An abuse of power that reaps billions for tech giants

THIS week, a High Court judge will hear the first arguments in a case that could have momentous consequences for Apple, Google and tens of millions of British smartphone users. At stake is the way in which both tech giants misuse their so-called gatekeeper status to charge phone users a fortune in commission every time they make purchases of digital assets on apps.

What do I mean by digital purchases? Simply put, services such as Tinder, the dating app, or popular video games, such as Fortnite. Many people don’t know that when they buy credits or pay subscription fees to these apps, 15 to 30 per cent is going straight into the pockets of Apple or Google.

Now legal actions have been launched arguing that this tech tax is unjustified, and demanding the Silicon Valley giants reimburse UK consumers to the tune of billions.

People of my vintage don’t spend much time playing Fortnite. Even so, I hope these cases succeed. If you want to know how popular such games are in younger generations, look at the financial figures. Spurred by lockdowns, revenues from video gaming rose to a global total of $180billion (£136billion) last year, according to industry data – almost double the revenues earned by the global film industry before the pandemic began.

Apps selling digital services are becoming an integral part of millions of people’s lives. Yet Apple and Google seem to think they are entitled to charge us a 30 per cent rent for what many consider essential activities. At the same time, both set up their phones to make it hard for users to access alternative platforms and for developers to offer much better deals. On iPhones and iPads it is not possible to pay for many app services except via the company’s own App Store payment system. On Android phones, Google’s Play Store is pre-installed with other Google products. The profits they are making at our expense are vast. Neither discloses exactly how much they rake in from their app stores, but an inquiry by the US Congress last year estimated that Apple’s annual global revenue from this source was at least $15billion a year. But its cost for running the platform is an estimated $100million.

The App Store and Google’s Play Store may be smart, easy and convenient services. But anyone can see that a 15,000 per cent profit margin is exorbitant. Common sense suggests that we are dealing with an abuse of monopoly power. Many lawyers will tell you it is a flagrant breach of competition law.

Back to this week’s court case. The court will no doubt hear arguments from Apple’s well-paid legal team about why the test case filed against it on behalf of 20 million UK iPhone users should not be allowed to proceed. Google is being sued separately, but faces essentially the same allegation – that it has ripped off millions of customers by abusing its dominant position.

Both lawsuits might take years to work through the courts, so Tuesday’s hearing is just the start.

Collective claims of this kind are relatively new and untested, but they are worth pursuing, for the sake of UK consumers.

Some governments and regulators around the world are starting to take on the Silicon Valley giants.

Some day soon, Google and Apple might even face the sort of fierce action from US competition regulators that brought down Standard Oil or the railroad monopolies in earlier eras. Until that time comes, though, we citizens have to use whatever meagre resources are available to protect our rights.

We should all hope that Tuesday’s case clears whatever hurdles Apple throws in its path.