WASHINGTON – The Department of Commerce’s National Telecommunications and Information Administration (NTIA) said in a new report that the current mobile app store model is harmful to consumers and developers, and recommended policy changes to fix it.
Mobile apps have become an essential tool for participation in much of daily life. Two companies – Apple and Google – act as gatekeepers over the apps that people and businesses rely on, NTIA found in its “Competition in the Mobile Application Ecosystem” report.
The companies’ policies have the potential to harm consumers by inflating prices and reducing innovation.
NTIA’s report and recommendations are part of the Biden administration’s push to promote innovation and competition, and to level the economic playing field. NTIA is the president’s principal advisor on telecommunications and Internet policy.
As President Biden wrote in his Wall Street Journal op-ed, “we need to bring more competition back to the tech sector.”
“From finding directions to chatting with loved ones, apps are a critical tool for consumers and an essential part of doing business online,” said Alan Davidson, Assistant Secretary of Commerce for Communications and Information and NTIA Administrator. “It is more important than ever that the market for mobile apps remains competitive. NTIA’s recommendations will make the app ecosystem more fair and innovative for everyone.”
“This report identifies important ways we can promote competition and innovation in the app market, which will benefit consumers, startups, and small businesses,” said Bharat Ramamurti, Deputy Director of the National Economic Council.
After broad outreach, and input that included more than 150 comments from a diverse array of stakeholders, NTIA identified two key policy issues hindering a more competitive app ecosystem:
Consumers largely can’t get apps outside of the app store model, controlled by Apple and Google. This means innovators have very limited avenues for reaching consumers.
Apple and Google create hurdles for developers to compete for consumers by imposing technical limits, such as restricting how apps can function or requiring developers to go through slow and opaque review processes.
While the current app store policies do offer some benefits to consumers, including the potential for tighter security controls, the report found that the costs far outweigh the benefits and that privacy and security protections can still be achieved in a more competitive environment.
The report recommends several changes to improve the app ecosystem for users, including:
Consumers should have more control over their devices. They should be able to choose their own apps as defaults, use alternative mobile app stores, and delete or hide pre-installed apps.
App store operators should not be able to “self-preference” their apps in an anticompetitive manner. Operators should not be able to favor their own apps in how they appear in search results or discriminate against other apps that are similar to their own.
Operators should lift restrictions on alternative ways for consumers to download and install apps. While still preserving appropriate latitude for privacy and security safeguards, legislative and regulatory measures should prohibit restrictions on sideloading, alternative app stores and web apps.
Addressing limits on in-app purchasing options. This can be done by banning requirements that developers use the app store operators’ in-app payment system.
As the report notes, new legislation and additional antitrust enforcement actions are likely necessary to boost competition in the app ecosystem. The measures identified in the report will help open the app ecosystem to greater competition, innovation and potential benefits for users and developers. NTIA developed the report at the direction of President Biden’s 2021 Executive Order on Competition, committing the administration to promote innovation and competition across the economy.
NTIA’s recommendations, if enacted, would put fairer rules in place in the mobile app ecosystem, to the benefit of consumers and competition.
Senator Elizabeth Warren (D-MA), a declared 2020 candidate for 2020 presidential nomination, came to Long Island City, where local activists rejected Amazon, to propose a plan to rein in big tech and other giant multi-national companies that use their economic power to stifle competition and intimidate government. Here is her proposal — Karen Rubin, News& Photo Features
Today’s
big tech companies have too much power — too much power over our economy, our
society, and our democracy. They’ve bulldozed competition, used our private
information for profit, and tilted the playing field against everyone else. And
in the process, they have hurt small businesses and stifled innovation.
I want a government that makes sure everybody — even the biggest and most
powerful companies in America — plays by the rules. And I want to make sure
that the next generation of great
American tech companies can flourish. To do that, we need to stop this generation of big tech companies
from throwing around their political power to shape the rules in their favor
and throwing around their economic power to snuff out or buy up every potential
competitor.
That’s why my Administration will make big, structural changes to the tech
sector to promote more competition—including breaking up Amazon, Facebook, and Google.
How the New Tech Monopolies Hurt Small Businesses and Innovation
America’s big tech companies provide valuable products but also wield enormous
power over our digital lives. Nearly half of all e-commerce goes
through Amazon. More than 70% of all Internet traffic goes through
sites owned or operated by Google or Facebook.
As these companies have grown larger and more powerful, they have used their
resources and control over the way we use the Internet to squash small
businesses and innovation, and substitute their own financial interests for the
broader interests of the American people. To restore the balance of power in
our democracy, to promote competition, and to ensure that the next generation
of technology innovation is as vibrant as the last, it’s time to break up our
biggest tech companies.
America’s big tech companies have achieved their level of dominance in part
based on two strategies:
Using
Mergers to Limit Competition.
Facebook has purchased potential competitors Instagram and WhatsApp.
Amazon has used its immense market power to force smaller competitors
like Diapers.com to sell at a discounted rate. Google has
snapped up the mapping company Waze and the ad company DoubleClick. Rather
than blocking these transactions for their negative long-term effects on
competition and innovation, government regulators have waved them through.
Using
Proprietary Marketplaces to Limit Competition. Many
big tech companies own a marketplace – where buyers and sellers transact –
while also participating on the marketplace. This can create a conflict of
interest that undermines competition. Amazon crushes small
companies by copying the goods they sell on the Amazon
Marketplace and then selling its own branded version. Google
allegedly snuffed out a competing small search engine
by demoting its content on its search algorithm, and it has
favored its own restaurant ratings over those of Yelp.
Weak antitrust enforcement has led to a dramatic reduction in
competition and innovation in the tech sector. Venture capitalists are now
hesitant to fund new startups to compete with these big tech companies because
it’s so easy for the big companies to either snap up growing
competitors or drive them out of business. The number of tech startups
has slumped, there are fewer high-growth young firms typical of
the tech industry, and first financing rounds for tech startups
have declined 22% since 2012.
With fewer competitors entering the
market, the big tech companies do not have to compete as aggressively in key
areas like protecting our privacy. And some of these companies have grown
so powerful that they can bully cities
and states into showering them with massive taxpayer handouts in exchange
for doing business, and can act — in the words of Mark Zuckerberg —
“more like a government than a traditional company.”
We must ensure that today’s tech giants do not crowd out potential competitors,
smother the next generation of great tech companies, and wield so much power
that they can undermine our democracy.
Restoring Competition in the Tech Sector
America has a long tradition of breaking
up companies when they have become too big and dominant — even if they are
generally providing good service at a reasonable price.
A century ago, in the Gilded Age, waves of mergers led to the creation of some
of the biggest companies in American history — from Standard Oil and JPMorgan
to the railroads and AT&T. In response to the rise of these “trusts,”
Republican and Democratic reformers pushed for antitrust laws to break up these
conglomerations of power to ensure competition.
But where the value of the company came from its network, reformers recognized
that ownership of a network and participating on the network caused a conflict
of interest. Instead of nationalizing these industries — as other countries
did — Americans in the Progressive Era decided to ensure that these networks
would not abuse their power by charging higher prices, offering worse quality,
reducing innovation, and favoring some over others. We required a structural
separation between the network and other businesses, and also demanded that the
network offer fair and non-discriminatory service.
In this tradition, my administration
would restore competition to the tech sector by taking two major steps:
First, by passing legislation that requires large tech platforms to be
designated as “Platform Utilities” and
broken apart from any participant on that platform.
Companies with an annual global revenue of
$25 billion or more and that offer to the public an online marketplace, an
exchange, or a platform for connecting third parties would be designated as
“platform utilities.”
These companies would be prohibited from
owning both the platform utility and any participants on that platform.
Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users.
Platform utilities would not be allowed
to transfer or share data with third parties.
For smaller companies (those with annual global revenue of between $90 million
and $25 billion), their platform utilities would be required to meet the same
standard of fair, reasonable, and nondiscriminatory dealing with users, but
would not be required to structurally separate from any participant on the
platform.
To enforce these new requirements, federal regulators, State Attorneys General,
or injured private parties would have the right
to sue a platform utility to enjoin any conduct that violates these
requirements, to disgorge any ill-gotten gains, and to be paid for losses and
damages. A company found to violate these requirements would also have to pay a fine of 5 percent of annual revenue.
Amazon Marketplace, Google’s ad exchange, and Google Search would be platform
utilities under this law. Therefore, Amazon Marketplace and Basics, and
Google’s ad exchange and businesses on the exchange would be split apart.
Google Search would have to be spun off as well.
Second, my administration would
appoint regulators committed to reversing illegal and anti-competitive tech
mergers.
Current antitrust laws empower federal regulators to break up mergers that
reduce competition. I will appoint regulators who are committed to using
existing tools to unwind anti-competitive mergers, including:
Unwinding these mergers will promote healthy competition in the market — which will put pressure on big tech companies to be more responsive to user concerns, including about privacy.
Protecting the Future of the Internet
So what would the Internet look like after all these reforms?
Here’s what won’t change: You’ll still be able to go on Google and search like you do today. You’ll still be able to go on Amazon and find 30 different coffee machines that you can get delivered to your house in two days. You’ll still be able to go on Facebook and see how your old friend from school is doing.
Here’s what will change: Small businesses would have a fair shot to sell their products on Amazon without the fear of Amazon pushing them out of business. Google couldn’t smother competitors by demoting their products on Google Search. Facebook would face real pressure from Instagram and WhatsApp to improve the user experience and protect our privacy. Tech entrepreneurs would have a fighting chance to compete against the tech giants.
Of course, my proposals today won’t solve every problem we have with our big tech companies.
We must give people more control over how their personal information is collected, shared, and sold—and do it in a way that doesn’t lock in massive competitive advantages for the companies that already have a ton of our data.
We must help America’s content creators—from local newspapers and national magazines to comedians and musicians — keep more of the value their content generates, rather than seeing it scooped up by companies like Google and Facebook.
And we must ensure that Russia — or any other foreign power — can’t use Facebook or any other form of social media to influence our elections.
Those are each tough problems, but the benefit of taking these steps to promote competition is that it allows us to make some progress on each of these important issues too. More competition means more options for consumers and content creators, and more pressure on companies like Facebook to address the glaring problems with their businesses.
Healthy competition can solve a lot of problems. The steps I’m proposing today will allow existing big tech companies to keep offering customer-friendly services, while promoting competition, stimulating innovation in the tech sector, and ensuring that America continues to lead the world in producing cutting-edge tech companies. It’s how we protect the future of the Internet.
