David Heinemeier Hansson

September 14, 2021

Apple's forced IAP is either dead, a joke, or illegal

I can understand Epic's disappointment with the verdict in their trial against Apple. They sought to have the iPhone recognized as the pocket computer it is. One where consumers should have the right to install the applications of their choice, like with any other general-purpose computer, and where developers should be free from extortion, retaliation, and other monopolistic abuse from the platform owner. They didn't get that.

Instead the judge narrowed the case, like judges often do, to basically just be about digital gaming transactions. Then declared Apple to be just shy of being a monopolist under federal statutes, but enough of a dominant player to have acted anti-competitively under California statutes. And that those anti-competitive acts were deserving of an immediate, national, and permanent injunction to stop the abusive behavior.

That injunction is delightfully short, but unfortunately also rather vague. The tech community has been busy trying to parse the meaning of words like "link" and "button", and whether the lack of a comma or not is decisive. The answers are likely to be revealed in the case law Apple establishes once developers flood the App Stores with test cases. But in a way, it also kinda doesn't matter.

Because most of this careful analysis of the injunction misses the big picture: Apple's forced IAP is either dead, a joke, or illegal.

Let's start with becoming a joke.

Apple's current regime of forcing IAP down developers' throats is entirely contingent on the gag orders that go with it. The rules that say developers can't link to or even tell consumers about other places to buy digital goods and services outside of the App Store, or how much they'd save if they did. That's the so-called anti-steering provisions.

Those rules have one of two primary outcomes. It can lead to cryptic, user-hostile welcome screens, like the one for Netflix, where the developer has to try to tell their customers why they can't sign up for the app from the app, but without using certain forbidden words. It's really bizarre, and clear evidence of consumer harm. Or it can lead to disgruntled developers begrudgingly accepting that they can't fight the monopoly beast, and submitting to using IAP against their will. Because what else are they going to do? Apple has them by the purse.

Now imagine that Apple abides by the injunction but also attempts to continue forcing IAP upon developers who don't want it. The gag orders are gone, because that was the anti-steering provisions explicitly prohibited by the injunction. Which means developers have to offer something they don't want to offer, but they're free to present that offer as they see fit. Can you see where this is going?

Signup for your own @hey.com email address for $99/year on our website. It only takes a second, and you can use Apple Pay or enter your credit card directly!

...

Small print: You can also signup using Apple's IAP for $199/year. It's the same service, except we'll have a harder time giving you proper support, and you won't be able to manage or transfer your subscription to Windows or Android. We'd really rather you didn't, but hey, if you want to pay double such that a monopolist can add another trillion to their market cap, you do you!

Maybe Apple will reject that? But on what grounds exactly? And even if this outright snark won't fly, does it matter? What if you simply steer your customers to a primary offering on your own website in large text as the default option, then have the twice-the-price IAP option in small below?

The method of offering this doesn't even matter. In-app or external is largely irrelevant with modern UI affordances. You can barely tell the difference between a payment flow that kicks you out to Safari (with that handy back link to the app in the upper left!) or one that happens inside a web view within the app. The web flow can easily redirect you back into the app once the transaction is complete anyway.

Apple would also have to tread careful in how they police the steering employed by developers. And they would have a very hard time policing the price differential. One of the biggest no-nos in monopoly land is price fixing. So it would be surprising if Apple dares be overtly explicit about how these offers can be presented, and whether the spread can be greater than 30%.

That's the thing about injunctions. The consequence for violating them is contempt of court. It may even be criminal contempt of court. Is Tim Cook going to risk a criminal indictment over an attempt to police language and fixing prices? I doubt it.

So that's how forced IAP becomes a joke. With developers free to disparage the thing they don't want to offer but are forced to anyway, it'll give channel to all the pent-up frustrations from years of abusive behavior by Apple. As a consequence, the IAP option could quickly become known as the chump option amongst consumers. Paying 30% or more for the same thing, but worse? How many consumers are actually going to do that? What's the brand damage to Apple when they don't?

And if Apple tries to fight it, risking contempt of court, they're highly likely to be found again to have committed illegal acts! So do you want to let your forced IAP regime become a joke or do you want to continue your illegal anti-steering measures? Both pretty poor choices, if you ask me.

Which leads us to the most likely outcome in my opinion: It's game over for forced IAP.

Apple will simply have to accept competition for developers on a (sorta) level playing field with the likes of Stripe, Square, and PayPal. They'll still have all sorts of advantages, given how they can preference their own setup flow, save a credit card system wide, and such, but those advantage will just not be worth the obscene 30% premium they can currently charge in the absence of competition.

And that's the point, isn't it? If Apple can't use their dominant market position in mobile operating systems to tie an exorbitantly-priced payment processor to the right to distribute software for that platform, the competitive forces will be unleashed to do what they're supposed to do: Offer better services on better terms at better rates!

That's why we need lawmakers, regulators, and judges. Since Adam Smith, it's been broadly recognized that markets can't function like they're supposed to when captured by cartels, duopolies, monopolies, or other dominant market forces. The market performs its magic when it's kept free of capture. Keeping it so requires eternal vigilance.

Epic is therefore right to be disappointed that they couldn't strike a more decisive blow against this market capture in their court case, but what they did achieve is still remarkable. The defacto fall of forced IAP would a monumental victory. And the judge's ruling of Apple's anti-competitive actions as illegal under California law, and near-monopoly status under federal statutes, is a big step forward too.

I know Epic has already elected to appeal the case, and I hope they do even better with the 9th Circuit, but the injunction is likely to stand regardless of whether Apple tries to do the same, based on careful legal analysis I've been privy to. Which means that in now less than 90 days, developers will most likely have materially more freedoms, while Epic v Apple carries on, and lawmakers push their more fundamental reforms forward.

GG Epic!