Categories
Corporations Media Startups

Paying the Toll

As tech companies descended on Capitol Hill this week, the ongoing debate around antitrust continues. Startups have long lamented about the anticompetitive business practices adopted by the big 4:  Apple, Amazon, Facebook and Google. If you build a business that relies on the Apple or Google app stores then you automatically know you’re going to pay a ~30% toll to access consumers. The debate has further been heightened as some startups like Classpass have been hit with this toll as they roll out virtual classes due to COVID. The founders argue that they are forgoing their normal take rate from providers (gym’s, etc) they work with during COVID so why is Apple charging them 30%. Apple is in an interesting situation, because if they make exceptions for one business, they need to make for others. They also would face potential legal battles from previous customers that did have to pay. 

Drawing a parallel from the CPG or consumer products space. If you’re a brand and you want to sell at Walmart then you also pay a type of “toll” via a hit to gross margins and even possibly slotting fees to access their customers. While you can set prices, often buyers select brands that fit within their ideal price point based on research they have on their shoppers. So what do most brands try to do? They go direct-to-consumer. 

And yet another parallel from the entertainment sector. Content providers (i.e. ABC, ESPN, Discovery, etc) are constantly at odds with pay TV operators (i.e. Comcast, DirectTV, etc) over carriage fees.  ESPN wants more $ per subscriber and Comcast wants to pay less $ per subscriber. Who has more power here? The gatekeeper or the content provider. What ultimately happens in this situation is the pay TV operator drops the TV channel from their lineup and in-to -consumer offering. 

There are anticompetitive business matters in each of these two scenarios and it’s not all that different than what is going on now with the big tech companies and mobile apps. Apple or Google don’t dictate the price of your app. They argue, just markup your cost to cover the toll if you can’t make the unit economics work.  

As Fred Wilson of USV says, politicians should be focused on “opening up not breaking up the tech companies.” The tech companies have a tremendous amount of power, and breaking them up might not solve a lot of the fundamental issues. Essentially, they will just slowly come back together and we’ll end up back with walled garden ecosystems. The app stores should open up to allow browsers to have the same access as native mobile apps. 

In the meantime if you’re building a business that relies on the app stores today, I don’t see a world in which you can avoid paying the toll. Look at it as CAC and part of doing business and know that as you grow awareness you then create an omnichannel strategy by circumventing them.  And lastly, continue to think about additional value offerings (i.e. gift with purchase, etc) that you can offer those customers who transact outside of the app stores.  

Share this: