Unlocking the potential: a deep dive into the impact of the App Stores & Digital Markets on the Tech Industry
Paulo Trezentos
CEO & co-founder of Aptoide. Running the largest independent app store for Android and iOS. Mobile. TV.
Our experience as mobile users has always been to have a unique app store for installing apps and games, such as Google Play in the Android world and the Apple App Store in iOS.
Would we as consumers admit to having only one library or bookstore in the entire world? Likely not. That bookstore would control what books we could read, how expensive they would be, and how writers and publishers could compete with its own books.
Android is used by three billion people worldwide [1], and iOS by one billion [2]. For many of these people, the phone is their only connection to the Internet. Today, apps are used for communication, entertainment, and obtaining information. So why do we accept that there is only one app store in each ecosystem?
In the first part of this article [3], the Digital Markets Act (DMA) and its impact on game developers was discussed. In this second part, we will address the app stores business, exploring why and how it may be affected by DMA European legislation.
In the context of this article, the app stores industry is defined as the business of distributing mobile apps and games, acting as the gateway between the developer and the end user. The app store ensures safety, discoverability, and payment processing. As such, the app store business fits perfectly into what is described in the DMA as "the ability to connect many business users with many end users" and where gatekeepers leverage their interests to “lead, in many cases, to serious imbalances in power and, consequently, to unfair practices and conditions to business users” [4]
Advantages of having competition in App Stores market?
Competition is the cornerstone of free markets. In Western societies that embrace free markets, monopolies are only allowed under very specific conditions. For example, most economies accept the following types of monopolies: i) when an initial large investment is required and the investor needs time to recover it (e.g., patents in the pharmaceutical industry), ii) public services where prices, quality of service, or sovereignty is at stake (e.g., health services, national defense, or education), iii) access to limited natural resources (e.g., mining).
Does the app store duopoly controlled by the companies that own the Android and iOS operating systems (mobile incumbents) fall under one of the acceptable monopolies? The reason given by the mobile incumbents is the security of the users. However, scientific studies of app store safety [5] and consumer experiences in other areas of the economy prove that competition is not incompatible with safety. We don't have just one brand of cars to improve road safety or just one supermarket operator to improve food distribution safety. Regulators establish rules that car manufacturers and supermarkets must comply with in order to operate safely.
Having competition in the app stores market can promote innovation, as companies will try to differentiate themselves through new features and improved discoverability. Competition will also create alternative distribution options for developers, who can negotiate better fees.
How has the duopoly of app stores been secured ??
The duopoly of app stores has been secured through different strategies employed by the mobile incumbents.
The company that owns iOS has technically blocked the sideloading of applications at the operating system level, making it impossible for other app stores to operate on iOS. Some users have technically circumvented this limitation with jailbreak devices, but due to the technical complexity, this is only a small niche of users.
On the other hand, the company that owns Android originally allowed sideloading, but over the years, it has created artificial mechanisms and policies at the operating system level that discourage real competition in the app store market. These strategies have helped the company secure its dominant position in the app store market.
1.- Friction at apps installation time
The friction at apps installation time is created both in the Android Operating system and in the Chrome browser to make it harder to install apps outside Google Play.
By controlling the operating system and using security as an excuse, the company owner of Android has created a fenced garden that makes it especially complicated for the user to install a competing app store.
By using security as an excuse, they have created a closed environment that makes it challenging for users to install a competing app store.
Depending of the Android version, the obstacles to an easy installation include:
2. The operating system requires confirmation to proceed with the installation.
3. Within the independent app store, when the user tries to install an app, they are blocked with multiple pop-up's related with permissions- a popup stating "For your security, your phone is not allowed to install unknown apps from this source." This reinforces the idea that the operation is dangerous. The user then has to go to the Phone Settings, change a switch to allow installation from that source, and accept the risk of making the phone more vulnerable. In focus group research, this warning popup caused 30% of users not to proceed.
2.- Blocking and hiding apps without developers’ consent?
For example, in June 2018, Aptoide's users received automatic notifications on their devices informing them that the Aptoide app contained viruses and may harm their devices. Such notifications were issued by "Google Play Protect."
After analyzing the situation, Aptoide became aware that, even in cases where the end-user ignored the notifications, the Aptoide app was automatically disabled from the end-user device.
3.- Self-preferencing and cross-selling
i) Search Install Button
Google has a different behavior in search results for the Play Store and other app stores.
A Google search result entry for the Play Store displays an "Install" button widget, making it easier and more "institutional" for users to click it and proceed.
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This leads to a higher CTR (click-through rate), which in turn leads to a better position in future search results.
Play Store competitors never benefit from the "Install" button in search results, leading to poor CTRs and worse search results.
ii) Google Ads - App Campaigns
Google Ads and Facebook Advertising represent more than 60% of the entire advertising industry.
Google Ads has a type of advertising called App Campaigns, whose target is advertisers who want to push app installations.
During campaign creation, Google Play is pushed as the preferred channel for app installations. This is reflected in Google Ads documentation, where Google lists the benefits of linking accounts.
The benefits of using Google Play in Google Ads extend to the ad's creative. In the case of Google Play, the layout of the ad includes an install button, the Google Play logo, and it opens directly in the Play Store.
This experience during app campaign creation leads developers to choose Google Play as the channel for user acquisition efforts, limiting their choice.
4) Google Play Distribution Agreement anti-competition clause & overnight silent updates
Google Play Store prohibits the distribution of other app stores through it, despite being the only installation channel available on every Android phone. Aptoide was available for download on Google Play Store until 2014, but under the non-compete clause (now Clause 4.5 of Google Play - Exhibit [image:exhibit_iv1.png]), it was banned and blocked from being resubmitted. The removal of Aptoide from Play resulted in a loss of 30% of new users at the time.
Given that Google Play is pre-installed on almost all devices, blocking competitors restricts user choice. Additionally, Google Play has special permissions on the operating system to update apps overnight, which often overwrites other stores' billing with Google's version, impacting the revenues of competitors and taking the resources that could have been used to compete.
What changes would contribute to a more fair landscape in the App Stores business ?
To achieve a fairer landscape in the app store business, gatekeepers will have specific obligations under the Digital Market Act to ensure a balanced ecosystem between business users and end users. Currently, mobile incumbents and gatekeepers use their control of the operating system and dominance in internet services to prevent healthy competition among app stores.
Three structural changes are necessary to reverse the current duopoly market status:
l changes will need to happen to revert the current status of the duopoly market:
While China is not a prime example of free markets working well, its Android landscape has five app stores with more than 10% market share, which stimulates innovation [6]. Ultimately, competition always results in better business conditions for developers and better options for users.
In addition to the DMA, there are several initiatives from governments and regulators [7] to bring fairness to digital markets, and specifically to the app stores. Although mobile incumbents will use all their resources to maintain their duopoly, as Victor Hugo once said, "Nothing is more powerful than an idea whose time has come."
About Aptoide
Aptoide is one of the top three Android app stores. Established in 2009, it provides alternatives for app distribution in the Android ecosystem. The company is headquartered in Lisbon and has additional offices in Shenzhen and Singapore. In 2022, Aptoide had 850 million app and game downloads and processed 3.5 million in-app purchases for thousands of developers. With over 100,000 certified apps, Aptoide works with developers to distribute and monetize their work.
References:
[1] https://www.theverge.com/2021/5/18/22440813/android-devices-active-number-smartphones-google-2021?
[2] https://www.theverge.com/2021/1/27/22253162/iphone-users-total-number-billion-apple-tim-cook-q1-2021?