Say Goodbye to App Stores

Two developments, from opposite sides of the Atlantic, may mark the beginning of the end of the digital economy.

I'm being alarmist, I know, but sometimes you cry “wolf” because ... wolves.

Two related items crossed my desktop today, either of which will seriously disrupt how developers use app stores to get their software to market. In the U.S., the Supreme Court agreed to weigh in on whether Apple can be sued by consumers for the markup it places on applications purchased through it App Store. Meanwhile, in the EU, Google is defending Android from charges that its licensing arrangements, which require device pre-loading of select Google apps, are anti-competitive. The overlap is that Google’s Android alternative is likely to mimic the closed ecosystem that has Apple under fire, and which might be open to class-action lawsuits from multiple directions.

It’s a cluster.

For Apple, the legal question isn’t whether someone can challenge them on their App Store practices, but rather *who* can challenge them (based on who’s harmed). Settled law in the U.S. says that, because developers are the ones setting prices and paying the markup, it’s up to developers to launch a legal challenge if they think Apple is misusing it’s power (or simply stop writing iOS apps and focus on other platforms). What’s happened is that a strange ruling out of one of the Federal Circuit courts says that app stores are “distributors," and that consumers *and* developers can challenge what Apple does. The predicted result would be many, many class action lawsuits, scooping up not just Apple, but Amazon, Google, and any other digital distributor that brings suppliers and buyers together. The end result would be the end of platforms as we know them. Seriously.

Now, I’m not defending Apple’s markup, but I know that part of what makes the iPhone successful is the millions of apps that developers supply on the platform. If developers chose to stop OS development because they can’t make money, or consumers leave the platform over high app prices, then Apple fails - no lawsuit needed. Alternative app ecosystems and different models already exist or would swiftly emerge (Amazon, Microsoft, Samsung, etc.), so it’s hard to say there’s no competition. I’m trusting in Adam Smith’s invisible hand to keep things dynamic.

Which brings us to the other issue: Android's fight in the EU. We’re hearing that the European Commission is about to issue its ruling on how Google may license Android to device suppliers. If, as sources suspect, the European Commission (EC) demands that Google apps cannot be bundled with an Android license, or restricts other license terms, Google may lose its appetite to resist “forking" of the Android OS (meaning a proliferation of almost-Androids will emerge). For developers, this means suddenly having to write code for many more operating systems, driving up costs and eliminating economies of scale. The logical response from Google would be to shift Android into a closed system like Apple’s … but class action. You see the challenge ahead. Watch for an Op-Ed from me on Android in the near future.

For developers, the current model of developing for two competing ecosystems serving billions of consumers is obviously under threat. If either of Google or Apple - or both - are forced to rearrange their business model, the developer marketplace will be thrown into disarray. Beyond today’s ecosystem leaders, it will be hard for others to justify entering the OS wars not knowing the path to profitability. So what can be done?

On Android, the Developers Alliance has been a vocal participant in the EC's review, giving developers a voice in the process. We’d encourage you to learn more and to consider joining our open letter to the Commission.

On Apple, stay tuned. The Supreme Court process takes some time, and we’ll be watching closely to see how things evolve. In the meantime, consider spending a few minutes a day pushing for better policy from your elected officials - the ones that make the laws in the first place.

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Bruce Gustafson
President & CEO