The Senate looks to be nearing a vote on the American Innovation and Choice Online Act, which would prohibit gatekeeping digital platforms from favoring their own services and products. Yet it is still unclear how this bill would affect the user experience of, say, iPhone users.
Press reports suggest that Congress might vote on pending antitrust legislation this summer. The bill that is receiving the most attention is S.2992, The American Innovation and Choice Online Act (AICOA). Sen. Amy Klobuchar (D-MN)—disclosure: we went to law school together—has been a key proponent for the legislation. (You can get the current draft of the bill at her Senate website.)
We are sufficiently far in this process that basic features of how the bill would operate should by now be well understood, yet I am not sure that is true. I have written about this here before roughly a year ago, but it is time to update, especially in light of recent developments in Europe.
The bill would alter competition by the big tech firms. The language of the bill speaks of “covered platforms” and the goal here is to create new obligations that would limit the gatekeeper power held by the platforms. That also has been the focus of the European Union Digital Markets Act, which seems to be moving towards becoming law in Europe.
I want to focus on pre-installation of features on the iPhone. The language of the bill is quite general, but it will help to have a concrete example to assess how it might change our everyday experiences. And what happens to the iPhone is hardly a fringe issue as, depending on how the market is framed, it accounts for more than 50 percent of mobile usage in the US. What Apple chooses to install on a new iPhone powerfully shapes the user experience. When Apple launched the iPhone in January 2007, the iPhone came with 15 preinstalled apps. That was it, as there was no app store and no way to add additional apps.
That is not the world we live in today. Wikipedia counts a grand total of 38 apps that are preinstalled on new iPhones, and that list doesn’t include functionality like Siri. The apps include everyday apps like a web browser, Safari; the App Store, so that you can add additional apps; Camera; Mail; and Phone. It also includes much more obscure apps (at least for me) like Compass, Tips, and Shortcuts. And, as the Siri point should make clear, there is also important preinstalled functionality that doesn’t fit into the app framework necessarily. Obviously, the availability of all of this functionality shapes the experience of the new iPhone. It is hard to imagine a smartphone without a browser, a mail application, or some way of making phone calls.
How might the proposed bill change that experience? Section 3(a)(1) of the bill makes it unlawful for a covered platform like Apple to “preference the products, services, or lines of business of the covered platform operator over those of another business user on the covered platform in a manner that would materially harm competition.” iOS is the relevant platform here, and while the bill isn’t clear on exactly what counts as a product, service or line of business, each of the 38 apps would likely qualify, as would functionality like Siri, even if not delivered up in an icon-launched app. Right now, Apple engages in massive amounts of discriminatory preinstallation, meaning that it chooses to install its own apps and not those of other firms.
To be concrete, I have little doubt that every browser that competes with Safari believes that having Safari pre-installed on the iPhone “materially harms competition.” Other browser makers have to fight for attention and somehow get a user to download their apps, while Apple gets to plop down Safari automatically, which means that the iPhone owner has a perfectly fine browser at the ready. Plus, the behavior of sophisticated firms in the market suggests that preinstallation is quite valuable. Google pays Apple billions of dollars a year to have a variety of its services preinstalled on Apple devices. And just last week, the United Kingdom’s Competition and Markets Authority issued a new report in which it concluded that “[m]obile devices also typically have either Google’s Chrome or Apple’s Safari pre-installed and set as default at purchase, giving them a key advantage over rival browsers.”
Sec. 3(a)(1) of the bill obviously applies to the covered platforms generally, but at least as applied to Apple, the bill seems to limit the discriminatory pre-installation that Apple currently engages in. Put that way, that might even sound like a good thing, but we should test what that really would mean.
Potential Alternatives to Pre-Installation
To comply with the bill, Apple would seem to have a number of options. Apple could choose not to pre-install any browsers and say nothing about them. Users would have to figure out a mechanism to add a browser to the iPhone. Right now, I know how to do that; indeed, I have maybe five browsers on my Apple devices. I added the other ones through the App Store. But, in this framework, the App Store is another Apple product, and an increasingly controversial one. Some would like to see more app store competition of the sort that you see on the Android platform and they would clearly see pre-installation of the Apple App Store as another step that “would materially harm competition.”
Consider a different alternative. Apple could pre-install every browser that works on iOS. Solve the preferencing problem by treating each browser identically. Go run a search on the App Store to see what that would entail. I stopped scrolling at some point, but I saw names I recognized—Chrome, Firefox, DuckDuckGo, Brave, Microsoft Edge, and more—as well as names that I didn’t recognize at all. You could imagine a browser folder with all these browsers pre-installed, but presumably that would be lots of clutter and wasted storage space.
Last year, I called this all-or-none pre-installation. I think that would comply with the bill. Each browser would be present, and the fact that other app categories weren’t pre-installed wouldn’t likely “materially harm competition.” And the bill requires a platform like Apple to ensure that pre-installed apps can usually be uninstalled, see Sec. 3(a)(8), so the iPhone owner could get rid of the browsers they didn’t want, though that would be a hassle. It should be noted that the existence of the uninstallation right in Sec. 3(a)(8) doesn’t seem to bless the discriminatory pre-installation that Apple engages in—Apple pre-installs Safari and only Safari—though if the intent is for that to be legal under the bill notwithstanding Sec. 3(a)(1), that should be made clear (and you can stop reading).
All-or-none pre-installation is a possibility, but if you have watched regulation in this space, you know a natural alternative: the choice screen. Here, the idea is that when a user first wants to use a browser, the user is presented with a list of all available browsers. Once the user makes a choice, that browser is downloaded from somewhere. The order of the list matters, and you would have to figure out the right way to order it. If you find the browser choice screen appealing, now multiply that experience by 38 and add choice screens for virtual assistants like Siri and other underlying functionality. You wouldn’t necessarily have to do all of these up front, but you would have to do so each time you first used a function.
This isn’t a fanciful approach: the European Commission has used it as a competition policy remedy to deal with Microsoft and Google, and the DMA plans to do more of it. Neither of the choice screen remedies in Europe seem to have altered competition much. Browser adoption patterns in the US—no choice screen—and the EU—with a choice screen for Windows 7—ran in parallel as Chrome displaced Internet Explorer in both markets. And Google’s search market share in Europe continues unabated. The coming Digital Markets Act contemplates choice screens for search engines, virtual assistants and web browsers. Even Europe, which evidences a greater willingness to impose transaction costs on consumers with the hope that doing so will create more contestability, wasn’t willing to go whole hog for the full set of 38 pre-installed apps on the iPhone.
There is one intriguing alternative—call it the designated app curator. Here is how this might work. When you first turn on an iPhone, you would be presented with a list of firms competing to act as the designated app curator for pre-installation of apps on your iPhone. By selecting a firm, you would be giving it the right to pre-install whatever bundle of apps they are offering for the iPhone. If you selected Apple as your designated app curator, presumably Apple would install its usual bundle of apps. And doing that would avoid the process of going choice screen by choice screen through each of the app categories. But what if you selected Google, Facebook, or DuckDuckGo as your designated app curator? You could imagine that a large number of firms might want to jump into this new market. What if those firms offered you money to try to get you to select them as the app curator? Google pays Apple right now—what if they paid you instead? This could be robust app curation competition.
We have hit the crux of the issue. All-or-none pre-installation would almost certainly require the pre-installation of hundreds of apps (take Apple’s 38 apps and any app that competes with one of those). Choice screens avoid that problem, but the app curator idea would sidestep the blizzard of choice screens that the bill would seem to point toward. Right now, Apple presents its handset, operating system, and app curation as a bundle. It does that in competition with a large number of Android phones that offer different physical features/price points and different pre-installed apps. Right now, Apple links iOS and its handset to its curation of apps for pre-installation, but it certainly need not work that way.
Indeed, I want to suggest that the designated app curator path is one that seems like it would comply with the bill and might be superior to a world of a la carte choice screens or mass all-or-none pre-installation. But we should consider next steps. Again, we know that Apple currently gets paid for pre-installation by app makers like Google. iOS is a platform where Apple makes charges to different sides of the market. Both Apple and Google have demonstrated that they are willing to impose new charges when regulators have intervened in these markets. Google did this in response to a new South Korean law and Apple did this in response to an order in the Netherlands regarding Match. Could Apple set separate prices to iPhone users based on whether they designate Apple as the app curator? The standard price for those who designate Apple and who get the traditional iPhone experience and a separate fee for those who aren’t making it possible for Apple to collect fees on the other side of the market?
Both the European Union’s Digital Markets Act and the proposed bill are seeking to create more contestability in the markets that depend on the dominant gatekeeper platforms. This is a kind of market engineering that, at least in the US, we have reserved usually for regulated industries like telecommunications and electricity. These markets are complex and it is important to understand what new laws are likely to do.
The iPhone has been a remarkable success story, but that of course doesn’t somehow insulate Apple from regulation. “Big Tech” is a phrase, but there isn’t really such a thing. The leading technology firms are quite different and, given the stakes, we shouldn’t be creating one-size-fits-all legislation for very different firms. S.2992 is an important effort, but it is important to be clear on what it will and will not do. And to make changes to the bill if we don’t like the results that might be coming.
I think that the natural reading of the bill is one that could substantially change the experience of first turning on a new iPhone. The current iPhone experience is built around discriminatory pre-installation. A different way to put that is that iPhone customers like how Apple crafts the iPhone experience. After all, Apple is a business based on what the market seems to regard as good taste applied to technology.
I don’t see how traditional discriminatory app pre-installation survives the proposed bill though again, if I have that wrong, I think that the bill needs to be clarified. That said, I do see a path that might control the extent of the changes introduced—the designated app curator. But first, we probably need more forthrightness regarding the vision of competition that this bill seems to embrace.
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