This is part four of an ongoing, five-part series. Part one, the introduction, is here. Part two, about breaking up ad-tech companies, is here. Part three, about banning surveillance ads, is here.
When Steve Jobs unveiled the iPad in 2010, he didn’t just usher in a new kind of computing device – the first mainstream touchscreen tablet – he also promised a new model for internet-based publishing: paid subscriptions.
Jobs railed against the world of advertising-supported web publishing, correctly identifying it as the pretense for the creation of a vast, dangerous unaccountable surveillance system that the private sector would build, but which cops and spies enjoyed unfettered, warrantless access to.
Jobs promised a better internet: he promised publishers that if they expended the capital to build apps for his new tablets, that he would free them from the increasingly concentrated and aggressive surveillance advertising sector. Instead of paying for journalism with ads, Jobs promised that publishers would be able to sign up subscribers who’d pay cash money, breaking the uneasy coalition between surveillance and journalism.
Publishers piled in, spending billions in aggregate to fill Apple’s App Store with apps that let readers pay directly for the news. Readers followed – not in the numbers that Jobs had alluded to, and not for every publisher, but for many publishers, apps were a lifeline.
Apple’s App Store started off with a pretty straightforward proposition: when publishers sold an app to readers, Apple would process the transaction and take a 30 percent cut. After that, publishers could use any payment processor they wanted – including Apple – to handle future purchases, such as per-article fees, recurring subscriptions, or other transactions.
But as the iPad – and other devices that tapped into the App Store, the iPhone and iPod – grew in prominence and became more structurally important to publishers’ businesses, Apple altered the deal.
In 2011, Apple announced that every in-app transaction had to be processed by Apple, and that Apple would take a 30 percent commission on all revenues generated by every app user. To ensure that publishers didn’t do an end-run around this new deal, Apple banned apps from directing users to the web to process payments.
Google Play, the Android app store, has nearly identical policies. Nominally, users can install third party app stores on their Android phones, but in practice, Google uses a variety of commercial, technical and psychological tricks to prevent this..
The net result of this is that 30 percent of every in-app subscription or micropayment dollar is siphoned off by either Google or Apple. In a world where large merchants can get their payments processed for 2-3 percent, that is a massive cash-grab.
The fact that Apple and Google charge 1,000% more to process transactions than other payment processors tells us that they do not fear outside competition. The fact that they both charge many publishers the same outrageous commissions tells us that they don’t compete with each other, either.
Competition in mobile app stores would open up competition for mobile payments, and that would drive prices down to the industry norm of 2-3 percent. That means that every news organization that receives subscription payments through an app would see an increase of 25 percent or more for each and every one of those payments (and news companies that don’t accept mobile payments at all because of the high fees could start).
The EU is well on its way to making this a reality. The new Digital Markets Act requires mobile companies to offer simple, secure access to rival app stores. In the USA,, the Open App Markets Act, a Senate bill introduced in the last session, would do the same.
The app store duopoly claims that opening up app stores would necessarily expose users to security risks. This is not true: a thoughtful, careful approach could maintain app store security while liberating the news – and every other app-based business – from the 30 percent commissions claimed by the tech giants.
