It’s no secret that the UK currently faces stiff economic headwinds. According to the Office for National Statistics (ONS) the UK is the only G7 country whose economy has failed to rebound to pre-pandemic levels. Prime Minister Rishi Sunak certainly understands the challenges that lie ahead – upon assuming office he pledged to tackle the country’s “profound economic crisis.”
As Prime Minister Sunak considers potential means to bolster the UK economy, his government was wise to prioritize effective pro-competition policy in the tech sector. In the Autumn Statement, Chancellor Hunt made a clear commitment to bring The Digital Markets, Competition and Consumer Bill before Parliament in the upcoming third Parliamentary session. This bill will help create a truly competitive digital marketplace, which will support both the health and growth of the UK economy more broadly.
Tens of thousands of mobile application developers are based in the UK, generating billions of pounds of revenues for the economy. These applications – or apps for short – are permanent fixtures in modern life, and serve as huge economic engines for all manner of digital services. According to data from DCMS, the digital sector is growing faster than the rest of the UK economy, expanding by a significant 27 percent in real terms from 2010 to 2019 compared to just 15 percent economy-wide. As impressive as these figures are, there is still room for growth and significant untapped potential.
The UK is also a global leader in the production of digital content, including movies, television, games, news, and music, which are consumed globally. These digital products and services are not only a great source of revenue, but they also promote British culture abroad.
Yet, promising companies in these sectors could grow faster if they were not constrained by the control exercised by a handful of companies over mobile app ecosystems.
For instance, mobile gatekeepers like Apple and Google leverage their immense market power to impose onerous terms and conditions on app developers. These gatekeepers impose fees of up to 30 percent on those developers whose apps sell digital products and services, and force these developers to use the gatekeeper’s respective payment solutions. Apple also has a monopoly over the distribution of apps on iOS devices, which it uses to control the type of apps that are accessible to its users.
These fees and restrictions are a drag on the UK digital economy, plain and simple. Companies seeking access to the digital marketplace have no choice but to play by the rules imposed on them by these gatekeepers. The money innovative developers are forced to spend on excessive fees could instead be used to hire additional engineers, as well as boost research and development to spur innovation. Competitive digital markets could also lead to the creation of a greater number of unicorns – privately held startups with the most promise for growth – some of which could become UK-grown, global leaders.
Take xigxag for example, a Cornwall-based start up seeking to revolutionize the way we read. xigxag’s application offers users the first of its kind, fully integrated listen-and-read experience, which allows readers to enjoy audiobooks and ebooks in one. However, as a small, mission-driven company, it’s almost impossible for them to compete with in-built book apps from Apple and Google, not to mention Amazon – especially with the exorbitant app tax and other app store restrictions currently forced on them by gatekeepers. If xigxag could compete on a truly level playing field, they could serve their customers better, grow more quickly, create additional jobs, and deliver their innovative product – and the joy of books – to more consumers across the UK.
Fortunately, the UK government is already well-prepared to address the challenges that many app developers like xigxag currently face.
In April of 2021 the UK government launched the Digital Markets Unit (DMU), which was conceived in response to the Furman report and exists to “[promote] greater competition and innovation in [digital] markets and [protect] consumers and businesses from unfair practices.” The DMU is tasked with operationalising a new pro-competition regime for digital markets, which would allow the Competition and Markets Authority (CMA) to adopt codes of conduct and pro-competition intervention to ensure that digital markets are freed from monopolistic constraints, which would stimulate competition, innovation and economic growth. This regime, which now needs to be placed on a statutory footing, would only apply to gatekeepers with significant market power.
Adopting the Digital Markets, Competition and Consumer Bill and creating a pro-competition legal framework will stimulate economic growth by ensuring that the best ideas, products and business models triumph.
With a well crafted regime, the UK government has a unique opportunity to become a leader as many other countries are seeking to address the anticompetitive practices of mobile gatekeepers.
As the Sunak government sets out to address the many challenges facing the UK economy, enacting a pro-competition regime remains a huge opportunity to boost the digital sector and the UK economy as a whole.
By Rick VanMeter, Executive Director of the Coalition for App Fairness
About the Coalition for App Fairness
The Coalition for App Fairness is an independent nonprofit organization formed to protect consumer choice, foster competition, and create a level playing field for all app and game developers globally. Originally formed by Basecamp, Blix, Blockchain.com, Deezer, Epic Games, the European Publishers Council, Match Group, News Media Europe, Prepear, Proton, Skydemon, Spotify, and Tile, CAF has rapidly grown from 13 to over 70 members since launching in September 2020. CAF offers membership to companies of any size — join today at appfairness.org.
December 7, 2022