Congress’s recent efforts on antitrust and competition in the tech space have been focused on today’s biggest tech companies, not on setting policy for the sector as a whole. Although Google, Apple, Facebook, and Amazon (and perhaps Microsoft) are the largest companies and therefore the ones generating the bulk of problems, they are not the only tech companies who may be abusing their dominance in a market. Focusing on only those companies threatens to make any gains in competition policy temporary, as happened with the telecom industry. But new legislation introduced by Senators Blumenthal, Blackburn, and Klobuchar takes a broader view, proposing industry-wide changes to app markets that will improve the landscape for independent developers and their customers.
The Open App Markets Act sets out a platform competition policy that embodies a few basic ideas: the owner of an app store should not be allowed to control the prices that app developers can set on other platforms, or to prevent independent developers from communicating with their customers about discounts and other incentives. App store owners should not be able to require developers to use the store owner’s own in-app payment systems. And app store owners who also control the operating system they run on won't be allowed to restrict customers from using alternative app stores.
Importantly, the bill would cover app stores with 50 million or more US users, which includes not just the Apple and Google app stores but also the largest online game stores.
The high-profile case of Epic Games vs Apple has drawn attention to practices such as Apple’s 30% commission on app sales and in-app purchases and its gag rule on advertising lower prices out of the App Store, but Apple is not alone here. Valve, the owners of the Steam platform for PC gaming, has been accused of similar practices in an ongoing antitrust lawsuit by Wolfire Games and a group of Steam users.
Valve Leverages Its Dominance in PC Gaming Against Users and Independent Developers
The video game market has a vibrant independent developer space, but challenges abound for these smaller developers. In order to be successful as a game developer, you have to make something new and interesting to gamers. An innovative new approach to a classic game genre, or a hybrid of game types into something new, can yield new and great games. As a result, there is much less pressure towards mergers and acquisitions in this market in the same way we see in other areas of the technology sector because gamers move on to the next new game, rather than remaining tethered to older games. Start selling bad games, and customers move on to a new company.
But innovation in games depends on some core factors. Developers need a way to access as wide a base of customers as possible, and they need profits from products they produce to keep producing more. When a platform has effectively captured the audience, it can control the profits of the developer in ways that hinder future development while keeping costs above market rates. That is basically the issue with Valve’s Steam today, where Valve enjoys 30% of all revenues generated from sales on its platform while also being used by a supermajority of PC gaming customers.
When Wolfire attempted to sell its own games at a lower cost off of Steam’s platform, Valve told them that they would lose access to the Steam market, effectively telling them that independent developers on Steam are not allowed to offer lower prices elsewhere. But losing access to the core audience on Steam would effectively mean losing the business, and thus Valve is able to use its market power to dictate how games are sold, and at what price. This is a classic monopoly problem that the Open App Markets Act addresses.
The Open App Markets Act Prohibits Platforms from Leveraging Their Dominance Against Independent Developers
A rarity in DC, the Open App Markets Act is only 5 pages long and sets forth easy-to-understand rules designed to promote independent developers. The legislation prohibits covered app stores from controlling independent developers’ ability to communicate with their audiences on the platform about business offers such as a discount or a new means of purchasing a game. It does not prevent a platform from charging a commission for sales or dictate what rates they can charge, leaving that to the competitive process. So Valve’s Steam can enjoy the revenues it collects from developers who use its platform, but it can’t control their ability to sell games through other channels on whatever terms they want.
This has significant relevance should the independent developer make it big. Think of games that skyrocket up to the top, like Valheim’s meteoric rise to 5 million customers while still in the early access phase, or PlayerUnknown Battlegrounds’ (aka PUBG) rise to 13 million copies sold, also during early access. The early access phase is critical to developers needing a revenue infusion to refine and improve their games further until full release. Steam gets its payday from those early sales and the developers benefit from the platform’s audience size. But once the game developer reaches a point where they can simply exist as their own having built a customer base, Valve should have no power to control developers’ pricing. Under the Act, should a developer decide to offer their products at a much lower price than found on Steam, Valve would be prohibited from stopping them, and prices for games will come down without being dependent on the Steam sale.
The Act enforces this new competition policy by empowering the Federal Trade Commission and state attorneys general to bring enforcement lawsuits, and most importantly, also giving independent developers a right to sue a platform for injuries caused by a violation of the new law. The combination of these enforcement mechanisms means a platform would be on notice to avoid conduct that interferes with the business decisions of the developers. It could go a long way toward solving the problems we’re seeing today in both the Apple and Valve stores and many others.
This broadly applicable bill could create positive benefits for independent developers because it will change the behavior of all platforms that carry sufficiently large audiences, which are attractive to developers. More importantly, new competition policy in place would change platforms to focus more on the audiences they can offer developers while removing the incentive to control business decisions of those developers to preserve commission revenues.