Apple has "yielded" to the European Union, and the App Store will be split in half.
Apple is expected to launch an update in the coming weeks to provide software side loading functionality for iPhone and iPad users in Europe. Specifically, the App Store will be split in two, with a dedicated version for EU countries and another version for the rest of the world. The reason for Apple's adjustment is that March 7th is the final deadline for Apple to comply with the Digital Markets Act. The company only has over seven weeks left to make adjustments.
Several analysts interviewed by the New Beijing News and Shell Finance reporter mentioned that for Apple, bowing down this time means a concession in interests. Once the App Store is split, it will have a direct impact on the "Apple tax" in Apple's revenue. At the same time, Apple's release of its app store may bring a series of chain reactions in the EU region. The effectiveness of such measures by the European Union will also bring certain imitations to regulatory agencies in other countries and regions, resulting in a decrease in Apple's ability to control the entire ecosystem.
Is it possible that the Apple App Store in China will also open after the EU region has a special edition app store? Regarding this, an official technical consultant from Apple China told a reporter from Shell Finance that there is currently no such situation and "everything is subject to the official website."
Apple surrenders to the EU's Digital Markets Act
The so-called software sideloading refers to users being able to bypass the official app store and install third-party application software developed by third-party organizations on their mobile system (such as downloading directly from the official website of some apps or from third-party app markets). This feature is available in mainstream systems such as Windows, Android, and iOS.
In fact, there have been multiple calls for the opening of sideloading functionality, including the preparation of relevant legislation by the US Congress. However, Apple has repeatedly responded that the software sideloading behavior of iPhone users poses security risks. For example, downloading applications from other sources may compromise Apple's privacy and security measures, allowing sensitive personal data of users to fall into the hands of scammers and cybercriminals. Apple executives also cited Google's Android system as an example, stating that the system is flooded with a large amount of malicious software due to allowing sideloading. But there are also many voices who believe that Apple has exaggerated this security concern.
An official technical consultant from Apple China told reporters that the applications listed in the Apple App Store must undergo official review, and the main reason for this is that Apple is regulating these applications to prevent related issues, including security. If there are any violations, they will be taken off the shelves.
The technical consultant also reminded that if the software is not downloaded through the App Store, but through other channels, the security of the application itself cannot be confirmed. "It is uncertain whether software that has not been listed in the App Store is not approved due to security issues, or if developers have their own concerns." He suggests being "cautious" when dealing with applications outside of the Apple App Store.
Ma Jihua, a senior analyst in the communication industry, analyzed to reporters that Apple's closed app store model does have certain benefits for security and privacy protection, but this protection is also limited and not the core of this model. "Apple has always maintained its business model solely under the pretext of protecting consumer interests, data security, and application security."
The reason why Apple compromised this time is that March 7th is the final deadline for Apple to comply with the Digital Markets Act. The draft of the Digital Markets Act was proposed in December 2020 and is hailed as the "first major reform in the EU's regulation of technology enterprises in 20 years". The content disclosed on the EU official website shows that the Digital Markets Act is mainly aimed at ensuring that small and medium-sized technology enterprises can participate in market competition fairly with corporate giants.
This bill requires companies such as Apple, Google, and Meta (Facebook) to open their platforms to prevent abuse of power, and non-compliance may result in fines equivalent to 10% of global annual revenue. Apple Software Vice President Federick admitted last year that the company will have to comply with EU laws. For Apple, this is a necessary change to comply with EU regulatory requirements.
"The EU has allowed Apple to open its app store through antitrust laws, and if Apple insists on closure, it will face significant penalties. In order to reduce losses, Apple is forced to surrender," commented Lin Zhi, chief analyst at market research firm WitDisplay.
Last week, Apple CEO Tim Cook met with the EU antitrust chief Margaret Westtag at the Apple campus. Vestag reminded Cook that Apple will soon have an obligation to allow users to install third-party app stores and side loading apps under the Digital Markets Act. Apple also has an obligation to enable developers to promote their products and use third-party payment systems outside of the App Store.
"Apple and the European Union have been engaged in a long period of confrontation over the issue of App Store openness. The European Union has not given in and has imposed huge fines on Apple. In this situation, Apple can only choose to comply." Ma Jihua said.
Developers have been suffering from the "Apple tax" for a long time
Apple's profit model will be impacted
What impact will Apple have if it opens up the software sideloading function in the European Union as scheduled?
The first and foremost impact will be a decrease in Apple's revenue, which mainly involves income related to Apple taxes. The so-called Apple tax refers to the distribution of 30% of digital content consumption for applications with an annual revenue of over $1 million in the Apple store, while the distribution for small and medium-sized developers with an annual revenue of less than $1 million is 15%.
After opening up sideloading, it means developers no longer need to pay Apple taxes.
Apple tax is an important source of income for Apple Inc. According to data from market research firm Sensor Tower, Apple can charge approximately $22 billion annually from application developers through commission payments. Apple has previously pointed out in its report to the European Union that if the commission received by Apple from the App Store decreases, the company's business, operating performance, and financial condition may be significantly adversely affected.
"For Apple, bowing down this time means a concession in profits. The App Store contributes significantly to its revenue. Once the App Store is split, developers can bypass Apple's commission and choose other payment channels, which will have a direct impact on Apple's revenue," said Ma Bo, an industry analyst for Global Communications.
Ma Jihua also mentioned that the App Store is a core part of Apple's business model, and Apple's tax is one of its main profit models. "Opening up" is extremely reluctant for Apple. "Once released, it will definitely have an impact on its business model."
Besides revenue, will this move by the European Union break Apple's closed ecosystem? Regarding this, Lin Zhi analyzed to reporters that Apple will open its app store in Europe, and other app stores will enter, sharing the dividends brought by the opening of Apple's app store. "But currently, only Europe's open app stores have limited impact on Apple's closed ecosystem. Apple's two solutions are aimed at ensuring a closed ecosystem and service revenue as much as possible."
Ma Bo also analyzed to reporters that the EU requires Apple to open the App Store, which is another major move following the EU's requirement for Apple to unify its charging interface. It is possible to increase the entry of other local application stores in Europe into the European market, promote innovation and diversity, and promote fair competition. On October 4, 2022, the European Parliament passed a new regulation requiring all new portable smart devices such as smartphones and tablets to use USB Type-C charging ports starting from the end of 2024. For this reason, Apple had to give up the lightning interface that had been used for many years, and the latest iPhone 15 has also switched to the USB Type-C interface.
Ma Jihua analyzed that after the closed ecosystem of Apple is broken, it will definitely be beneficial to the public. The freedom of app downloads will be greatly increased, and the update speed of some apps will also accelerate. However, it can also bring related negative impacts, such as the launch of some unfiltered applications. If users use non-standard or fraudulent software, it can also cause some losses.
Or it won't be the last one!
EU's move towards Apple could trigger a chain reaction
Ma Jihua also mentioned that Apple's release of its app store may bring a series of chain reactions in the EU region. If the EU sees companies like Apple being forced to comply, it may also take action against other related companies. The effectiveness of such measures by the European Union will also bring certain imitations to regulatory agencies in other countries and regions, and Apple will face more and more such regulations.
If other countries and regions then demand Apple to do the same as the European Union, Apple may not be able to resist it, which could lead to the collapse of Apple's entire mature business model, and the impact on Apple will be very profound. Apple's control over the entire ecosystem has decreased, and application developers have actually reduced their dependence on Apple. Apple's central position in the entire fruit chain will also be impacted.
"From this incident, it can be seen that Apple's closed ecosystem may be difficult to sustain in today's society. Not only its application store, but also its software and hardware systems may not be able to continue on this path of closure. Openness and multi-party cooperation may be the next necessary choice," Ma Jihua said.
Chris Smith, a senior writer in the field of consumer electronics, commented that the EU may be the first country to open sideloading for iPhones, but it will not be the last. Japan and the United States are considering similar legislation. "I wouldn't be surprised if the EU App Store version that Apple is preparing will eventually be launched globally." According to media reports, Japan is formulating regulations requiring technology giants such as Apple and Google to allow third-party app stores to make payments on their mobile operating systems to curb their abuse of their dominant position in the Japanese market.
However, similar situations will not occur in the China region for the time being. The reporter asked the Apple China official if the Apple App Store in China may also be open. A technical consultant responded that there is currently no such situation, "everything is subject to the official website."
Apple also faces a series of challenges in the European Union, including a $14 billion tax dispute and potential agreements to open up iPhone NFC payment services to competitors. Most notably, the EU's Digital Markets Act designates leading technology companies as "gatekeepers", forcing them to open their services and platforms to other companies and developers. The Digital Market Act is expected to force Apple to make a series of significant changes to the way App Store, FaceTime (video calling software), and Siri (voice assistant) work in Europe.