- Digital Platforms
Background
7.1Digital platforms refer to online systems that facilitate the creation, exchange and consumption of digital content and services. These platforms can take various forms and serve diverse purposes—such as enabling social connections, providing access to information and entertainment, the ability to conduct business, or for people to buy goods and services. Australians rely on digital platforms for these services, which are provided by a small group of global companies.
7.2Preventing the abuse of market power by large digital platforms, such as Google and Apple, is essential to fostering a competitive and innovative digital landscape. Abuse of market power can stifle innovation, limit consumer choice, and harm smaller businesses. Issues raised with the Committee included self-preferencing (where a firm preferences its products over rivals’), the distribution of mobile apps, in-app payments and commissions, and digital advertising services.
7.3The five largest digital platforms—Google, Amazon, Apple, Meta and Microsoft—appeared at the inquiry. The Committee also received evidence from the ACCC, which continues to examine competition and consumer issues in the sector through inquiries and legal action.
7.4The ACCC’s inquiry into digital platform services is considering several issues that have been raised in this Committee’s inquiry. The ACCC’s inquiry, announced in February 2020, has released a series of interim reports, with the final report to be provided to the Treasurer by 31 March 2025.
App marketplaces
7.5App marketplaces, such as the Google Play Store and Apple App Store, are pivotal platforms in fostering innovation and competition in the digital economy. These marketplaces provide a central distribution channel for a range of applications and create an environment where developers can showcase their products to a global audience. The Committee received evidence about a range of practices used by Google and Apple that competitors stated exploited the market power of Google and Apple in the app store sector.
7.6Google and Apple account for close to 100 per cent of the global market (excluding China) for mobile operating systems (OS). In the Australian market, Apple and Google each hold about 50 per cent of the market. As highlighted by the ACCC in its digital platforms inquiry, this duopoly in the mobile OS sector gives Google and Apple significant market power. The ACCC considered that this power was likely to affect the terms and conditions, including commission rates, that app developers must agree to in order to access Apple and Google’s app marketplaces.
App distribution
7.7The market power of Google and Apple extends to control over the distribution of mobile apps in their mobile ecosystems. Only Apple’s App Store can be installed on iOS devices. Apple does not permit the installation of other app marketplaces. While Google allows other app marketplaces to be installed, it pre-installs its app marketplace on Android devices and does not allow other app marketplaces to be downloaded from the Google Play store. Some 90 per cent of apps available on Android mobile devices, for example, are downloaded through the Play Store.
ACCC response
7.8In its report on app marketplaces, the ACCC’s competition assessment stated that Apple and Google faced ‘limited competitive restraints’ in the distribution of mobile apps and that this market power is likely significant. Further, the ACCC noted that while app developers could use alternative app marketplaces to distribute their apps, such options are not available to all consumers, are not popular with most consumers, and are technically difficult to use.
Witness views
7.9Google and Apple’s position throughout the inquiry was that providing a safe, trusted, and secure app marketplace was important, particularly for consumers. Both companies believed that the sector was competitive.
7.10Google described the app marketplace as ‘vibrant and competitive’, and included Amazon, Huawei, Microsoft Xbox and Samsung Galaxy. Google stated that app developers had many choices and that nobody was ‘locked into the Google Store’.
7.11Similarly, Apple told the Committee that it was ‘competing with a whole host of other platforms’, for example with games, and that courts had rejected the notion that its App Store was a monopoly. Apple explained that:
Sony PlayStation and Microsoft Xbox have great libraries of games. We are always working to try to bring as many of those games as we can over to IOS, so we are competing with them each and every day. We are competing with the Google system, with Windows and with Valve. There are so many options when you are talking about developers of games. From an Apple perspective, we have to compete in that market. How do we do that? We do that in a variety of ways. We create new APIs and new technologies. Games which were impossible 15 years ago on an iPhone are now possible because we have continued to invest in innovations. We will continue to drive to do that because we know that is the only way we will continue to get great content for our users. From our perspective, when we think about developers, it is incredibly competitive. It is instructive to look at court cases; all of them have rejected the idea that somehow the App Store is a monopoly. They have reflected consistently that there is competition out there, and choices for developers and for consumers.
7.12In contrast, Epic Games, the US games and software developer, labelled Apple and Google ‘coercive’ and described their apps ecosystems as ‘problematic’, specifically in relation to tying (where consumers are forced to buy a good they don’t want in order to buy the good they do want), self-preferencing and pre-installation. In the view of Epic Games, such practices harmed both consumers and app developers by restricting interoperability with services outside the Apple and Google ecosystems. The Epic Games submission highlighted that:
These practices have led to a number of competition and consumer harms including denying app developers the opportunity to innovate and/or choose how best to distribute their apps, locking consumers into their respective ecosystems through the high cost of switching operating systems and denying app developers choice and coercing them to use Apple or Google’s in-app payment processing.
7.13Epic Games told the Committee that alternative app marketplaces had the potential to open up the mobile ecosystem to competition. It viewed direct downloading as a ‘key component’ of putting pressure and constraints on the large digital platforms, commenting that:
Right now, the Google Play Store and the App Store are the only homes for every app on the planet. So, there's a bit of a discoverability challenge for newer services, newer developers and newer apps. How do you present yourself and how do you get visibility in this massive store? There could be more bespoke stores curated for people with kids. I've got a four-year-old. An app store devoted to children's content might be something that a lot of folks are interested in, and it might be a natural home for developers focused on that type of content. Ideally, those additional stores could exist next to the traditional gatekeeper app stores, but also we think direct downloading, the same way as you have on traditional computing devices/laptops, should be a component. It takes time for new app stores to catch on. Even if we're ready and willing to offer a store the day that one becomes available to us—and other tech companies have expressed interest—there are considerable built-in network effects that Google and Apple have that mean it will take time for other stores to get traction.
In-app payment processing
7.14The control of Apple and Google over the App Store and Play Store, and the market power that ensues, enable them to impose terms that prevent app developers from using alternative payment systems.
ACCC response
7.15The ACCC’s 2021 interim report on App Marketplaces found that both Apple and Google require certain in-app payments to be processed through their in-app payment systems. Further, both app marketplaces stipulate that an app is not permitted to direct users to an off-app payment option.
7.16The ACCC told the Committee that this was one way the major platforms could use their dominant position to restrict competition and consumer choice. Restricting in-app payments to incumbent-controlled systems only, went beyond an ‘innovation mindset’ and reflects a commercial interest in limiting the areas in which competing businesses on the platform can operate. The ACCC said that:
If one of those services—for instance, Epic Games—wanted to use a competing payment system, they would also be competing with an element of the platform services, and the platforms at this time have the capacity and the incentive, looking at behaviour, to remove the capacity of people who bring traffic onto their platform to take away their market position and revenue in relation to the services with which they compete. So they set rules, including that you have to use our payment system; you can't even steer people towards being able to pay in another way, so the app can't say, 'To qualify for an upgrade, you can pay through PayPal or pay online with your bank.'
Witness views
7.17Epic Games detailed its experience with Apple and Google’s in-app payment processing, emphasising that both companies imposed contractual conditions that limit developers from choosing cheaper alternatives. Further, the Apple and Google in-app payment systems imposed ‘exorbitant rates’ on developers.
7.18Epic Games proposed opening mobile devices to alternative app distribution and prohibiting the tying of proprietary in-app payment systems to app distribution. Implementing these measures together, Epic Games continued, would benefit competition and innovation.
7.19Google and Apple noted recent changes in their approaches to in-app payment processing—some they had initiated; some were required by changes in regulatory environments overseas.
7.20In its submission, Google said it had recently put in place a pilot program that offered options for additional billing systems on the Play Store. The pilot, which was open to all developers of non-gaming apps, aimed to understand the complexities involved in supporting user choice billing for developers and users.
7.21Apple told the Committee that it had begun offering developers in South Korea alternative in-app payment processing, as required by changes to regulation. Apple explained that:
In certain jurisdictions, as you mentioned, like South Korea and the Netherlands, there have been mandates to break the bundle of services that we offer to developers and offer some of them separately. One of the core focuses has been around payment processing, allowing third-party or alternative payment processors to integrate and to facilitate in-app transactions. We have made changes, for example, in Korea, where we offer developers that choice, as required by law. You can use the in-app purchase, but if you want to use an alternative, we make that available to developers in Korea. The Committee enquired into recent changes in international jurisdictions—such as in Europe, the US and South Korea—in relation to in-app payment methods.
7.22As to the impact of allowing alternative in-app payment methods, Apple told the Committee it was too early to tell and voiced ‘significant concerns that it will increase fraud and increase misleading subscriptions and subscription traps’.
7.23Epic Games remained sceptical about the response of Google and Apple to the changed regulations in South Korea. Epic Games noted that while Google and Apple had facilitated the alternative payment methods, as required, both companies had imposed an extra fee on top of the processing fee of the alternative payment provider. As Epic Games explained:
South Korea proposed a law targeted at in-app payments, requiring the gatekeepers to open up alternative payment methods. I think a lot of folks thought that's going to be it, that if they have to open up then competition will be implemented and we can proceed from there. But I think many folks were surprised to see the response from Apple and Google, which is to say, 'We will allow an alternative payment method that may or may not decide to charge you 30 per cent, but we will charge you between 26 per cent and 27 per cent on top of what that alternative payment provider offers. That essentially makes it a nonstarter for developers and consumers. That definitely defeats the spirit of what was proposed in South Korea.
Commissions and fees
7.24Apple and Google, along with other app marketplaces, require app developers to pay a commission for every transaction made using their in-app payment systems. The commission on payments made is 30 per cent, and 15 per cent for subscription apps after the first year. However, these amounts are subject to change for certain apps. As outlined in the ACCC’s 2021 interim report on App Marketplaces, Apple and Google have introduced reduced commission rates of 15 per cent for apps with lower revenue.
ACCC response
7.25In its interim report, the ACCC stated that it was ‘highly likely that the commission rates are inflated by the market power that Apple and Google have in their dealings with app developers’, though it was ‘difficult to know by how much’.
Witness views
7.26The Committee raised with Apple and Google the issue of the fees they charge in their app marketplaces in light of the limited alternatives available to developers for in-app payments.
7.27Both Apple and Google disagreed with the characterisation that the commissions they charged were unreasonable or unique in the app marketplace sector. Further, both companies viewed the commission model as providing benefits for developers, including access to development tools and infrastructure, as well as the expansive distribution channels each platform offers.
7.28On the issue of the 30 per cent commission, Apple explained that ‘85 per cent of all developers pay no commission’ and of the remaining 15 per cent of developers, ‘a small handful pay that 30 per cent commission’.
7.29Similarly, Google explained that the vast majority of app developers using its service did not pay any fees:
Ninety-seven per cent of all app developers pay no fees because they are not charging users, people who use their services, for those apps. Three per cent of developers pay a fee. The only people who pay a fee of 30 per cent are those who make over A$1 million per year, and that is only one per cent of that three per cent. Of the three per cent, 99 per cent are paying a fee of 15 per cent.
7.30Google viewed the graduated fee structure as a positive for competition because it allowed new entrants into the app developer market to build their businesses before they were subject to any fees:
We provide them with the whole infrastructure so that they can build their apps and bring them to market, and the tools that they need for that are completely free of charge. Then we have that graduated fee model. When you start enjoying revenue up to a certain level, you pay a much lower level of fee, but once you get across that certain threshold, you are paying the higher fee.
7.31Apple stated that the commissions app developers had to pay were excellent value for money, describing the ability to market apps on the App Store as an ‘incredible opportunity’:
So the question is, 'What do they get for that?' They get a bundle of technology, a licence from Apple, access to APIs, access to software development kits, access to a suite of developer tools, and access to the App Store, which allows them to distribute their application in more than 175 markets around the world.
Digital advertising technology
7.32Advertising technology—or ad tech—refers to the collection of technologies that advertisers use to plan, execute, analyse, and optimise their digital advertising campaigns. The ad tech stack, which encompasses various components that work together and can vary in complexity, facilitates the buying and selling of advertising space on websites and apps.
ACCC response
7.33In September 2021, the ACCC completed an inquiry into the markets for the supply of digital advertising technology services and digital advertising agency services. The ACCC identified that a competitive ad tech supply chain was important to Australian advertisers, publishers, and consumers. Without strong competition in the ad tech supply chain, advertisers were likely to pay more to ad tech providers for poorer quality services. This would likely result in increased costs being passed on to consumers and the production of less and or lower quality online content—which is ‘particularly problematic’ where digital advertising is used to fund important content that has broader public benefits.
7.34Google is the dominant player in the ad tech sector, with at least 90 per cent of advertising impressions traded via the ad tech supply chain passing through at least one Google service. As highlighted in the ACCC’s inquiry report, Google’s access to a large volume and range of first-party and third-party data ‘appears to have provided Google with a competitive advantage’ in the supply of ad tech services.
7.35The ACCC also considered that Google had engaged in self-preferencing conduct, due to its vertical integration and market dominance, which had ‘likely interfered with the competitive process’ and cumulatively lessened competition in the supply of ad tech services.
Witness views
7.36The Committee heard evidence from FreeTV—the peak industry body for Australia’s commercial television broadcasters—raising concerns about Google’s market power and conduct in the ad tech market. This was in relation to Google’s use of self-preferencing, bundling and tying of service. In Free TV’s view, Google had continued to strengthen its control of the video advertising sector. Google had an ‘inherent conflict of interest’ by being the dominant participant on both the buying and selling sides of the ad tech market with its product Display & Video 360 (DV360). Free TV explained that:
For example, all regulators have found evidence of self-preferencing, such as Google's Ad Exchange being favoured by its own demand-side products such as DV360 and Google Ads. Regulators have found that Google engages in bundling and tying, such as forcing advertisers to use DV360 if they want to access inventory on YouTube. Google also bundles its search and browsing data into DV360, making it a must-have for advertisers. But it has a significant conflict of interest when attempting to act on behalf of those clients because it is also a seller in those same markets. Google also imposes interoperability constraints and refuses to engage in open industry platforms like header bidding, which cements the competitive advantage of Google's own supply side platform.
7.37Google disagreed with the notion that it engaged in ‘harmful self-preferencing’ in the supply of services or that its practices restrict competition:
…we believe our ad tech products compete on their merits, and we strongly reject any suggestion that we would engage in any harmful self-preferencing in the supply of those services or that our practices restrict competition. There are many different services there that do compete with DV360, so we think that speaks for itself. We make decisions about our products very strongly around how we can better provide returns to advertisers and publishers on reasonable terms.
7.38Google pointed out that only 17 per cent of the overall digital advertising market involved the ad tech industry. Citing studies that suggest publishers and advertisers use multiple platforms and play them off against each other to maximise their returns, Google claimed that the sector is ‘fiercely competitive and dynamic’:
…more players are entering the ad tech market. Not only are they providing services at one level of the ad tech stack, but also they are becoming more integrated because there are significant benefits to advertisers and publishers from having an integrated business model up and down different levels of the ad tech stack. This competition has given publishers and advertisers an extraordinary amount of ability to play the different ad tech competitors off against each other to maximise their returns. Studies have been done—various regulators have spoken about this—which show that, on average, publishers will utilise four different ad tech providers and advertisers will use six different platforms at the same time, in real-time, using them against each other to maximise the returns they get from the advertising transaction they are engaged in.
Service-specific codes of conduct
ACCC proposal
7.39The ACCC’s digital platform services inquiry found that the ‘dynamic nature and economic characteristics of digital platform services’ meant that sectoral harm from anti-competitive conduct could be significant. The ACCC inquiry’s main recommendation was the introduction of ex ante service-specific codes of conduct. These codes would apply to digital platforms that meet designation criteria for the specific digital services they supply, such as app marketplaces. These new service-specific codes could, in the ACCC’s view, support targeted obligations to tackle such issues as:
- Anti-competitive self-preferencing
- Anti-competitive tying
- Exclusive pre-installation
- Frustrating consumer switching
- Denying interoperability, and
- Unfair dealings with business users.
- The ACCC told the Committee that the proposal for a service-specific code of conduct would be a two-step model. The first step was a designation process for specific platforms that ‘are sufficiently influential as intermediaries in the Australian economy and in relation to particular services where they are important and influential and exhibit elements of market power’. Second, a service specific code would apply, which would take account of the benefits of the investment the service is providing, and ‘would have the flexibility to change over time, as markets change’.
- The ACCC’s recommended code of conduct would align Australia with the latest international developments in platform-specific regulation. The ACCC told the Committee that:
Overseas jurisdictions like the UK, the European Union and Japan are all taking a strong stance by introducing comprehensive platform-specific competition regulation. South Korea has done so in relation to app stores and their payment systems and services. However, experience has shown the leading platforms do not always bring pro-consumer and pro-competitive changes to Australia, even when legally required to do so overseas. There are indeed strong financial incentives for them to maintain current business models and conduct in the absence of effective regulatory intervention.
7.42In relation to app marketplaces, the ACCC’s digital platform services inquiry identified potential measures to reduce harms arising from Apple and Google’s market power. These initiatives included providing users with information about alternative payment options, greater transparency, and providing consumers with more choice through an ability to change any pre-installed default app on their device.
Witness views
7.43Epic Games supported the ACCC’s digital platforms recommendations. It stressed, however, that service-specific codes of conduct also required ‘robust anti-circumvention provisions’ to ensure that digital platforms complied and did not shift their anti-competitive behaviour into an adjacent area.
7.44Free TV also supported the introduction of service-specific codes of conduct for digital advertising. Its submission noted that existing competition law is not sufficient to promote economic dynamism and protect competition.
7.45The big tech platforms that appeared before the Committee generally opposed the notion that more regulation was needed in the sector.
7.46Google emphasised that the technology sector was not ‘unregulated’. The costs and benefits of additional regulation needed to be carefully weighed up – given the context of innovation, rapid growth, zero or low costs for consumers and businesses, and the need for incentives and investments to protect users. Google instead proposed voluntary measures as the best approach, rather than additional regulation that could risk productivity and product quality.
7.47Meta raised concerns with the designation criteria for digital platforms, stating that designation risks ‘jump[ing] over a whole range of competition analysis’ rather than identifying the consumer harm. Meta told the Committee that:
It may be challenging to find the right criteria. Typically, with competition law you are trying to focus on consumer harm first and then work backwards from that, and in the Australian context there have been a number of investigations and complaints in relation to violations of consumer protection law. So it's quite clear that, where there are concerns around that, the laws can be actively enforced, but in relation to competition law, that hasn't been the same. Certainly in the reports and engagements we've seen in relation to the digital sector in particular, a lot of it has been theoretically identified harms and not actually identified harms. It's very important to have these conversations, because I certainly appreciate the perspective of people with a wealth of experience in economic policy such as you and obviously the ACCC as a very seasoned regulator—that you don't necessarily want things to have been significantly harmed. But I think trying to identify criteria ex ante can be challenging as well, because you might get the wrong criteria and skip over some of the other harms.
Committee comment
7.48Australia needs to keep pace with international developments in the digital platforms space. As technology becomes ever more essential to our lives, the appropriate protections need to be in place to ensure that competition and innovation can thrive and not be hindered by the market power of dominant platforms.
7.49The Committee acknowledges that the work of the ACCC in its ongoing digital platform services inquiry had been critical in building awareness of the issues in the sector. The Committee supports the ACCC’s recommendations for service-specific codes of conduct in areas of the industry where market power is problematic.
Tech Sector - AI has the potential to generate very significant productivity gains in some contexts. It is also important to be aware of the potential anti-competitive impacts of AI, such as economies of scale, non-fungibility and advantages that accrue to incumbents through access to data.
Tech Platforms - A range of issues, including market power, externalities and self-preferencing warrant continued regulatory monitoring.
- The Committee supports the Australian Competition and Consumer Commission’s work in examining the possible application of a code of conduct in areas where market power is problematic.
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That the Government examine the barriers to financing at the different stages of the innovation process to identify barriers and opportunities to increase investment.