Major technical updates
Join myFT Daily Digest to be the first to know great technical news.
South Korea has become the first country in the world to attack the lucrative commissions of Google and Apple’s app stores, after passing a law enabling mobile phone users to pay software developers directly for their apps.
Despite strong support from the tech giants, South Korea’s national assembly on Tuesday approved the “anti-Google bill”, which will become law as soon as it is signed by President Moon Jae-in.
The law prohibits Google and Apple, as well as other app store operators, from requiring users to pay for apps with their own in-app purchasing systems.
It also prohibits app stores from postponing app approvals or removing them “inappropriately” from their app stores and insisting on exclusivity with app developers. If they do not comply, app stores could face a fine of up to 3 percent of their revenue in South Korea.
Apple and Google are currently taking a commission of up to 30 percent on the sale of digital goods through their app stores and in-app purchases, such as subscriptions.
The legislation is likely to be scrutinized by other regulators around the world as concerns arise over the monopolies on the distribution of applications enjoyed by Apple and Google.
Tim Sweeney, head of Epic Games, who is suing Google and Apple over alleged competition, called The law’s adoption is an “important milestone in the 45-year history of personal computing”.
David Heinemeier Hansson, chief technology officer of Basecamp, calls the bill “the first real, big crack in the monopoly app store dam”.
Hansson played an important role in the attempt to pass similar legislation in Arizona and North Dakota, but without success. He said he hoped South Korea would be a catalyst for other countries to act. “Korea is going to show that the world is not falling, and all of Apple’s arguments are being refuted by reality,” he said.
South Korea’s regulation was prompted by Google’s announcement last year that it would make its payment system mandatory for programs that do not play. The move sparked a call from software developers claiming an abuse of market dominance.
App stores have become very lucrative for Apple and Google, so any action by regulators worldwide to reduce their position as gatekeepers for the mobile application economy could have a significant impact on their earnings.
Disclosure of a lawsuit against Google by several U.S. attorneys general, which was uncovered last weekend, shows that the company raised $ 11.2 billion in revenue and $ 7 billion in operating revenue from the Play Store in 2019, including in-app payment and advertising within the market.
This indicates that in 2019, the Play Store accounted for up to 20 percent of Alphabet’s revenue from operations, despite a contribution of less than 10 percent of Google’s total revenue.
Bills in the EU and the US Senate want to limit the commissions of app stores, while Brussels and Washington also have antitrust enforcement actions against appeal and Googlerespectively more than fees charged to app developers.
The South Korean law “will become an important precedent for the US and European countries as they increase their guard against Apple and Google,” said Wi Jong-hyun, a professor of business strategy at Chung-Ang University in Seoul. “European countries in particular, with their antipathy towards American technology companies, are likely to introduce or push similar bills.”
The law was passed while Apple was awaiting a decision in a remarkable lawsuit against Epic Games, the maker of the hit title Fortnite. The game was removed from the App Store after it deliberately bypassed Apple’s payment system with a cheaper alternative that gave no commission to the iPhone maker.
Amid increasing legal and regulatory pressure on alleged anti-competitive behavior, Apple last week relaxed restrictions in a way that allows certain apps to advertise cheaper alternatives outside of the in-app payment mechanism.
Google said this year that it would halve commissions to 15 percent on the first $ 1 million that developers earn in a year through its app store. Apple has a similar move.
The Korea Mobile Internet Business Association estimates that sales of mobile apps and content in the country last year reached Won7.5tn ($ 6.4bn) and predicted a growth of more than 20 percent in 2021. About 67 percent of last year’s sales were handled through Google’s Android operating system, while 22 percent were through Apple’s App Store.
Apple said last week that the bill would create fewer opportunities for local developers by compromising user confidence in in-store purchases. Google said that the Play Store’s “Service fee helps keep Android free, and gives developers the tools and the global platform to access billions of consumers around the world. “It added that it ‘will reflect on how to comply with the law. [ . . . ] and share more in the coming weeks. ”
Additional reporting by Patrick McGee in San Francisco and Tim Bradshaw in London
#techAsia weekly newsletter
Your important guide to the billions earned and lost in the world of Asia Tech. A composite menu with exclusive news, sharp analysis, smart data and the latest technological buzz from the FT and Nikkei