On Wednesday, the Biden administration argued that Apple and Google's app store model, including how it forces developers to give a 30% cut on any in-app purchases, hurts users and developers.
This put the White House on the same side as tech CEOs including Mark Zuckerberg, Tim Sweeney and even Elon Musk, who called Apple's cut "a secret 30% tax on everything you buy through their App Store" amid his spat with Apple CEO Tim Cook late last year. The new report released by the U.S. Department of Commerce revealed that Musk's complaints were already resonating in Washington.
Apple and Google have “a significant gatekeeping role by controlling (and restricting) how apps are distributed,” the report said, creating a model that fosters “conditions of competition that are suboptimal."
The report added that the policies put in place by Apple and Google "have created unnecessary barriers and costs for app developers, ranging from fees for access to functional restrictions that favor some apps over others."
The Commerce Department recommended that Apple and Google “address limits on in-app purchasing,” including removing requirements that force developers to use either the iOS App Store or Google Play Store for any purchases. Both Apple and Google have an interest in limiting purchases to their app stores: Both take a 30% cut of any transactions made on their app store, whether buying apps, making in-app purchases or paying for a subscription. Apple even takes a cut when users pay to boost their posts on social media platforms.
The Commerce Department also recommended that operators allow users to install their own apps to their phones and access competing marketplaces.
“The current mobile app ecosystem, and especially the current app store model, is harmful to consumers and to app developers,” Alan Davidson, the head of Commerce's National Telecommunications and Information Administration (NTIA), told reporters on Wednesday.
The NTIA said it developed the report at the direction of Biden’s executive order on competition issued in July 2021, "committing the administration to promote innovation and competition across the economy." The Biden administration had previously signaled support for earlier attempts by Congress to regulate app stores.
Neither Apple nor Google responded immediately to Fortune’s request for comment. Both companies told Bloomberg that they disagreed with the report’s conclusions.
‘A secret 30% tax on everything’
The 30% cut has long been a thorn in the side of software developers, who argue it limits competition and hurts smaller app creators. Both Meta and Microsoft have called for changes to the app store model. (Both Apple and Google have reduced the 30% fee for smaller developers in recent years).
Epic Games, the developer behind the Fortnite video game, accused Apple of engaging in anti-competitive practices in a 2020 lawsuit. The judge presiding over the ruling declared that Apple had to allow developers to link to payment systems outside its app store (which would evade the 30% fee), but did not declare Apple a monopoly.
Meta CEO Mark Zuckerberg has also criticized the iPhone maker's policies. “Apple has sort of singled themselves out as the only company that is trying to control unilaterally what apps get on a device,” Zuckerberg said at a New York Times conference in November. “I don’t think that’s a sustainable or good place to be.”
Even Twitter CEO Elon Musk complained about Apple’s policies in the days leading up to the launch of the Twitter Blue paid verification service.
Did you know Apple puts a secret 30% tax on everything you buy through their App Store? https://t.co/LGkPZ4EYcz
— Elon Musk (@elonmusk) November 28, 2022
Twitter Blue normally costs $8 a month, but users who try to purchase the subscription through Apple or Google's app stores must instead pay $11, to account for the 30% commission.
