South Korea’s New Law to End Apple and Google’s App Store Dominance

South Korean government takes a significant step against Google and Apple over in-app payment commission. The new bill orders app gatekeepers to allow third-party payment methods in their app stores. Can this new law boost app developers’ profits and end Apple and Google’s duopoly in the app marketplace?

On August 31, 2021, South Korea’s National Assembly passed an amendment to the Telecommunications Business Act that will ban app store operators, such as Google and Apple, from forcing app developers to use their payment systems for in-app purchases. Additionally, the new law will forbid app gatekeepers from delaying app approvals or deleting them from the app markets. 

The bill will come into force once President Moon Jae-in signs it. Companies will be fined up to 3% of their domestic revenue if they fail to comply with the new law.

Since August 2020, South Korean lawmakers have proposed bills to diminish Apple and Google duopoly in-app payment market.

Developers can share alternative payment channels with their users if the bill is passed and bypass app store commission. It might finally be the end of the 30% app store fee commission for Korean app makers. The law will directly impact tech giant’s revenue from app store commissions. According to industry data, in 2020, South Korean developers paid more than $1.7 billion to app store operators.  

Global Impact of South Korean Bill

The law is bound to have significant ramifications throughout the world. If South Korea succeeds in passing the bill, then gradually, several nations, including U.S., Australia, Russia, might follow suit to reduce Apple and Google’s duopoly that controls the global smartphones.

Along with South Korea, on August 30, 2021, Russia’s Federal Antimonopoly Service (FAS) warnedOpens a new window Apple over abusing its dominant position in the distribution market for iOS apps.

Both Apple and Google have faced regulatory scrutiny and legal investigations regarding their market dominance and stifling competition.

So what have the tech giants done to appease their rivals and app makers?

Following the footsteps of Apple’s announcement of a reduced 15% fee commission from January 2021, in March 2021, Google too announced a 15% drop in its in-app commissions globally. The catch is Apple will charge a 15% commission only for developers that make under $1 million per year, whereas Google would cut a 15% commission fee for the first $1 million that developers make.

Interestingly, the new commission reduction happened after tech giants faced immense pressure from app makers such as Epic Games, Spotify, Basecamp, and Match Group. Despite the changes, tech behemoths continue to have strained relationships with app developers. 

To further mend ways, on August 27, 2021, Apple proposed a $100 million settlement for a class-action lawsuit with app developers. Unfortunately, even this move did not settle well with the developers.

See Also: Finally, Apple Loosens Restrictions for Small Developers: But Is This Enough?

Google and Apple’s Response 

Both tech behemoths seemed dissatisfied by the new law.  

In a statement to Reuters, a Google spokesperson saidOpens a new window , “Google Play provides far more than payment processing, and our service fee helps keep Android free, giving developers the tools and global platform to access billions of consumers around the world. We’ll reflect on how to comply with this law while maintaining a model that supports a high-quality operating system and app store, and we will share more in the coming weeks.” 

Apple explained the new South Korean law would compromise their customer privacy. 

The statement stated, “The Telecommunications Business Act will put users who purchase digital goods from other sources at risk of fraud, undermine their privacy protections, make it difficult to manage their purchases, and features like “Ask to Buy” and Parental Controls will become less effective.”

While the tech giants expressed their concerns, their rivals and lawmakers praised the South Korean government.

Senator Marsha Blackburn tweeted the following:

It’s time the U.S. follows suit to reduce Big Tech’s app store influence. I urge Congress to swiftly pass my bill with @SenBlumenthalOpens a new window and @SenAmyKlobucharOpens a new window that will help ensure fair competition for innovative startups.

— Sen. Marsha Blackburn (@MarshaBlackburn) August 31, 2021Opens a new window

Meghan DiMuzio, executive director of Coalition for App Fairness, saidOpens a new window , “South Korea’s new app store law is a significant development in the global fight to bring fairness to the digital economy. 

South Korean lawmakers and President Moon Jae-in have made history and are setting an example for the rest of the world. This law will hold app store gatekeepers accountable for their harmful and anti-competitive practices. The CAF hopes U.S. and European lawmakers follow South Korea’s lead and continue their important work to level the playing field for all app developers and users.” 

Tim Sweeney, CEO and founder of Epic Games, celebrated the new law.

Korea is first in open platforms!

Korea has rejected digital commerce monopolies and recognized open platforms as a right.

This marks a major milestone in the 45-year history of personal computing. It began in Cupertino, but the forefront today is in Seoul.

— Tim Sweeney (@TimSweeneyEpic) August 31, 2021Opens a new window

In a blog post, David Heinemeier Hansson, founder and CTO at Basecamp and Hey, explainedOpens a new window , “This is a watershed moment that’ll force Apple and Google to actually have to work for their cut. Yes, of course the cut is going to come down, and probably massively so, but there’s still plenty of space for an integrated, low-friction payment solution for developers where they can charge a premium. Only that premium is likely to land somewhere between 5-10%, not an outrageous 30%!”

The new bill might change the dynamics of Apple and Google’s app store dominance. The in-app payment system has impacted several app makers and is considered a significant barrier for startups that are not generating profits. The new bill might be a big relief for app makers and a monetization opportunity for telecom service providers in the South Korean market. But ultimately, it all depends on users if they are willing to try third-party payment methods.

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