Platform Regulation

Different platforms require tailored regulations, and so operating systems and app stores should be regulated differently. Given the recent developments in India, where startups have challenged Google’s Play Store policy, there is a need for innovative thinking beyond traditional regulatory solutions.

This article was first published in The Mint. You can read the original at this link.

Last week when I wrote about the brouhaha that had erupted in the aftermath of changes proposed to Google’s Play Store policy, I suggested that the laissez faire attitude of the Android Play Store was the reason why there is so much more malware in the Android app environment than on iOS. The changes being proposed, I argued, was an attempt to provide a higher level of assurance against malware as well as greater security against payment fraud than is currently available. While the openness and low touch management that characterise Google’s operating principles ensured its rapid proliferation, it was clear that unless greater control was exerted - at least over some parts of the ecosystem - we were going to continue to witness a steady erosion of trust.

This is a theme I have explored previously. In an article that discussed these issues in the context of bitcoins, I had pointed out how even the most open of systems have a tendency to eventually centralise.

It is a law of nature, that no matter how decentralized a service is to start with, left to itself, things eventually tend towards centralization. This results in power being concentrated in the hands of a few putting so much pressure on market economics that law and regulation is forced to intervene.”

We value open markets. They provide healthy platforms on which participants can freely interact with one another. More importantly they offer consumers choice and impose the sorts of constraints on commercial behaviour that are a necessary deterrent against unfair trade practices.

History has shown us that as easy as it is to establish these platforms, it is challenging, particularly in the digital world, to maintain them over time. Even though different regulators have tried to hold platforms accountable, the measures they have adopted have had little to no effect. It appears to me that this is because all platforms are treated alike and regulated with an even hand. As a matter of fact there are different types of platforms and each needs to be regulated in its own way. Unless regulations are suitably tailored to each the outcomes we arrive at will inevitably be uneven.

One such type of platform is the operating systems. These are the underpinnings on which entire ecosystems operate - the core systems that mobile devices need to function and the digital infrastructure that the products that developers build, depend upon to function. For these reasons, it would not be an exaggeration to state that developers owe their very existence to these platforms and depend on the functionalities they provide for their apps to work.

App stores are a very different type of platform. They offer mechanisms of discovery that allows user demand to be satisfied by developer supply. As important as they are to the ecosystem, they are not essential in the same way that operating systems are. They perform, at best, a useful function but are by no means the only means by which developers can distribute their applications. Unlike operating systems, where developers have no choice but to conform to the restrictions imposed on them, developers have many alternate ways in which they can reach their customers should they disagree with the restrictions imposed on them by a given app store.

It is precisely because of these differences that we need to think differently about how we regulate these two types of platforms. When an operating system abuses its position, it affects the agency of users and developers alike. It forces them to comply since they have no other option. If an App Store abuses its position, for instance by unfairly removing a developer from the store or imposing onerous conditions on the use of its facilities, the developer can list its product elsewhere at little incremental cost. While the companies that own the operating system are able to ensure that their own products have inherent OS related advantages, all an app store can do to influence consumer choice is make sure that other competitive products are also available on the store.

According to Ben Thomson, it is these fundamental characteristics of platforms that we need to understand in order to develop appropriate frameworks though which they are to be regulated. He argues that because of their systemic importance, we should be encourage operating systems to multiply and flourish while strongly dis-incentivising them from being able to imposing untenable restrictions on developers. App store businesses that rely overly on the revenues they earn from the sale of products could lose the incentive they need to ensure that their users remain happy. To the contrary they should be encouraged to make sure that users, rather than the App Store itself, are the focus of attention. At the same time the stores themselves should be prevented from consolidating with each other in ways that will reduce the options available to developers to list their products.

In a recent twist in the tale, it appears that despite the relaxation in the deadline for the applicability of the new Google Play store policy, a group of Indian startups are planning to move the Competition Commission of India against the company. They will, no doubt, seek to invoke the full suite of remedies available to them under competition law.

I believe that Indian startups need to look beyond these sorts of obvious regulatory solutions. A few weeks ago I described the Beckn protocol that radically unbundles location based commerce and frees up providers of location based services from the constrains of aggregator platform. While Beckn is not designed to work for digital products the likes of which are distributed on app stores, this is the sort of thinking that the Indian startup community needs to adopt if it is to really effect the change it says is needed.