This Staggering Number Explains Why Congress Wants to Regulate Big Tech Companies. Why It Probably Won’t Work

On Tuesday night, the House subcommittee on Antitrust, Commercial and Administrative Law of the Committee of the Judiciary released its findings after a 16-month investigation that included a hearing with the CEOs of Apple, Alphabet (the parent company of Google), Facebook, and Amazon. There’s a lot to unpack in the 450-page report, but the bottom line finding–at least according to the committee–is that each of these companies is a monopoly in its own space, and should be regulated. 

That’s quite a statement, though not entirely a surprise. Considering that members of Congress have been talking about regulating–and breaking up–big tech companies, this report is the logical conclusion of that argument. In fact, there was one number that best sums up the reason why Congress was sure to come to this point, regardless of what its investigation actually found.

The number is $138 billion, and it represents the revenue generated by apps in Apple’s App Store last year, in the U.S. alone. That’s an extraordinary amount of money on a platform that has only existed for 12 years. 

In the past year, Apple’s platform has faced criticism for the way it reviews apps, as well as the commission it takes from subscriptions and in-app purchases. The latest example being its legal battle with Fortnite creator, Epic Games, which has sued over what it says is Apple’s monopolistic control of apps on the iPhone. 

Clearly there’s a lot of money at stake, which is why this is so interesting. In its statement, Apple makes clear that 85 percent of that $138 billion was paid to third-party developers last year. Yes, Apple makes a lot of money from the App Store, but the economic value it has created for developers is extraordinary. 

In addition, and this is an important point, Apple has never once raised the commission it takes from apps, which would be a key factor of a monopoly. In fact, in the only cases where the amount of money paid by a developer has changed, it has decreased. Apple made it less expensive in the second year of a subscription, and in other cases stopped taking a cut at all.

I’m not suggesting that Apple is entirely in the right here, and I think there are definitely things it could do to spur creativity and innovation among developers, but the company makes an interesting point:

“Apple’s commission rates are firmly in the mainstream of those charged by other app stores and gaming marketplaces. Competition drives innovation, and innovation has always defined us at Apple. We work tirelessly to deliver the best products to our customers, with safety and privacy at their core, and we will continue to do so.”

I want to unpack that in a minute, but to do that I think we have to look at it from the perspectives of both developers and users. From a developer’s perspective, I think the real question is whether or not that number would be higher if either users were able to buy apps from alternate stores, or if developers were able to use their own payment processing systems.

On the other hand, from the user’s perspective, I think you could argue that the ability to install apps from other sources might appeal to some people, but that doesn’t mean it would be better. One of the primary benefits of Apple serving as a gatekeeper is that it provides the “safety and privacy,” that Apple says is at its core (no pun intended). Allowing “sideloading,” as it’s called, would circumvent those protections.

The same is true if developers were allowed to use their own in-app payment systems. The fact that users trust Apple plays a huge role in a their willingness to hit that “purchase” button. No one has to worry about giving their credit card information to a developer they’ve never heard of. 

That says nothing of the fact that Apple makes it extremely simple for apps to convert free users to paying customers by eliminating all friction. iPhone users already have their payment information on file with Apple, making the one-click “buy” button possible in the first place. Changing that isn’t going to make the experience better for anyone, especially users.

None of that is to say that big tech is above reproach here. Also, the sheer size of the numbers involved (the four companies that sent their CEOs to testify are collectively valued at more than $5 trillion), means Congress can’t possibly pass up the chance to get involved. There’s simply too much money, and power involved.

I just generally think that Congress isn’t necessarily trying to solve the right problem. Also, even if it was, it’s not very good at it. Laws are blunt tools that don’t usually solve highly nuanced market circumstances.