For Apple and Google, and for the platform firms in general, call it the domino effect — where all of a sudden, the landscape is different for payments, as well as for the high-margin app stores they run. Or, let’s put it this way: As South Korea goes, so might many other countries and regions, the U.S. and the European Union included.
As reported on Tuesday (Aug. 31), South Korea’s parliament has given the green light for new mandates on Google and Apple that would effectively open up payments optionality for app developers.
The new legislation means that there is now payments choice within those tech giants’ apps. It’s a top-down approach — one with no real room for the approach that has been seen in the States, where “opt-in” has been the name of the game (in this case, customers know they have payments choice if they opt to receive emails from the developers).
In this way, the developers can avoid paying the commissions — which run as high as 15% to 30% per transaction — to Apple and Google. (Developers paid as much as $1.7 billion to app store companies last year.)
But, importantly, the law also gives South Korea’s government the ability to mediate disputes tied to payments or refunds made within those apps. That signals even further power shifting away from the platform operators.
For Apple, the moves in South Korea may be further grist for the mill in the ongoing legal battle with Epic. Last week, Apple said it settled a $100 million class-action lawsuit that was brought two years ago by application developers.
But the suit versus Epic grinds on, where Apple has said that the issues in that case are “fundamentally” the same as has been seen in the developers’ suit. It might be the case that South Korea’s law serves as a further example of the goings-on in courtrooms and antitrust examinations elsewhere in the world. The push toward legislation to explicitly mandate that developers can use third-party payment services and stores is underway in the U.S. (through the Open Markets App Act).
And at the root of all of those changes lies a question of approach: There’s the regulatory approach, which can be piecemeal and can take a long time to change the frameworks in place. There’s the legal approach, where decisions can be glacial (or not) as cases wind their ways through the courts. Then there’s the legislative approach, which is what we’re seeing right now in South Korea.
For Google and for Apple, every single one of those approaches is coming to bear, simultaneously. And the impact will be sizable, certainly to these firms’ bottom lines. Google’s Play Store for mobile devices generated $11.2 billion in revenues in 2019 (pre-pandemic), according to court documents, and operating margins stand at 62 percent. Apple reportedly has seen profit margins of about 78% from its App Store.
South Korea’s new legislation may be a blueprint for other countries, which would signal that the dynamics of app stores – beyond Google and Apple – are about to change, especially when it comes to payments.