The App Store application is displayed on an iPhone. (Photographer: Dhiraj Singh/Bloomberg)

In the App Store Tax Debate, There Are No Good Guys

(Bloomberg) -- If you need proof that giant technology companies behave a lot like borderless governments, look no further than the brewing "app store taxes" debate.

For the past decade, we’ve come to accept that Google and Apple’s digital stores collect an up to 30 percent slice of the money developers receive when someone purchases their app, pays for a subscription or buys in-game currency. Critics argue that Google and Apple, the mobile operating system duopoly, are the ultimate rent seekers. Years after the companies really delivered anything new when it comes to selling or delivering apps, the pair are only tightening their grip on apps' income, and cracking down on anyone who tries to skirt the rules.

Understandably, app developers are getting sick of it. Netflix Inc., Fortnite creator Epic and the video game distributor Valve Corp. are all now trying to get out of paying the piper, Bloomberg has reported. And while fickle customers are happy to stream BoJack Horseman, build stairs to escape fires and defuse virtual terrorist plots, they don’t spend much time thinking about how the money they pay is divvied up.

You can see why it would be frustrating if you’re Netflix. Even if I, a loyal Netflix customer, only spend 10 percent of my Netflix watching hours on my iPhone, if I decide to sign up via the app store, then Apple gets a recurring 15 percent cut of my subscription fee. If I buy a new TV, and stop streaming on my phone, Apple still keeps collecting. I’d literally need to cancel and re-subscribe if I decided that I wanted Netflix to get its full money’s worth out of me. 

App store defenders say that developers are effectively paying to help keep phones current and app stores curated. Just as a movie theater cultivates a film-viewing experience and takes a chunk of ticket revenue, any distributor will demand a cut.

Valve, in particular, may be ill-suited to the role of anti-app store tax crusader. The privately-held company has made billions with its own digital store for video games on the PC. Since Microsoft, scarred by years of antitrust investigations, couldn’t force Windows users to buy video games through a Microsoft-controlled digital store, Valve saw an opening. The company built a game-buying platform called Steam, and now charges its own 30 percent fee on games it sells.

But at least anyone else could try to build another Steam. Google and Apple have dug a prohibitive competitive moat for their app stores by preventing other companies from selling apps on their phones. Now, regulators are stepping in and questioning whether that’s in the consumer’s best interest. In Europe, Google is no longer allowed to pre-install its app store on its phones. (Google is appealing.)

The tide may gradually be changing. For now, though, Apple and Google don’t just make decisions about what free speech looks like on the internet or what level of privacy a user can claim—they get to collect taxes too.

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