When the European Commission fined tech giant Apple 1.8 billion euros (USD $2 billion) on Monday, it showed that the company’s strategy of requiring app developers to use its payments system must change, according to Consumer Reports Senior Researcher Sumit Sharma.
The commission’s actions follow increasing pressure from countries like the Netherlands and South Korea, said Sharma, who covers antitrust and competition issues. But so far, Apple’s changes in those countries have made it economically infeasible to use another payment processor, he said.
With the Digital Markets Act, a new EU regulation, taking effect this week, and the U.S. Department of Justice reportedly preparing to file an antitrust lawsuit against the company, Sharma believes Apple will be forced to change its strategy in the long term.
Editor’s note: This interview has been edited for clarity and brevity.
PAYMENTS DIVE: The European Commission fined Apple a larger-than-expected amount on Monday, and Apple fired back immediately with its own statement and a vow to appeal the fine. What is your takeaway from this back and forth?
SUMIT SHARMA: The most interesting part of the commission's press release explains that the direct amount is only around 40 million (euros) and they've added on 1.8 billion euros as a deterrent to Apple. I think it'll be interesting to see if the commission can defend the amount of the fine because it added on this big chunk, the majority of it, as it says, reflecting the deterrent effect and the fact that some of the harm to consumers in the marketplace is non-monetary. So I'll be interested to see if they can defend that in court.
So if the fine doesn’t hold up in court, will Apple continue with business as usual?
This is one prong of many different policy approaches and enforcement approaches that the commission is taking to try and open up this ecosystem. They have this fine, they have the DMA. I think it's sending signals to Apple that “Hey, if you don't change, then we will keep coming after you.”
How are app developers taking this news? Would they stand to gain financially without Apple’s payment processing fees?
I think developers are pessimistic. Because if you look at how Apple complied with similar rulings elsewhere, for example, in Holland, or in France, in Korea as well, they’ve just said, “OK, you can use an outside system but we’ll still charge you 27%.” So they haven’t actually enabled a lot of competition in that ecosystem. Apple is, in my view, still fighting this tooth and nail and doesn’t want to make any changes.
Do you think Apple’s fierce defense of its app payments business is sustainable in the long term?
Apple is getting signals from various regulators and competition authorities around the world now that it needs to change the way it does business. And they should, at some point, respond to that pressure. Otherwise, I just see a continuing barrage of more and more fines and more issues for them.
