by Eli Dourado
In the United States, state legislatures are now at risk of ruining smartphones the way Europe ruined the web. Bills in at least Rhode Island, North Carolina and Florida would force companies like Apple to allow every developer on their platform to use any payment system they want to collect funds from users. Apps, in other words, could circumvent the App Store payment system as well as the guidelines and practices that Apple enforces to make the whole experience a good one for consumers.
Get ready to enter your credit card number, a lot. Under current App Store rules, users pay Apple and Apple pays the app developers, who never see user billing data. By setting up their own billing relationship with the customer, the developers would lose a smaller percentage of their revenue to fees, but this would come at a cost to consumers’ privacy and security, forcing them to give out their billing data — including credit card numbers and home addresses — for every $1.99 transaction on the phone.
There are security and privacy considerations with this information being so widely available. After years of smartphone use, hundreds of individual developers, many of them tiny operations in foreign countries, could have access to your information. All it takes is for one of them to get hacked for your information to leak all over the world.
How about when it’s time to cancel your in-app subscription? Under Apple’s carefully designed system, it’s a one-click operation. If developers can circumvent the App Store, they would have the option to make it a hassle. Maybe you have to call. There’s a long hold. The person on the other line is hard to understand and tries to haggle with you not to cancel. All of the deceptive and dishonest elements of commercial behavior we’ve seen on the web would make their way to the iPhone.
Increased consumer hassle and skepticism would have a direct effect on on-device commerce. When consumers trust the platform, they are more likely to make small purchases on a whim. This fact has led to a booming marketplace for in-app transactions, a real bright spot in the digital economy. Weakening the platform’s ability to enforce pro-consumer rules would reduce trust and decrease digital commerce.
If this were not bad enough, phone prices would probably go up. Digital platforms rely on their marketplaces for revenue. Whether it’s Apple or Xbox, the revenue from software purchases allows the company to offer their devices at a lower price than it otherwise would. In a world where Apple can no longer receive App Store revenue, upfront iPhone prices would have to go up, making everyone worse off.
State legislatures are not the right venue to hash out digital platform policy. Because of the interconnected nature of digital commerce, if passed, the law would likely be struck down by federal courts as unconstitutional under the Commerce Clause. State legislatures should be careful. Policymakers are acting without understanding the consequences of their proposed solutions, which makes for bad law.
The end result of the policy would be more consumer hassle and identity theft, a reduction in on-phone commerce as consumers grow reluctant to participate, and higher device prices. It would be one thing if legislators ruined smartphones only for residents of their own states. But like the GDPR, these bills would, in practice, have global reach. The whole world would suffer a deterioration in their phone experience and have Rhode Island, North Carolina or Florida to blame.
Eli Dourado is a senior research fellow at the Center for Growth and Opportunity at Utah State University.
