By Mark Jamison

Late last week, Apple and attorneys at the law firm Hagens Berman announced a class-action settlement of a 2019 case that small US iOS app developers had filed against Apple. The settlement includes $100 million for app developers, along with new opportunities to market app services not provided through Apple’s App Store. It is unclear whether customers benefit.

The plaintiffs’ claims are typical of attacks against Apple from state legislatures, the European Union (EU), and Congress that the company has monopolized app distribution and abused market power to the detriment of app developers. These claims seem incoherent for two reasons. One is that there is competition, not monopolization: Apple’s iOS platform competes with Android, and Apple’s App Store competes with stores from Google, Microsoft, Amazon, and others.

The other reason the claims fail to hold together is that most of these app developers would not exist absent Apple’s innovations. Apple effectively created the app ecosystem in which these businesses exist; since the App Store’s launch in 2008, the number of apps it hosts grew from 49,000 to at least 2.2 million in the first quarter of 2021. That’s a compound annual growth rate of more than 35 percent. So much for Apple constraining app development.

App developers also complain about App Store fees and restrictions Apple places on how they use the iOS platform. As I have explained before, Apple’s fees incentivize it to develop a platform that many customers love. The fees also enable Apple to charge lower prices for its devices, which expands the App Store user base. Both effects benefit app developers, but the developers and their attorneys apparently see the ecosystem as a pie to be divided, not one that needs to be constantly nurtured and grown.

In the settlement, Apple provides $100 million to recent app developers. This money certainly helps small developers’ bottom lines, but some developers grumble that Apple can afford to pay them more. That’s probably true, but that complaint misses the point. Apple is profitable because it makes a great ecosystem in which others profit. If Apple makes too much money, then Android will begin pushing Apple’s iOS out of the market. And from the perspective of dynamic competition, it is unclear that either of these ecosystems will survive the changes that 5G and decentralized systems like blockchain will bring.

Customers will benefit from this financial settlement only
if developers use the money for more innovation or lower prices. Unfortunately,
receiving money from a settlement doesn’t incentivize either.

The settlement also eases restrictions on how developers can use information they obtain about customers. According to Apple, “Developers can use communications, such as email, to share information about payment methods outside of their iOS app” as long as users “consent to the communication and have the right to opt out.” The additional information might benefit customers, but many will be annoyed if this increases clutter in their email inboxes.

The two provisions of the settlement that seem most likely to benefit iPhone users are about app pricing and app search. The settlement lets developers offer more pricing tiers. This is good, but it is not without risk: The diversity of customer preferences in digital marketplaces makes it hard to create good pricing structures. But some developers will get it right and their customers will benefit.

Regarding helping customers find the apps they want, Apple’s
system will remain largely unchanged. This is good: Apple has every incentive
to maximize the user experience. This might not please app developers who
believe their apps should be promoted, but in a market economy the user
experience is more important than the developer experience.

The settlement is subject to court approval. And even if the
court does approve, developers can opt out of the settlement. Hopefully the
settlement serves as a signal to state legislatures, the EU, and Congress that
the app ecosystem is working well for consumers — and that markets should be allowed
to work so entrepreneurs see Apple and Google profits as something that can be
achieved by the businesses that create the next ecosystems.

(Disclosure statement:
Mark Jamison provided consulting for Google in 2012 regarding whether Google
should be considered a public utility.)

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