Is EU’s Digital Markets Act a game changer for web3 mobile development?

Published December 22, 2022

The European Union vs. Apple and Google
Profile picture of author Long Tran

Long Tran

Co-founder & CEO

In September 2022, the European Parliament and the Council of the EU signed into law the Digital Markets Act, a sweeping regulation that aims to make platforms, including the mobile app stores, fairer and more competitive. This new law is especially relevant to web3 mobile developers, because it labels the Apple App Store and Google Play Store as “gatekeepers” and subjects them to stringent requirements. By March 2024, the iOS and Android platforms will have to comply with the full scope of the law.

In this blog post, we analyze the two most important changes that this law introduces to web3 mobile development: in-app purchase and third-party stores/side-loading. We show that the Digital Markets Act is positive for web3 developers in enabling alternative payment options in Europe, but third-party stores and side-loading will have minimal impact. It remains to be seen whether other jurisdictions (e.g. the United States) will adopt similar measures.

What is the Digital Markets Act?

Regulation 2022/1925, also known as the Digital Markets Act, has the goal of ensuring that large online platforms “engage in fair practices and do not abuse their power”. The regulation specifically targets “gatekeepers”, which are companies that:

  • have a strong economic position, significant impact on the internal market and are active in multiple EU countries
  • have a strong intermediation position, meaning that they link a large user base to a large number of businesses
  • have (or is about to have) an entrenched and durable position in the market

The regulation covers eight sectors, including online intermediation services (which the Google Play Store and Apple App Store fall into). Generally speaking, the Digital Markets Act impose the following requirements on “gatekeepers”:

  • Gatekeepers have to allow third parties to inter-operate with their own services
  • Platforms’ users can access the data they generate on the platforms
  • Business users can promote offers and conclude contracts with customers outside of the gatekeepers’ platforms
  • Gatekeepers cannot treat their own services more favorably (i.e. self-preferencing)

The regulation also arms the European Commission with the ability to update those criteria and requirements when necessary. As mentioned earlier, companies have until March 2024 to fully comply with the law.

The European Parliament

The European Union goes after big tech.

As you can see, the Digital Markets Act is broad in scope and leaves significant room for interpretation. For mobile developers looking to add web3 features to their iOS and Android apps, two rules stand out: in-app purchase and third-party stores/side-loading. These two requirements have the biggest potential of changing the product offerings, go-to-market strategy, and day-to-day operations of web3 mobile developers.

In-app purchase rule can break Apple and Google’s stranglehold on mobile payments

In-app purchase and the 15-30% commission on digital purchases made on iOS and Android have long been among the most controversial requirements that Apple and Google impose on mobile developers. It is therefore unsurprising that the Digital Markets Act specifically targets in-app purchase. We believe that this law gives a much-needed flexibility for web3 app developers to experiment with payment options, but it is unlikely that they can evade commission fees altogether.

The law says:

The gatekeeper shall not prevent business users from offering the same products or services to end users through third-party online intermediation services or through their own direct online sales channel at prices or conditions that are different from those offered through the online intermediation services of the gatekeeper.

This means that an app can charge one price in its mobile app and another price online. For example, a web3 iOS app can charge a 30% higher fee in its mobile app to cover for Apple’s commission. Apple did ban this practice previously, but reversed their stance several years ago.

The gatekeeper shall allow business users, free of charge, to communicate and promote offers, including under different conditions, to end users acquired via its core platform service or through other channels, and to conclude contracts with those end users, regardless of whether, for that purpose, they use the core platform services of the gatekeeper.

For context, Apple prevents developers from showing users messages or pop-ups within the app about offerings on their websites–a rule that seems very unreasonable. The Digital Markets Act undos that requirement, so a web3 app can tell its users about, for instance, NFT collections on its website.

The gatekeeper shall allow end users to access and use, through its core platform services, content, subscriptions, features or other items, by using the software application of a business user, including where those end users acquired such items from the relevant business user without using the core platform services of the gatekeeper.

This rule is especially relevant to web3 developers, as it enables NFT-unlockable content in mobile apps. This also means that an NFT purchased on a website or on another platform can be used to access content in Android or iOS apps. Note that this is currently banned by Apple’s App Store Guidelines: “Apps may allow users to view their own NFTs, provided that NFT ownership does not unlock features or functionality within the app”.

The gatekeeper shall not require end users to use, or business users to use, to offer, or to interoperate with, an identification service, a web browser engine or a payment service, or technical services that support the provision of payment services, such as payment systems for in-app purchases, of that gatekeeper in the context of services provided by the business users using that gatekeeper’s core platform services.

This makes clear that Apple and Google cannot force users to use their in-app purchase APIs. Potentially, apps can load a webview to show their own storefront. This is what the Kindle app on Android already does:

Screenshots of the Kindle app’s checkout flow on Android

The Kindle app’s checkout flow on Android.

Should web3 developers forgo the iOS and Android’s native in-app purchase APIs completely then? Two complications:

  • Third-party payment systems will have worse UX. We note that even though Google is less stringent than Apple in allowing third-party payment, most Android apps still choose the native in-app purchase system because of its far superior user experience. A webview-based storefront introduces a lot of friction and may only be suitable for well-known developers. Given that web3 faces a lot of UX problems in other areas (e.g. wallet integration, on-ramp), we think the seamless experience offered by the native in-app purchase APIs is still worth it.
  • Mobile developers may still have to pay high commission fees anyway. Google already announced that it would allow third-party payment options, but required a “service fee” of 12-27%. Combined with the typical 2-3% charge of third-party payment services, the total fee for mobile developers becomes 15-30%, the same as before. The same situation also happened in the Netherlands, where Apple charges 12-27% fee on third-party payments.

Regardless of these complexities, we believe that the Digital Markets Act’s new rules on in-app purchase are very positive for web3, because they give web3 mobile developers significant leeway in experimenting with their web3 features. Even if the revenue cut on in-app purchases remains the same, it is still good to have Apple and Google face more competitive pressure from outside payment providers.

We also note that Apple and Google’s in-app purchase APIs do provide clear benefits to the end users (and by extension, mobile developers) in many cases. Considering, for instance, the recent FTC fines on Epic Games for violating children’s privacy and tricking users into making unauthorized purchases. App store policies largely prevent these practices and create a much safer and more secure environment for users than the open Internet. Consequently, users have much more confidence installing mobile apps than downloading apps from websites.

Third-party app stores and side-loading rules are marginally positive for web3, but will not attract user adoption

A lot of the coverage on the Digital Markets Act and the app stores has focused on third-party stores and side-loading (i.e. installing apps from third-party sources). However, we believe that this part of the new law will end up having much less impact than expected, especially for web3 mobile. The vast majority of users will refuse to install apps not offered on the Apple App Store or Google Play Store.

The Digital Markets Act says:

The gatekeeper shall allow and technically enable the installation and effective use of third-party software applications or software application stores using, or interoperating with, its operating system and allow those software applications or software application stores to be accessed by means other than the relevant core platform services of that gatekeeper. The gatekeeper shall, where applicable, not prevent the downloaded third-party software applications or software application stores from prompting end users to decide whether they want to set that downloaded software application or software application store as their default. The gatekeeper shall technically enable end users who decide to set that downloaded software application or software application store as their default to carry out that change easily.

The first thing to notice is that this rule does not require platforms to enable both third-party app stores and side-loading. Instead, they can choose to allow one or the other. Indeed, Bloomberg reports that Apple will allow third-party app stores and still ban side-loading. We think that the hurdles for third-party app stores are too big to overcome:

  • Who would run these third-party app stores? It is a massive undertaking to attempt to break the network effect that the Apple App Store and Google Play Store currently enjoys. Moreover, it is not clear whether those third-party app stores will be friendly to web3.
  • The friction on users is significant. An app offered on an alternative app store will have to ask potential users to do two steps: 1) download that app store; and 2) download their app.
A screenshot of the Google Play Store

Can 3rd-party app stores break the network effects of the App Store and Google Play?

In this light, perhaps side-loading has more disruptive potential. However, Android has always allowed side-loading, and we have not seen any evidence that users are willing to side-load web3 mobile apps either. Given well-known security concerns surrounding crypto, this situation is unlikely to change any time soon.

In addition, the Digital Markets Act also says:

The gatekeeper shall not be prevented from taking, to the extent that they are strictly necessary and proportionate, measures to ensure that third-party software applications or software application stores do not endanger the integrity of the hardware or operating system provided by the gatekeeper, provided that such measures are duly justified by the gatekeeper.

This passage gives Apple and Google the ability to review apps submitted on third-party app stores and charge fees on them. That is exactly what Apple is planning to do, per Bloomberg:

To help protect against unsafe apps, Apple is discussing the idea of mandating certain security requirements even if software is distributed outside its store. Such apps also may need to be verified by Apple — a process that could carry a fee.

The likely scenario is a set of byzantine rules and requirements that third-party app stores have to comply with. This further limits the possibility of a successful third-party app store. For web3-focused app stores specifically, if Apple and Google are already restrictive on web3 apps, why should they be open and friendly to web3 app stores?

The Digital Markets Act is a step in the right direction, but its impact will take time to play out

How should web3 developers think about the timeline and eventual impact of the Digital Markets Act? On one hand, as we have seen, Apple and Google have already adopted, or plan to adopt, changes to directly respond to the new law by 2024. On the other hand, there are many factors that can make the ultimate impact of the regulation more uncertain:

  • Apple, Google, and other platforms are lobbying and preparing lawsuits against the regulation. Earlier this year, Politico reported that law firms have been gearing up for an avalanche of legal challenges against the Digital Markets Act. Additionally, Apple and Google have both greatly increased their lobbying efforts in Europe, and we don’t see this trend stopping any time soon. So web3 developers should expect some level of delays and uncertainty around the exact implementation and enforcement of the new law.
  • It is unclear whether other countries will follow suit. For app developers targeting non-European markets, the big question is whether the Digital Markets Act can lead to a cascade of new laws and regulations in other countries to restrict Apple and Google. While this obviously varies from country to country, we think that the chance of the United States (the biggest iOS market) adopting similar measures is low. One, EU antitrust laws tend to be much stricter. Two, there are restrictions that prevent US regulators (e.g. the Federal Trade Commission) from pursuing broad actions against private platforms. Three, Epic Games v. Apple lawsuit offers precedents favoring mobile platforms.

To conclude, the Digital Markets Act is a positive development for web3 mobile apps, especially because it gives app developers more flexibility and protection against egregious restrictions from Apple and Google. However, it is unlikely that web3 mobile developers can evade in-app commission fees or rely on third-party app stores, at least in the near term. The best bet for mobile developers looking to integrate web3 features into their apps is still to comply with the app store guidelines, for 1) a better user experience, 2) a more streamlined development process, and 3) a better chance of reaching more users.

It is for this reason that we build Dreamerly, the best mobile SDKs for web3. Our toolkits enable developers to add NFT and web3 into their apps with just a few lines of code, ensuring a smooth user experience and compliance with app stores’ in-app purchase policies.

 

 


 

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