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Does the Shopify App Store abuse its dominance?
1. The fact that Shopify’s App Store mandates that developers that charge merchants for their apps *must* use their billing API could be seen as anti-competitive.
2. Shopify’s App Store has exercised dominance in the past, like when it removed the Mailchimp for Shopify integration in 2019. Here’s Shopify’s blog post on that decision.
😉 PS. Dominance in itself isn’t “bad.”
In April of this year, the US Senate Subcommittee on Competition Policy, Antitrust and Consumer Rights held an antitrust hearing to discuss app store ecosystems. The concern that motivated the hearing was that Apple (App Store) and Google (Google Play) may be creating an unfair environment by operating as “gatekeepers” to a multi-billion dollar industry with the power to decide how or whether apps can reach users. Amy Klobuchar, the top Senate Democrat on antitrust issues, said Apple and Google can use their power to "exclude or suppress apps that compete with their own products" and "charge excessive fees that affect competition."
Spotify, Match and Tile have complained about app store dominance in the past. Last year, Spotify criticized Apple over a new subscription bundle (AppleOne) that they allege favours Apple Music over others. Match Group (which owns nearly every US dating site: Tinder, OkCupid, Upward) has agitated over Apple’s 30% service fee. And Tile felt ripped off when Apple debuted their key tags. Many of these groups formed the Coalition for App Fairness, “an independent nonprofit organization founded by industry-leading companies to advocate for freedom of choice and fair competition across the app ecosystem.”
More recently, a bipartisan coalition of 37 United States AGs introduced a lawsuit against Google for its “unlawful and anticompetitive conduct around its mobile app store.” The complaint says that the company monopolized the distribution of apps on mobile devices running the Android operating system.
A week before the lawsuit, Shopify announced that it was significantly dropping the percentage that it takes on the first $1M earned by merchants and app developers.
🤷♀️ What would have to be true for Shopify’s app store (their Ecommerce App Marketplace) to abuse its dominance?
🤷🏿♂️ Does the Shopify App Store maintain a monopoly through artificial technological and contractual conditions?
I think that at least one of the following 6 conditions would need to be met:
Arbitrary requirements - In the past, app developers have complained about the App Store’s opaque review process, which can leave developers vulnerable to the whims of App Store reviewers. While the “Shopify App Review team can reject an app at their discretion if it doesn't meet the set standards,” their requirements seem to be clear. Here’s a blog post on their Commitment to App Quality.
Mandated use of In-App Purchase for third party apps - this is a specific complaint being made regarding Apple’s App Store. Shopify has a Billing API that is mandatory for app developers under their Partner Program Agreement. This rule is not clearly rationalized, and could be worth explaining further. In February, North Dakota had put forward a proposal (Bill No. 2333) that would have prohibited Apple and Google from requiring developers to use their payment processing service. In Q3 of 2021, Shopify will release guidance for developers to create a payments app, further supporting competition among payment applications, but not infrastructure.
Exercise power to exclude or suppress applications that compete with their own products. Well, apps that are made by Shopify are usually free and are supported by Shopify, and apps that are developed by a third-party developer might have a fee associated with them and are supported by the third-party developer. Shopify started selling ads in their App Store in February 2020.
Charge high fees to companies with competing products (monopoly profits, margin squeezing). In Shopify’s App Store, subscriptions and usage are billed monthly, and the pricing is consistent. Given their recent massive decrease in the “cut” they take from apps advertised in their ecosystem, this also does not apply.
Lack of innovation (in the latest Android case, the plaintiffs claim that one way consumers are being “harmed” is through a lack of innovation). There seems to be a ton of space for innovation with Shopify and again, this is a complaint that wouldn’t stick in the Shopify context.
Build apps that copy third party apps in their stores. It could be worth revisiting Shopify’s 2019 break up with Mailchimp over customer data and privacy, and the subsequent launch of Shopify Email. Any preference for a third-party provider like ShopSync is the closest example of potentially replicating or improving on a competitor. That said, “Mailchimp Forms” seems to be in the App Ecosystem. The separation was rationalized through their evolving Terms. Read more: Here's why Mailchimp is no longer in the Shopify App Store + Mailchimp alternatives and integration apps.
Shopify *has* removed apps/integrations, as with Mailchimp and with regard to merchants using payment processing alternatives that differ from Shopify’s Billing API. In the case of the latter, the dispute was regarding data sharing and not in-app subscriptions (the source of the dispute with Hey.com and Apple). This doesn’t necessarily preclude Shopify merchants from having a list on Mailchimp, but it means that the list can’t be directly linked to the store. *I note that there’s a marketing app called Mailchimp Forms by Mailmunch in the Shopify App Store.
The Shopify App Store seems deeply committed to supporting merchants and developers. They clearly label their own apps (“by Shopify”) and don’t seem to have any in-house apps masquerading under a white label. Ads in their ecosystem elevate certain apps, which still clearly display their rating (out of 5) and the number of reviews it has received (in brackets).
Shopify may be the dominant digital infrastructure for independent ecommerce.
Given that they own, operate, and participate in their App Store platform, it could be worth considering how the space is and should be regulated so that it is fair.
Recently proposed legislation in the US - the “Ending Platform Monopolies Act” - would bar companies from giving their own services or products preference over their rivals. This is the most relevant dimension to consider in a Canadian context with Shopify, which has an App Store that advertises free and paid e-commerce plugins so that merchants can grow their business and improve their marketing, sales, and social media strategy.
At present, the Canadian Competition Bureau is not investigating any App Stores. If it were to do so, the Bureau is likely to place significant weight on three key factors:
Whether the firm engaging in the conduct appears to have durable market power, in the sense that it has, and is likely to maintain, significant control over a market;
Whether there is compelling evidence that the firm was actually engaging in the conduct for a pro-competitive or efficiency enhancing purpose, and whether these benefits were realized; and
Whether prohibiting the conduct at issue is likely to dampen incentives for firms to invest in innovation.
The question of the “relevant market” would also be examined as part of assessing whether Shopify’s App Store creates a ‘walled garden.’
Stacy Mitchell has reminded that “Powerful online gatekeepers not only control market access, but also directly compete with the businesses that depend on them.” App Stores are a unique form of platform that can be a powerful gatekeeper. App Stores can also collect information regarding the popularity and performance of competing apps and potentially replicate them.
Shopify’s recent announcement that it will drop its App Store commissions to 0% on developers’ first million in revenue and then 15% after that (BTW this new benchmark resets every year) made waves. It immediately differentiated itself from tech giants claiming that a 30% surcharge was the norm. However, Shopify has exerted its power to ban integrations that it doesn’t like, and forces developers to use their billing API; a tactic that has recently come under scrutiny elsewhere.
My frequent research collaborator, economist Robin Shaban, has a new article in the CCPA’s Monitor Magazine. 👇
Vass Bednar is the Executive Director of McMaster University’s new Master of Public Policy in Digital Society Program.