The Challenge to Multi-sided Digital Markets
Moving Beyond Fortnite and into Today
I blogged some time ago (May 2021) that we should watch the Apple v Epic battle. Epic was suing Apple because the marketplace or platform vendor controlled how fees could be charged by vendors, like Fortnite, on that platform. Fortnite’s popular game, Fortnite, allowed gamers to purchase in-game items.? Apple required all such charges to go through their own platform which meant the platform owner controlled the fees.?
I mused back then, and again in 2022, that the legal challenges in the consumer industry could predictably be extended to the commercial world. I wondered that if large CSPs like Google limited or controlled how vendors on their cloud stacks could charge their customers, maybe precedent in the consumer space between Apple and Epic could be applied to other multi-sided platforms. I still think this is the case. But I must admit I am not a lawyer and I do not research any such law or legal angles.
Something Old, Something New
This last week there was another interesting and related story. See WSJ China’s Latest Tech Regulations Threaten Apple’s App Business, Sept 30-Oct 1, 2023.
The article suggests that by July next year, the Apple Store, operating in China, can only host western social media apps if those apps are registered with Chinese authorities. The focus here is on data residency (what some confusingly call data sovereignty) and how China seems keen to ensure data about its citizens remain in China.
Goose for the Gander
This sounds very similar to what the EU’s position is regarding their citizens’ data.. And they are similar. If you read about these kinds of sovereign data and digital policies, and ignore the political background, there is more in common with the EU and China than you would imagine.
This article might seem different to the Epic v Apple story above, and on first blush it is. But here is my thinking. Both issues share a common element: how very large platform vendors (let’s call them VLPs), control both access to clients by other vendors that operate as sellers, and how sovereign data and digital strategies impinge in that platform itself.? Some such platforms focus on consumer markets, some on business markets.
Very Large Platform (VLP) Vendors
Though clearly different, the two situations seem to have some similarities. The challenges in both cases negatively challenge the business model of these VLPs. One will limit how the VLP owner can charge other vendors participating and doing business on its platform. The other will limit which vendor's operate on the platform (to do business). They both impact how ecosystems form (or don't) around a multi-sided platform.
And the unique characteristic of these VLPs?
As such, VLPs combine both the infrastructure as well as the software, and combined they make up multi-sided markets. That’s the unique combination here. And for me, that is the quintessential Standard Oil or Bell moment. In the coming years, will these conditions be conflated and bring about a separation of infrastructure from software, like we saw in the past with railroads and trains, or phone lines and communications?
Previously published blogs on the topic follows.
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Keep an Eye on the Apple v Epic Battle (May 2021)
Make no mistake about it, the current case being prosecuted in the US courts may well define a big chunk of the digital economy. At the center of the battle are questions (and judgements) that define digital markets, multi-sided platforms, and who has the power. The results from this case could well define our collective strategies.
The case started two weeks ago, and we all knew it was coming. The trigger was a software gaming publisher tried to bypass the licensing fee Apple charges through its Apple Store. Apple charges vendors a fee for them to sell their wares through the Apple Store. This is not new: many vendors comply. But Epic decided to try to bypass the “gate-keeper” fee with their own software changes. That action triggered Apple to kick Epic’s game from the Apple Store.
The arguments have piled up:
Why this is a delectable argument is because Epic can still reach its customers via other channels and platforms: The PC has several software stores; I happen to use?Steam?and it offers access to the Epic game in question.? Steam also charges developers for selling their games through Steam.? The point is that the relationship between consumer and developers who trade on these platforms is not totally wide open but actually managed, channeled and charged for through several different kinds of platform. A personal computer is not quite the same platform as the iPhone; The Apple Store is not quite the same as Steam. But the control such intermediates maintain may not benefit buyer and seller equally, or in the same way. Hence the fascinating impacts that may come from this case.
The ramifications from this case could extend into many other multi-sided and platform relationships and ecosystems. This might impact Facebook, Amazon,?SalesForce AppExchange, and more. In fact, the results might change how innovation progresses if rules limit how buyers and sellers may relate to each other across one or more platforms.
In this weekend’s Economist there is even a more interesting and probably more likely path. See?Epic Games v Apple: Battle Royal. The paper argues that antitrust rules will likely favor Apple and wise sages believe Apple will win the case. In other words, the gatekeeper has the right to charge for access and Epic has choices over which gate to work through. But is that really fair?
While this might sound logical, winning the immediate battle in court here for Apple might lead to losing the longer-term war. The more Apple defends its platform and gatekeeper status, the larger it becomes. You and I have fewer and fewer options. You cannot choose the apps you want on your iPhone via any other store unless it is from Apple; that is unless you jail-brake the iPhone and invalidate your warranty and even then, I am not sure there is a way to buy from a non-Apple-based store platform.
Vertical integration and lock-in along value the chain has been broken up before. So, a short-term win might be on the cards for Apple. But the long-term effect might be that we move ever closer to a real case that does disrupt the current dominant market players or regulatory controls ramp up.
The other big data spat reporters in the papers this weekend concerned the EU privacy laws possible trapping Facebook. See WSJ?Facebook Set Back in Ruling over Data Flows. In my view this is small beer compared to the Apple-Epic epic. But the small beer in this is still huge. Very large companies, and small innovators, all seek the ability to process data where it is most efficient. EU privacy laws are going to limit how firms can move and process data; political goals will again distort efficient market dynamics.
The EU is bound to limit such data flows out of its region. This will help it demonstrate why its own?EU Data Strategy?is a good idea. After all, if EU data has to stay in the EU, any data processors will need large data centers or cloud infrastructure services in the EU. This is what the EU Data Strategy seeks;?it is not a model of freedom, market dynamics or open competition. It really does not matter what Facebook claims. I can’t see this ending any other way.
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