What Elon Musk gets wrong about Apple App Store fees

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Elon Musk’s purchase of Twitter has some in the throes of ecstasy and others fearing a social media apocalypse. But, whatever happens, it’s good news that the market is working on experimenting and evolving. As yet another court said this week, Twitter is not the government and therefore can police content as it likes without violating anyone’s constitutional rights.

This distinction between private and public is just as critical when considering Musk’s accusation that the Apple App Store commission fee is a “30% tax on the Internet” and “literally 10 times higher than it should be.” Musk is surely entitled to his opinion, but legislative proposals interfering with Apple’s private business deals are detrimental to private property rights, innovation, and the proper functioning of free markets.

Firstly, Musk’s conflating of a mutually and voluntarily agreed upon commission fee in exchange for a service with a “tax” doesn’t accurately distinguish between the two. Paying for something is not a tax, and voluntary exchanges among people or corporations do not carry the same force as government taxation. In this case, app developers are free not to use the Apple App Store, sell their wares elsewhere, and avoid paying Apple the fee. No one will get the same offer of exit from the IRS. As for Musk’s criticism of the fee amount, the market has spoken, and it politely disagrees. The 30% appears — with many caveats and exceptions for smaller developers, longer durations of subscriptions, and alternative payment options — across many app stores. Xbox consoles, Google Play, Samsung’s Galaxy Store, and Amazon App Store all use that same percentage as a default before applying the exceptions, which are almost always lower. Supply and demand seem to reveal that lots of developers are willing to pay various app stores a 30% commission fee in exchange for distribution, brand trust, and interoperability advantages.

What is problematic is the government meddling in the business agreements arrived at by market forces. For instance, the Open Apps Market Act substitutes Apple’s terms for those preferred by government regulators.

While other companies, such as Google, have chosen to allow sideloading of apps on their devices, Apple operates a more closed ecosystem and requires apps to be downloaded from its store and under its terms, including its commission fee. There are trade-offs in both approaches, but many Apple customers seem to prefer the extra convenience and security. Similarly, many developers agree to Apple’s terms in order to take advantage of their customer base. What’s the sense in removing that option for consumers?

The bill’s prohibition on app stores requiring the use of their own in-app payment system won’t necessarily benefit users, either. While it might be good news for app companies big enough to offer their own payment system and pocket the extra revenue, what might it mean for less tech-savvy end-users?

Many consumers prefer the security and ease of a trusted payment system baked into their device. Users may or may not see reduced in-app fees, but they likely will endure increased hassle when canceling third-party payment arrangements. They may also be at a higher risk of bad actors gaining access to their financial information. Google and Apple having your payment information presents fewer headaches than relying on an unknown processor that may be halfway around the world. Many consumers would probably just prefer not to have to think about it either way.

Entrepreneurs experimenting with their business models and speaking their minds about others’ is part of America’s unprecedented success story. But, government regulation of economic freedom is no better than government regulation of speech, and no one should understand that better than Musk.

Read the full piece at Washington Examiner