As Congress continues its interrogation of monopolistic practices of technology companies, states are getting into the game. Among the first targets on their list are Apple and Google, which together command 100 percent of the market for smartphone operating systems. New bills introduced in several states would threaten the companies’ dominance and represent an opportunity for state leaders to put fairness in commerce at the center of governance.
All apps that iPhone users download pass through Apple’s app store, because Apple doesn’t allow alternative marketplaces. Google uses its own store, which is called Google Play and is preinstalled on most Android phones, to give preference to its own apps over similar apps from competitors. While Google does allow alternative app stores, users must download them.
Both companies retain as much as 30 percent of the money consumers pay both for apps and for the purchases they make within those apps. (Credit card networks typically charge around 3 percent in transaction fees.) Apple made $72 billion last year from app store fees alone, while Google Play earned Google $39 billion, according to a research company called Sensor Tower. This week Google said it would reduce its commission for some app store sales. Both companies are targets of American and European inquiries into monopolies in the technology market.
Last fall Epic Games, the maker of the popular video game Fortnite, sued Apple after trying unsuccessfully to wrest control of consumer payments by adding its own direct payment system to Fortnite. Apple responded by removing the game from its app store, and a trial is scheduled to begin in May.
And now states are taking on the issue of payments for mobile phone software. Bills recently introduced in more than a half-dozen states, including Arizona, New York, Illinois and Georgia, would prevent Apple and Google from forcing developers to use the platforms’ payment systems. Some of the bills have been backed by the Coalition for App Fairness, a nonprofit organization that opposes app store fees and was founded by technology companies including Epic Games and Spotify. With these bills, state lawmakers are directly challenging the market power of big tech, attempting to address through policy what could take years to achieve through antitrust cases.
Arizona’s House of Representatives this month passed a bill that prevents providers of digital platforms from compelling consumers and software developers based in the state to use those platforms’ payment systems. The measure was supported almost entirely by Republicans. Most of the state’s Democrats sided with Apple and libertarians at Americans for Prosperity and the Goldwater Institute in opposing the bill, arguing that the state should not be involved in disputes between private businesses and that federal enforcers, not states, should regulate tech markets.
That libertarianism is at odds with the history of states using their powers to regulate commerce and protect marketplaces from corruption and monopolies. After all, states already use their powers to regulate utility markets, establish alcohol boards, oversee pharmaceutical distribution and provide oversight for other industries. Local regulation of corporate power predates the U.S. Constitution — the colony of Massachusetts capped the interest that lenders could charge on loans back in 1641 — and for centuries state leaders have maintained the tradition, challenging monopolies with regulations that kept local commerce open and vibrant.
States have antitrust laws because they have an interest in making sure that their local businesses, workers and consumers aren’t steamrollered by large companies. Far from being an intrusion into business affairs or a usurpation of federal power, these bills ensure that local businesses can avoid private gatekeepers. With these bills, policymakers are providing local businesses with what they need: access to open markets.
These bills also create opportunities for economic growth, because they could help states persuade tech companies to relocate within their borders without resorting to the usual failed tactics of offering subsidies. States spend about $40 billion annually — and that’s at the low end of the estimates — trying to entice corporations to move. When Amazon was shopping around for a home for its second headquarters, states weren’t accused of unnecessarily meddling in private businesses’ affairs by trying to lure the company with lavish subsidies. Similarly, we hear no protests when states and cities throw tax benefits at tech companies. According to Good Jobs First, a research organization that tracks corporate subsidies, Apple and Google have each received more than $200 million in state and local subsidies since 2015.
The idea that these measures could entice companies to relocate isn’t theoretical. David Heinemeier Hansson, a co-founder of Basecamp, a software company in Chicago that has fought with Apple over its payment system, has said the company would like to move its operations to a state with such a law on the books.
This is an opportunity for states to spend no money in order to accomplish something they’ve been trying to do for decades using precious public resources: create new high-tech jobs and support small, innovative businesses by helping them escape the onerous terms imposed on them by Apple and Google. It turns out the secret sauce to economic growth is what state leaders have done for hundreds of years, which is to put fairness, not monopolies, at the center of lawmaking.
Matt Stoller (@matthewstoller) is director of research at the American Economic Liberties Project and author of “Goliath: The 100-Year War Between Monopoly Power and Democracy.” Pat Garofalo (@pat_garofalo) is director of state and local policy at the American Economic Liberties Project and author of “The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs.”
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