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Spotify and Apple are in yet another vocal battle over the app store, payment conditions for apps on the platform and the underlying question of whether competitors to Apple Music are being discriminated.
Whenever this topic comes up and the point of a potential conflict related to Apple’s double role as platform gatekeeper and platform user (= app publisher) is brought up, someone responds by referring to the widespread practice among retailers of selling their own store brands alongside products of competing brands. According to this argument, because store brands are a very common and accepted practice, Apple or Google becoming their own platform customers and offering products that compete with those of other platform customers must not be questioned, either.
Something strikes me as problematic with this comparison.
My skepticism about the comparison between retailers of physical goods and platform operators for mobile software touches both the methodical act of impulsively arguing against criticism of mobile platform characteristics with a trivial comparison as well as the factual issue itself. Let’s have a closer look.
Different systems require different approaches
First, the method: It’s not logical to assume unquestioned that the general acceptance of a practice that emerged during a specific time period in one sector of one commercial system automatically validates the same approach in other areas that are part of other systems during other time periods. Industries, market dynamics, technology and power structures change constantly and differ greatly. What was a smart solution in the interest of customers and a healthy competition a few decades ago and became a best pratice in some field could be a bad idea today in some other field, because external conditions, frameworks and even the type of products/services being offered are different.
Referring to the existence of store brands in retail and suggesting that because of their acceptance, every other platform ever will have to work according to the same principles, is superficial and a bit lazy. That being said, there might be reasons why in the end, criticism of platform operators’ double roles could objectively turn out to be unfounded. But the existence of a similar common practice in another market (localized retail of physical goods) does not qualify as a strong argument.
A global duopoly
When talking about mobile app platforms, we are looking at a market characterized by instant global distribution of information, communication, entertainment and services wrapped in software at close to zero marginal costs. The market is furthermore characterized by a duopoly of platform operators (in Q4 2015, Apple’s iOS and Android together had a worldwide smartphone market share of 98.4 percent) as well as by massive winner-takes-it-all and power-law dynamics. This is a historically unique market, which therefore needs to be looked at with a fresh view, without having mental models and thought concepts of highly different types of older industries interfere.
Now, here is something I consider a fact: As an ambitious creator of cutting-edge, innovative end consumer software intended for mobile use, you most likely won’t get anywhere close to your full potential without being present in Google’s Play Store and Apple’s App Store. Sure, some app fatigue can be witnessed among users, and the usability and performance of web apps that run in the browser is improving all the time thanks to HTML5 and other modern standards. Nevertheless, for many services, native apps with their privileged access to various of the core functionalities of smartphones and superior usability still, by far, are the best choice. Especially on iOS. There is a reason why Apple released Apple Music as a native app. It’s what works best and it’s what the users expect.
Presence on iOS is essential
A few rare exceptions aside, for any advanced software product with a broad target group of mobile users and ambitions in international key regions, there is no way around the two leading app stores. Although in the early stage it might be ok to skip Android, since statistics show that its users are much less willing to pay for apps or in-app-purchases than those of iOS. But an app on iOS is still a must for most types of services. As a well-funded company with ambitious international plans and a state-of-the-art product for smartphone use you simply cannot reach your desired target group without an iOS app. You have to be on iOS.
To me, that status as essential distribution channel for mobile innovators is the reason for seeing a potential conflict in a double role as platform operator and publisher. If you run a global distribution platform for software in an age in which “software eats the world” and you are the only two players that actually matter; the only two companies in the world with the ability to connect more than 2 billion people worldwide with businesses in a commercially meaningful way, then that comes with responsibility. I can’t help to think that the best way of acknowledging this responsibility would be to remain a neutral platform provider which takes a revenue cut from commercial activities on the platform but which refrains from competing with platform customers at inevitably favorable terms.
However, the point of this post is not so much debating Apple’s conflicts. I am aware that one can have different perspectives on this issue. I’ve made my position clear but I don’t have the urge to convince everyone. My primary intention with this post is to emphasize why comparing a retail platform which predominantly sells physical goods – even a giant one such as Amazon – with a global distribution platform for software and digital services is misguided.
Retail is fragmented, even with Amazon & Alibaba
The retail market looks very different. It is not a duopoly. Even the largest retail chains are just a player among many, and their dominance is usually limited to some countries. Amazon, Walmart or Alibaba are giants, no doubt. But their market share varies widely from country to country (Alibaba is technically only a market leader in China), there are always plenty of local alternatives, and in many nations the world’s largest retail chains or online stores are not even active. I am living in Sweden and here, there is neither Amazon nor Walmart nor Alibaba.
Even though the e-commerce giants are definitely changing the landscape of retail and pushing it towards more concentration and less competition, for the foreseeable future the sector won’t look anything like the mobile ecosystem with its 2 sole protagonists controlling the complete worldwide market. In consequence, conflicts that arise between brands and retail chains and which lead to an absence/delisting of a specific brand in a specific store won’t have the same potentially devastating consequences for the brand. The dependency of a global product/brand from one specific retail chain is much smaller. Sure, if one is not listed on Amazon this can really hurt one’s business. However, there are plenty of products which successfully use direct sales channels to reach customers. It all depends on which strategy you employ and how you succeed with creating desire for your product. If customers want to have your physical product, they’ll find a way to get it, even without Amazon. However, if your customers really want your app, but your app cannot be found in the App Store, you are close to dead.
That is the reason why the factual comparison between global distribution channels for mobile software and retail (stationary and online) is misleading. The sectors, market dynamics and dependencies are too different to apply best practices and established conventions from one sector on the other. Thus, I conclude that one needs to look at the app store and its conflicts in an isolated fashion and investigate whether current practices and trends are in the interest of consumers and a healthy competition between companies. Whatever has been going on in stationary retail and subsequently was adopted by e-commerce players has little to do with the realities of mobile software distribution.
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