems offer and distort competition by exempting gaming platforms. It amounts to Congress attempting to select losers and winners in a highly competitive marketplace artificially.”
“Ask many Apple customers why they buy their products, and you’ll almost certainly get the same response: ‘It just works.’ “It’s not by chance,” noted Eric Peterson, director of the Pelican Center for Technology and Innovation in Louisiana (16).
“Apple is known for having stringent app criteria to ensure that consumers receive an integrated product that is malware-free. When it comes to disputing transactions, iPhone customers only have to deal with Apple, which will save them more than a billion dollars in potentially fraudulent transactions by 2020,” Peterson noted. “Sure, these gadgets aren’t as open as other platforms, but users appear to be willing to accept that trade-off.”
As discussed, Smith congratulated lawmakers on this bill in the tech industry.
In response, “It is disappointing that Microsoft would advocate so hard for a regulation targeting its competitors while sculpting out its exception for Xbox,” said Google’s chief legal officer Kent Walker (17).
Even those who accept the bill’s primary purpose may argue whether it effectively targets monopolistic business practices or causes collateral damage in other areas.
The bill is currently being debated because it does not fully address the security concerns of restructuring app stores.
While defending the bill’s security credentials, Klobuchar said during markup that suggestions that it would harm user privacy and security were “just not true.”
Actions “required to achieve user privacy, security, or digital safety” or “done to prevent spam or fraud” are exempted. In addition, app store owners can defend themselves against anti-competition charges by claiming that they apply the same regulations to their own and competitors’ apps.
At least one well-known security expert, Bruce Schneier, has endorsed the law (18). The bill’s sponsors also passed an amendment, which adjusted the bill’s security language. The changes, however, have not subdued the critics (19).
Then there’s the question of moderation, which isn’t directly addressed in the bill.
A collection of researchers and advocacy groups warned shortly before the vote that the Open App Markets Act might penalize companies that use basic editorial discretion in their app stores. The restrictions on preferencing apps, they said, might be “misused to encourage mainstream platforms to host extremist content, hate speech, and misinformation” in their current form.
For instance, if the regulation was in effect when Google removed a social platform like Parler from the Play Store, Parler could allege that Google favored other social apps, such as its own YouTube app.
According to the coalition, even if the alliance’s argument fails in court, the Open App Markets Act could prolong a lawsuit and deter retailers from removing apps that violate their standards.
As a solution, the preferencing restrictions should be reworded to clarify that they only apply “based on a criterion of ownership interest” — in other words, developers would have to show a cause for discriminating on economic rather than editorial grounds.
Meanwhile, for conservative politicians like Sen. Ted Cruz (R-TX), editorial control is a clear selling point of the plan. They believe it does not go far enough.
Cruz proposed an amendment during markup that would force app stores to exercise “neutrality” based on the political content of apps and modify an antitrust bill to address internet cultural disputes. Cruz’s proposal was lost, as were all others except the first manager’s amendment. However, we can expect the issue to come up again in the future.
Odds of Passage
Since the “Apple tax” is a fundamental component of the Open App Markets Act, there’s one complicating factor: eliminating in-app purchase constraints wouldn’t necessarily kill it.
The Epic v. Apple verdict shows that Apple could take a commission from developers using other techniques besides a payment processing fee. After Dutch regulators demanded that Apple allow some app developers to utilize other payment mechanisms, Apple offered just that (20).
Simultaneously, compelling Apple and Google to relax their stance on third-party app downloads and stores can potentially change the way smartphones work.
Regardless of the decision (the bill still awaits votes from senate houses), public outrage on current app store practices has increased. The above-mentioned Dutch regulations target “walled garden” mobile arrangements, while South Korea has enacted similar legislation (21). However, the US is home to these companies, and the rules might be ready to change.