The National Telecommunications and Information Administration (NTIA) released its report on “Competition in the Mobile Application Ecosystem” this past Wednesday. I submitted comments on behalf of CEI back in May of 2022 in response to the NTIA’s request for comments on the development of the study.
I argued that the NTIA should take a holistic approach to studying the app ecosystem, one that would consider app marketplaces outside of the mobile setting that include gaming consoles, personal computers, streaming devices, smart TVs, and smart home devices. The report acknowledges this point on page 4, citing CEI’s comments in footnote 13. The NTIA even admits that, “The issues at hand are complex, multifaceted, and overlap with other technologies and markets.”
Unfortunately, but perhaps unsurprisingly, the report narrowed its focus to just two app marketplaces, Apple and Google. To the contrary, there are more than two app stores. My colleague, Jessica Melugin, makes this point at length in a recent paper for the Center for Growth and Opportunity.
App enabled devices are now commonplace, and the average American household has 20 devices connected to the Internet. These include gaming consoles, like Microsoft’s Xbox, Sony’s Play Station, Nintendo’s Switch, and the latest virtual reality devices. Smart TVs, Amazon’s Fire TV, and Roku devices are also app enabled and provide their own app marketplaces.
But the NTIA declined to include those devices and marketplaces in their report, despite the fact that gaming apps and subscription-based streaming apps like HBO Max and Disney+ together account for most of app store revenue.
The report points to significant profits collected by Apple and Google in operating their respective app stores. The current app ecosystem allows for the “extraction of disproportionate returns” that lead to an “outsized economic share” compared to developers, according to the report.
On one hand, the NTIA alleges that the two platforms earn disproportionate profits, primarily from gaming and streaming apps, as justification for antitrust scrutiny. On the other hand, the NTIA omits other platforms that are primarily dedicated to gaming and streaming apps.
That makes little sense.
Furthermore, the report finds that, “Apple and Google place multiple restrictions on apps that create barriers to developers.” Those restrictions usually come in the form of security and privacy reviews. For example, Apple reviews each line of code and screens about 100,000 submissions each week. The fees collected by the app marketplace help pay for this review process and increased security for consumers.
The Google Play Store has about 3.5 million apps available, with 100,000 new apps added each month. The Apple App Store has about 1.6 million apps, with 30,000 apps being added every month. Exactly how much more competition do antitrust regulators want? Arguably the largest barrier to entry for developers is the endless sea of existing and new applications to compete with.
The NTIA’s report makes many of the same mistakes made by the Open App Markets Act (S. 2710) and the American Innovation and Choice Online Act (H.R. 3816), both introduced in the 117th Congress. It recommends the prevention of “self-preferencing” by platforms, particularly the pre-installation of apps. Apple TV, which comes preinstalled on iPhones, is consistently sixth in market share behind Netflix, Prime Video, HBO Max, Disney+, and Hulu. And Spotify is still the industry leader in music streaming, with more subscribers than Apple Music and Google’s YouTube Music combined.
Consumers are more than capable of evaluating products and choosing which one works best for them, regardless of whether its preinstalled or not.
Needless to say, the proliferation of smartphones and the app ecosystem has created tremendous value for society. Users enjoy seamless access to information, news ways to consume media, and innovative productivity tools to monitor health and enhance communication. This not only benefits consumers. It also benefits the labor market. In the 14 years since the release of the first smart phone, 2.5 million U.S. jobs have been created by the app economy, according to the report.
The story of the app ecosystem is one of success for developers and consumers. We live in an economic system that rewards increased productivity and the creation of value. Smart phones and the larger app ecosystem have done both.