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With App Store Bill, Apple Is in an Unusual Position: Playing Defense – Tech News Briefing

This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.

Zoe Thomas: This is your Tech News Briefing for Wednesday, February 23rd. I’m Zoe Thomas for The Wall Street Journal. If you use an iPhone, all of your smartphone activity exists in Apple’s walled garden. Apple controls what goes in and what goes out of its ecosystem. But rivals, app developers, and now lawmakers would like to see that change and it’s putting Apple in an unfamiliar position of playing defense. On today’s show, tech reporter Tim Higgins, who covers Apple for the Wall Street Journal joins us to discuss legislation that could change the way the app store works, creating an entrance through the garden wall and what Apple is doing to try and stop it. That’s after these headlines.
SoFi is getting closer to its goal of becoming a one stop financial shop. The lending company which focuses on refinancing student debt is buying banking software maker Technisys for just over a billion dollars. The all stock deal will give SoFi the power to run the software for its banking and credit card accounts in house without paying a third party provider. It’s also the latest example of SoFi expanding beyond its roots. Earlier this month, it became an official bank when it bought California based community lender, Golden Pacific.
The US has filed a complaint with Canada, urging it to abandon its plan to impose a 3% tax on digital services or sales of Canadian user data. The Office of the US Trade Representatives said the tax disproportionately affects American companies like Google and Meta while excluding Canadian firms that engage in similar businesses. On top of that, our reporter Yuka Hayashi says the US is upset since countries including Canada already signed onto a global tax agreement.

Yuka Hayashi: There was a global agreement between over 100 countries who are members of the OECD to start discussing a framework for global taxation for the coming decades. And in exchange for starting to discuss these new rules, countries agreed to put on hold their new digital service taxes. And Canada was a member of that agreement. So the US is saying, “You guys agreed to the OECD agreement. Why are you still talking about this?”

Zoe Thomas: Canadian officials didn’t immediately respond to requests for comment. In December when Canada passed the new tax law, the country’s finance ministry said the digital service tax would be enacted in 2024 if the OECD doesn’t have an agreement in effect by that time.
Meta, the parent company of Facebook is taking new steps to challenge TikTok. Yesterday it rolled out Reels, its scrollable short video product to all Facebook users globally. For users in North America, the company also started testing out ads that’ll run alongside Reels as it looks for ways to monetize the video’s popularity.
And former President Donald Trump’s social media platform Truth Social went live in the US earlier this week on Apple’s app store, but with some glitches. Users initially reported being unable to create an account while others have been prompted to join a wait list. The app, which is similar to Twitter is owned by Trump Media & Technology Group, which the former president set up shortly after leaving office. The company didn’t immediately respond to a request for comment.
All right, coming up, Washington lawmakers have their sights on Apple. Can the iPhone maker cook something up to change their minds? We’ll discuss after the break.
Apple has recently found itself defending on multiple fronts how it runs its app store. First, there was a lawsuit by video game maker Epic Games alleging that Apple had an app store monopoly. Now legislation in the Senate is being pushed forward that could, among other things, allow side loading, a way for developers to avoid the app store and its fees all together. Until recently, Apple has mostly avoided the crosshairs of lawmakers who focused more of their attention on social media safety, privacy, and other big tech companies. So why is Apple the focus now and how does it plan to deflect lawmakers’ attention? Joining us to discuss this is our tech reporter, Tim Higgins. Hi Tim. Thanks for being here.

Tim Higgins: Thank you.

Zoe Thomas: We often think about Apple as, it’s the maker of iPhones and laptops, but how important is the app store to its business model?

Tim Higgins: It’s hugely important. Yes, they make a big chunk of their money from the sale of the iPhone, but the future is all about that kind of reoccurring revenue, if you will, from the app store, the ability to lock people into that ecosystem to collect a percentage of that digital money that the user spends. And so CEO, Tim Cook, has made the digital services part of Apple’s business a big part of the future.

Zoe Thomas: So talk to me a little bit about what this legislation would mean for that. I mean, what exactly isn’t it and how would it potentially affect Apple?

Tim Higgins: What’s unique here is that for the last few years is we’ve heard lawmakers in Washington DC talk about their concerns over big tech. Those concerns have often focused most intensely on competitors, whether it’s Facebook or Amazon or Google, but in recent months we’ve seen more and more attention go to Apple. And various pieces of legislation have emerged including one that passed judiciary committee earlier this month that would really strike at the heart of Apple’s app store business. It would allow developers, outside of Apple, essentially would allow you as a user to be able to download an app outside that app store. It would also prohibit Apple from only allowing developers to use their in-app purchase system. So there could be alternative to that. So really hitting the core of that business.

Zoe Thomas: I wonder what Apple’s defense is to this? I’m sure it doesn’t want to see this legislation passed. It doesn’t want to see its business affected. So what argument is it making?

Tim Higgins: Apple has been warning lawmakers for a while now that allowing the so-called side loading, that’s the ability for a third party software to be downloaded onto the iPhone outside of the app store, that this side loading would put the user of the iPhone in danger, their security and privacy could be in jeopardy. They argue that the fees that they charge these app developers to be in the app store to use their in-app purchase system are fair and in line kind of the industry standards. They note that Apple’s providing technological development and an ecosystem that these developers are benefiting from. And so the debate that’s been going on in the courtrooms that we’ve been following for the last couple of years, but now really at Capitol Hill is where these arguments are playing out now.

Zoe Thomas: You mentioned the courtrooms where this is playing out. I mean, listeners are most likely to have heard of the Epic trial where the video game maker behind Fortnite was fighting against the rules that Apple has for its app store. Is there much difference between what Epic was arguing in that case and what legislators are looking to change about the app store now?

Tim Higgins: Yeah, Epic Games really took the charge and filed litigation against Apple and took them to court. This battle played out last year and Apple largely won that case, though it is an appeal. But really what it did was it brought great attention to the way Apple operates its app store and the way developers are treated. And the fact that Apple mostly won became a rallying point for rivals to push Congress to change the laws because they’re arguing that something needs to occur in the changing of laws because the laws aren’t addressing the concerns that they have. And so what the Epic case really did was kind of high highlight what was going on and became a rallying cry for many.

Zoe Thomas: Apple’s CEO, Tim Cook, has been active in pushing against this legislation. Tell us what he’s been doing exactly.

Tim Higgins: Yeah. Tim Cook in some ways is Apple’s greatest lobbyist. He, for years, has shown an ability to use his personal connections or his public persona to jawbone those in power. He was very successful during the Trump administration in advocating for what he felt was best for Apple. He has been making the rounds in Congress to try to make the case on this legislation and other pieces that are out there. We’ve seen that. And this is one of those cases where maybe he hasn’t been as successful in pushing back, given the fact that this committee largely endorsed this bill that really is mostly targeted at Apple.

Zoe Thomas: Apple isn’t the only one with an app store, Google comes to mind. How would it be affected and how is it reacting to this proposed legislation?

Tim Higgins: Right. So this is an app store bill. Google would have some effect and Google has been part of the issue around the world where we’ve seen various lawmakers and regulators going after how app stores operate. And Google has been fighting those efforts as well. But in this case with this legislation that has emerged in the Senate, it’s largely seen as being targeting Apple because it allows side loading. Android, which is the Google operating system, already allows for side loading. This is something that really targets Apple and something that it says would be undermining the way it operates its business.

Zoe Thomas: Tim, there has been a lot of talk about reigning in big tech, but bills haven’t really gone anywhere. I wonder if there is something bipartisan though about going after app stores.

Tim Higgins: It’s interesting the way that the various political parties are lining up on these issues. Big tech and the power that it has, has been a concern for both parties for a while now. There’s another piece of legislation that’s more broad that goes after the big names, including Apple. One of the things that this bill that deals with just the app store, perhaps that benefits from, is that it’s more narrowly tailored and it’s easier perhaps to understand the app store economy versus all of the issues when you get into a bigger tech bill, whether it’s retail or privacy or whatnot. And so it’s still to be determined what strategy is going to win out. But at the moment, it seems to be benefiting from the fact that it’s narrowly tailored.

Zoe Thomas: I feel like this is the million dollar question every time we talk about legislation in Congress at the moment because it’s so divided, but how likely is this to pass?

Tim Higgins: It is a long way at this point. One of the things that of course complicates this is that we’re heading towards the midterm cycle. So there’s not a lot of time. In some ways, the vote that occurred in the Senate committee of this month is a symbolic win for Apple’s rivals, whether that’s Epic Games or Microsoft or others who have been trying to put Apple’s, the way it does business in the app economy under the microscope, Apple clearly got beat up a little bit. What this means ultimately in the long term, it’ll still be to be determined. The fact that there was so much support in the committee and some of the Republican support could help it in the House, the Republicans there, but it’s still a long way to go.

Zoe Thomas: All right. That was our reporter, Tim Higgins. Thanks so much for joining us, Tim.

Tim Higgins: Thank you.

Zoe Thomas: And that’s it for today’s Tech News Briefing. If you want more tech stories, check out our website, wsj.com. And if you like our show, please rate and review it. You can do that wherever you get your podcasts. I’m Zoe Thomas for The Wall Street Journal. Thanks for listening.

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