Basecamp CTO David Heinemeier Hansson and Rep. David Cicilline on Apple's monopolistic app store fees

Apple is acting like a monopolist and a bully, according to the chairman of the House Antitrust Committee. Rep. David Cicilline (D-RI) joined The Vergecast along with Basecamp CTO David Heinemeier Hansson to discuss the plight of Hey, Basecamp’s new $99-a-year premium email service. Earlier this week, Heinemeier Hansson revealed that Apple had rejected the Hey iPhone app from the App Store because it didn’t offer any way to sign up and pay in the app itself — which would require giving Apple a 30 percent cut of the fee. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 2:09Speaker 00

  And put forth a number of recommendations with respect to legislative action to bring competition into the digital marketplace.

• 2:17Nilay Patel?

  So that final hearing with the CEOs, there's always been some news about that this week. It sounds like Google, Facebook, Amazon, they're saying, we'll do it if everybody else does it. Have you heard anything from Apple?

• 2:27Speaker 00

  Well, all of the companies pledged cooperation with the investigation when it began, and it's important, of course, that the CEOs of the major technology platforms, really the decision makers, share their perspectives before the committee so we can complete the investigation. That commitment to cooperate was made by Tim Cook when the investigation began, and we spoke again recently, and he again renewed his commitment to cooperate with the investigation. So I was surprised and a little bit alarmed that the other three CEOs through their counsel confirmed their willingness to participate in a hearing before the committee, and Mr. Cook declined.

• 3:08Speaker 00

  But I, I expect that when the hearing happens, we will have all four CEOs there. This is the Congress of the United States conducting its first major antitrust investigation in 50 years, and their testimony is essential to completing this properly.

• 3:24Nilay Patel?

  I don't want to get too hung up on your guest list, but it strikes me that Microsoft is not on that list. Is that a, was there a reason for that?

• 3:31Speaker 00

  Well, the focus has really been on the digital marketplace, and you know, the big actors in that space are Apple, Google, Facebook, and Amazon, and obviously there are others, but that has been really the kind of focus of the investigation, the digital marketplace in particular.

• 3:45Nilay Patel?

  And no one has heard from Larry Page in like, I would say, 10 years. You're Congress, you could maybe make him talk to you. Was it, so focus on the CEOs. Obviously, Page is sort of the, the head of Alphabet. He's the largest shareholder, all that sort of thing.

• 3:59Speaker 00

  Yeah, I mean, I think there's no question that Larry Page has information that would be useful to this investigation, and when I say CEOs broadly, it may be CEOs of the parent company as well.

• 4:12Nilay Patel?

  Okay, so that is the backdrop. On Monday as well, we heard the EU was opening an investigation into the App Store and Apple Pay, WWDC, which is Apple's developer conferences next week. And then, David, you dropped a grenade into all of this with an email app. What happened with Hey? What is going on?

• 4:32Speaker 02

  Sure. So Hey is a new email service we've been developing for the past two years. We've spent millions of dollars doing so with the 56 people we have at the company. And we were just coming to a conclusion. And just last Friday, we submitted our app for approval in the Apple App Store. And we were so thrilled to get the approval, such that the V1 of the app is available in the App Store. It's always a nail-biting process. We thought we had checked every box. We have been in the App Store for a very long time. We know what the both written rules are and what the unwritten rules are. And we thought we were in complete compliance. So when we got the approval, we thought, excellent. Then we roll out the service broadly on Monday. And we submit a bug fix to our app, a version 1.0.1,

• 5:16Speaker 02

  and assume that this is just like performance, it's going to slide right through, and users of this Hey service are going to enjoy some bug fixes. Well, no, we get a rejection. And we get a rejection that cites their Section 1 or 311, which is this notorious section in their App Store policies that talk about whether you have to have in-app payments. But this is strange. We were literally just approved on Friday. Why are they bringing this up now? It doesn't apply to us. We follow all the unwritten rules. So we thought, you know what? Apple's App Store policies are often called the Wheel of Misfortune. So you try to just spin it again, and then you'll get a different reviewer, and they'll see it differently, and we'll get through. So we spin it again. We submit another batch of bug fixes, another denial.

• 6:00Speaker 02

  This time, the denial is a little more strong. Our lead developer on the iOS app gets a call from Apple, essentially saying, this is not a mistake. Your application has been reviewed by the Apple App Review Board. They have found that it is a just and correct denial. In fact, the mistake was that we led you into the App Store in the first place. Give us a timeline by which you will start Handing over 30% of your revenues through this app, or we will kick you out of the App Store. It didn't say kick out of the App Store. It said, remove your application from availability in the App Store, or whatever euphemism. But the euphemism was even not that good. I would have expected something more circumspect, right? But no, so they essentially threatened to kick us out of the App Store, which we've just launched this app. Everyone seems to be pretty happy about it.

• 6:45Speaker 02

  It's available in the App Store. It's got a bunch of good reviews. I think it's got a 4.8 rating right now. And Apple is saying, unless you start paying us 30% of your revenues, we're going to remove that. Which for us is, I mean, that's going to, if not kill the business, it's going to kneecap it, right? You can't compete in software today if you're not available on mobile devices. And Apple just controls one part of that duopoly. And in the US, North America, for services charging 100 bucks a year, it is the lion's share of that part. They're not a minority player here. So it was just very strange to us, especially because there's so much precedence here. We have another application, Basecamp, in the app that works exactly the same. You buy your subscription outside of the App Store. You go to the App Store to get a free app.

• 7:29Speaker 02

  This has worked for years and years. We still do this. We still submit updates to it. Gmail sells an application in the App Store that's free to download. You buy a subscription to G Suite. Outside of that, you're fine. Microsoft sells an email service, Office 360, that you can download an Outlook client in the App Store. Everything is fine. Why are we being singled out? And of course, I thought it was just a mistake, right? And then I thought, hey, I just testified in front of Congress in January about this very issue. And Congressman Cislini, afterwards, we were talking. We're like, hey, if there's any retaliation, please let me know. And I thought, you know what? That's not what Apple does, right? I've been an Apple fan for 20 years. I've been an Apple evangelist for 20 years. They don't retaliate. That's not how they work.

• 8:13Speaker 02

  So when we got these letters, I'm still in disbelief. Like, I want to believe that this was somehow a mistake, and somehow this is not what they're trying to do. But you know what? That's a fantasy. I've heard from dozens and dozens of developers. My Twitter DMs are exploding with exact copies of this story from other developers, saying, we were shook down the same way. They denied our app, often very much on a bugfix update. They don't even necessarily deny it outright. You submit a set of updates, and all of a sudden, they come with the demand. Give us 30%, or we're going to shut you down.

• 8:43Nilay Patel?

  So David, I gotta ask you, because so many people have said this. You're very successful. Basecamp is excellent at marketing. Did you do this on purpose? Did you time this to create this firestorm before WWDC?

• 8:54Speaker 02

  I wish I was that smart. Imagine if I was good at 4D chess. I mean, I could run the world. Imagine just the mechanics of this. First, you have to plant someone within Apple that approves the application, which foils this plan. And then what? I plant someone on Monday that then disapproves it? Like, how does this, any of this work? Like, how powerful do I have to be to orchestrate this?

• 9:16Nilay Patel?

  So I've heard that the Mac app was initially rejected. Is that true?

• 9:20Speaker 02

  It was. The Mac app, we submitted the Mac app in the same way. And there, I will admit that we were ignorant. We had never submitted an app to the Mac Store before. We'd always just distributed our software for the Mac directly. And we thought, you know what? The Mac Store sounds great. Like, you get automated updates. That's fine. So we submitted the app naively with none of the unwritten rules served. So it was just a web app, right? Like, in an Electron app. So it got denied, and we went like, oh, yeah. Actually, I guess the Mac app is the same as, or the Mac Store is the same as the iOS Store. They also want 30%. And we said, OK, fine. That's your choice to make. We're not going to be in the Mac Store. So we took our Mac software, and we said, we're going to distribute it directly, because on the Mac, you have the choice. And I'm not complaining about the Mac Store, right?

• 10:05Speaker 02

  They're, OK, if they want to charge 30% in the Mac Store, that's fine. We don't want to take the deal. We just distribute our software directly. On the iPhone, you can't do that. You cannot get software onto the iPhone unless you go through the App Store. So if we had the power, if we had the choice to distribute software to the iPhone without going through the App Store, we would. We would just have a link on our website that said, here you go. That's how you download the app for the iPhone. And we'd be fine. The problem with the iPhone is that Apple sits as a gatekeeper. This is the, I mean, it blew my mind when the EU announced their investigation, because they were literally going through the points that we were having. The only way to get on the iPhone is through Apple. Apple is a gatekeeper.

• 10:47Speaker 02

  Apple shakes down businesses for these 30%, and no one has a choice. And this is what I'm hearing from all Developers that are reaching out for me, everyone is petrified. And this is not just the small people. The number of huge applications, hundreds of millions in App Store fees that I spoke to yesterday. My mind exploded, like, how are we the first people to raise a fuss about this? And then I understood. If you're a publicly traded company, you cannot afford this. You cannot afford to file your earnings saying, oh, we just lost 50% of revenue last quarter because we had a spat with Apple. And if you're a small developer, you can't afford this, literally, because you will go broke. You will lose your house if they kick you out of the App Store.

• 11:28Speaker 02

  We end up in this weird situation where, A, we're secure enough that we can sort of do this and we can risk it. And B, they were stupid enough to pick on someone who won't shut up.

• 11:38Nilay Patel?

  And that clear, I think Apple knows that that's their clear error, I gotta tell you. So Congressman, you've heard from David before at the hearing, you've heard from him now. We are hearing that a lot of developers feel this way, but they're scared to speak up. Have you heard from other developers as your investigation has continued?

• 11:54Speaker 00

  Yeah, this is actually a center, really a core area of the investigation that is currently underway by the antitrust subcommittee. And we should really recognize that we have a long tradition in this country of kind of these essential network being developed and gatekeepers being denying access because of their outside power. And that's what happened with railroads and with telecom, with banks. And when you think about kind of the chief evil that antitrust is designed to combat, it's this economic coercion that has just been described. And unfortunately, we have seen many, many examples of this where because of the market power that Apple has, it is charging exorbitant, really exorbitant rents, you know, highway robbery,

• 12:39Speaker 00

  basically bullying people to pay 30% or have denying access to their market. And it's a, it's a consequence of duopoly between Google and Apple in terms of iPhone and apps, you know, app technology. And it's crushing small developers who just simply can't survive with those kinds of payments. And if there were real competition in this marketplace, this wouldn't happen. So this is an area. That the antitrust investigation, which is looking at the digital marketplace broadly, is very focused on, and particularly with respect to Basecamp, this notion of retaliation. I just want to reassert, we're taking this investigation very seriously. There have been a number of people, many people have come forward to share their experiences

• 13:22Speaker 00

  who are terrified of economic retaliation, who are afraid they can't survive the economic retaliation that these large platforms can impose because of the power that they have. And we intend to pursue those allegations very seriously, even once the report is issued, because people need to be able to come forth and testify and share information with Congress in the context of this investigation. But this is a real problem in the marketplace. This is a direct consequence of enormous market power, the fact that Apple is the gatekeeper for these developers. And we have heard many, many examples, and we all know of many examples, where people are not able to access that marketplace because of the power that Apple has in this marketplace.

• 14:06Speaker 00

  And there are really two companies that control it. This is one of many issues we're looking at in our antitrust investigation, and we intend at the conclusion of the investigation to put forth some recommendations to respond to this.

• 14:17Nilay Patel?

  So Congressman, let me push on you a little bit. One hopes Tim Cook comes to your investigation and says, responds to you. But when we talk to folks in and around Apple, their response is, look, we invented the iPhone. We invented the App Store. We invented the market. We just put out a study saying half a trillion dollars worth of commerce moved through the store. We don't touch 85% of that money. These rules have been in place since 2010. If you don't like it, leave. Does that persuade you?

• 14:42Speaker 00

  Well, I mean, that's always the answer of monopolists. If you don't like it, leave. I mean, the whole idea is you're not allowed to engage in behavior which is anti-competitive, which allows you to use a enormous market share to shake down people, to demand ransoms, essentially, and that results in higher prices for consumers. The whole reason that we have competition as a virtue and that we have policies to promote competition is because it promotes innovation. It makes space for the next great idea and the next great company. And it also drives down prices, gives consumers more choices. And you cannot simply allow someone merely because they invented a system or a product to continue to enjoy that kind of monopoly power.

• 15:26Speaker 00

  It's contrary to our laws. It's unfair to... New developers, new startups, and it hurts consumers. And you know, the idea of exacting a 30% premium on a service that if you look at, you know, sort of processing of a credit card, if that were really competitive, it would probably be less than 2% to 3%. It's 2% to 3% now. You had real competition in that area, you'd have even lower percentage. But 30% is unconscionable. But they can do it because it's the only way to access the market through the iPhone. And it's exactly the kind of absence of competition that we are focused on in our investigation. And the behavior of Apple in this one context, I wish it was the only example.

• 16:10Speaker 00

  There are many, many examples of this, which is precisely why Tim Cook really needs to come before the antitrust subcommittee and answer some questions about these practices so that we can complete this investigation and make a set of good recommendations.

• 16:24Nilay Patel?

  So Congressman, you know, Apple put out the statements, everybody, people can look at it on our site and others. One of their arguments here is very legalistic, right? It's, we have this rule 311, which David mentioned, then there's a sub-rule 313. That rule lists the apps that are allowed to have payments outside of it. They're called reader apps. That's what Netflix and Spotify and all the rest take advantage of. Email apps are not in that rule. And they're saying, well, email apps are never in that rule. We are open, we just make the rules and enforce them. There are two arguments here. One is like, one, well, they made the rule and they're allowed to have the rule for the store. The other one is, a list of business models and apps that are approved by one gatekeeper seems bad to me.

• 17:05Nilay Patel?

  Are you persuaded by the argument that the rules are clear and that they should just be able to enforce them?

• 17:11Speaker 00

  Well, I mean, the rules are like, the rules are not clear at all. But by that, a company doesn't have the ability to make rules that violate competition policy or antitrust. Like, the fact that they make rules that ensure that they are the gatekeeper to this marketplace is actually further proof that there's a problem in terms of competition in this marketplace. So the notion that the company really believes you should get to do this, while interesting, is irrelevant in terms of A competition analysis and whether or not this marketplace is working and whether or not people are being required to pay rents because of this huge market share that Apple has. So the idea that it's consistent with their practices is actually further proof

• 17:53Speaker 00

  that there's a problem because this isn't just one instance. This is a practice or a policy of the company that I think just reveals that there's a serious problem when you have an absence of real competition in this marketplace. And you have a market, the market power that Apple has as a gatekeeper into this marketplace and their ability to just decide, you know, some corporate bureaucrat is deciding what app will succeed and what will fail because they have that kind of market power. That's a problem.

• 18:23Nilay Patel?

  David, you run a successful software company. I imagine you have some thoughts about this. Apple's argument is, well, we have to pay for the App Store somehow. We have to have human curation. We have to run our, our sort of App Store magazine, right? They employ lots of people to write app reviews. And if we don't spend that money, we'll just be the Google Play Store and that's bad, right? I mean, that's like basically the argument. How would you propose that Apple pay, cover the cost of the App Store?

• 18:49Speaker 02

  How would I propose a $1.5 trillion company pay to operate the App Store that enshrined?

• 18:55Nilay Patel?

  They didn't get the 1.5 trillion because they were bad at business.

• 18:59Speaker 02

  Exactly. It's like the Simpsons episode, right? Like Microsoft didn't get rich in the 90s by paying. No, this is nonsense on its face. Apple is the most successful, most profitable, perhaps, company of recent memory, right? They have money to pay people to look after the App Store. But you know what? Even that point is irrelevant. If we were allowed the choice to essentially say, you know what? We don't need a review from the very nice people who review apps at the App Store. We don't need to be in your lists that drive traffic. In fact, we thought we had already opted out of that by putting our app in the App Store with a shut door. If you download the Hey app today, you face a shut door. You

• 19:40Speaker 02

  can't sign up. Apple can literally not drive any business to Hey because they explicitly had unwritten rules saying you shouldn't do that. So we didn't. We just want the choice. Let us distribute software for the iPhone without paying the 30% ransom and

• 19:56Speaker 02

  To some extent, we're good because do you know what? I could have run another business. If I run, I don't know, maybe a gaming business, although let's talk to Tim Sweeney at Epic about that. I might have thought, do you know what? It's worth it. It's worth it. Like, they give me a lot of, they send a lot of business my way. We can make a deal. Thirty percent is still just bananas. I mean, isn't the, the upper limit on credit card debt like 29% or something? They're above the usury rates that are otherwise listed. So the 30% is just nonsense. But for me, it's not about the rate. If they lower that rate to 15%, 10%, it wouldn't make a difference. The issue here is choice. We have to have choice, otherwise you don't have competition. If you don't have competition, you have one gatekeeper controlling everything. So Apple can pay for the App Store however they like.

• 20:40Speaker 02

  Just let us get software onto the iPhone without it. If they want to charge us a time and material spaces, I'm willing to pay for that too. The app reviewer, I think, took at least 20 minutes to look at our app. If they bill us as normal legal rates, maybe a thousand bucks an hour, I'll pay the 200 bucks for having a reviewer make sure that there's no malware in our applications, right? They do this on the Mac. You are allowed on the Mac to distribute software that can be signed by Apple, basically saying you're a reputable supplier. You don't have to pay the 30% ransom. Just give us that.

• 21:12Nilay Patel?

  So, you know, I hear all that and then I hear the most common argument is, yes, but Mac users and iPhone users are different. The iPhone is deployed at this massive global scale. What we sell is security. What we sell is an integrated user experience. You know, these are the arguments, but I want to say them to you.

• 21:31Speaker 02

  Do you know what that sounds like? It sounds like the mafia. What we sell is protection. We make sure the street is clean. We make sure no other gangsters get in here. We're the only gangsters in town.

• 21:41Speaker 00

  Every monopolist, you know, we're different. We're so valuable. This is a classic playbook where the monopolists capture control of a distribution network and then bully people or charge, you know, ransom to access it. This is, you know, you look at the history of the railroad monopolies and... Shippers and what they face, this is exactly what they do and this is exactly the argument they make. And this is why preserving competition or creating the conditions where competition really exists in the digital marketplace is so critical to consumers. Because consumers are going to be denied access to a lot of good services and apps that they would otherwise be available. And when they are made available, they're going to pay a premium for them because someone's going to pay that 30% and it's the consumer.

• 22:25Speaker 00

  So this is why the absence of competition in the digital marketplace is so harmful.

• 22:30Speaker 02

  And let me just follow up on that point because two specific examples. If you go to download Netflix today, right? Netflix opted out and said, we don't want to pay the 30% ransom. And they got in under this specialized rule because I guess Apple didn't want to pick a fight with Netflix directly. You go to download that app, the first screen you see is a screen that makes no sense. It says, I'm sorry you're here, you can't get in, figure it out and then come back? Like, how is that good for consumers? How is any consumer better off? How is Apple making things good for consumers? Right now with us, we have thousands of people who've downloaded this app, right? They're all happy about this app. If Apple kicks us out, how is that good for consumers? They can't get bug fixes? We can't make security patches? Who benefits here? The only person who benefits, well, the only corporation that benefits is Apple.

• 23:15Speaker 02

  They want their 30% cut. And even on its face, the Netflix case, our case, it's not a benefit to consumers. And to the final point of a premium, I believe that Spotify, if you buy a subscription through the in-app model, you're paying 30% more. Like, literally, the premium goes straight to the consumer. The consumer is charged more because Spotify has to pay the monopoly rents.

• 23:38Nilay Patel?

  So I buy that, Spotify's a big consumer business. That seems wrong, right? People might not know. You're selling a $100 a year email app to power users who want a new way of thinking about email. You could make the argument that you're, particularly based on your marketing, currently your Twitter account, you could put that button in the app, you would get in the store and zero people would ever click it.

• 24:00Speaker 02

  Yeah, and if you pay the gangster ransom, they won't smash your windows, they won't burn down your store, and they won't smash your kneecaps. Do you know what? No, I'm not gonna pay ransom. This isn't about economics, this is about choice and it's about principles. We should not have one huge gangster in the mobile software business that can just run around and shake everyone down. And that's the other thing here, they've been emboldened. They say this has been in place since 2010. We've been in the App Store since I think 2011, 2012, or something like this. They start out soft, as all gangsters do, right? They work their way up, they pick on the little guy who has no voice, who has no platform, who don't dare speak up, right? Then they work their way up. Now that they've worked

• 24:42Speaker 02

  their way all the way up to us, and they're so bold, they're so brazen. Literally the week that the EU is announcing this, the anti-social committee is just sending out the invitation to Tim Cook, yet they don't feel like they have anything to fear. There's no repercussions coming, there's no accountability to be had, because you know what? They know this is probably gonna take years.

• 25:02Nilay Patel?

  I'm gonna ask that question at Congress, is this gonna take years? When you saw this happen on the day you sent the invite, were you like, yikes?

• 25:08Speaker 00

  I think David's point is an important one. I think that the economic size and the economic power that these large technology platforms has, they believe translates into certain political power. And there's no question about it, that one of the reasons we began this investigation is because we wanted to work hard to understand the marketplace, to understand how we could work to bring more competition into the marketplace. This has been a bipartisan investigation throughout. But I think, you know, that's why it's important that the American people see the CEOs, who are the decision-makers in these companies, come before the committee and explain and answer some tough questions, so we can complete our investigation. But, you know, there's no question, you look throughout our history, there's a quick translation from...

• 25:53Speaker 00

  Enormous economic power to significant political power. And that's why taking on this issue is so important for all the reasons that have been described in this conversation. We are committed to completing this investigation in the next several months, completing a report so that we have an opportunity in this Congress to introduce some legislation responsive to the absence of competition in the digital marketplace and all of the harms it opposes in terms of privacy, in terms of control over your own data, in terms of consumer choices, in terms of innovation. This has significant implications on our economy, both in the short term and in the long term.

• 26:29Speaker 02

  Let me just add to that real quick, because Congressman, you asked at the hearing that I attended, how much do you spend on lobbying? And we said, we spent zero dollars. I just spoke with a major technology company yesterday who has an office in DC and was telling me about the amounts that the big tech companies are spending on lobbying right now. And he said, do you know what? DC is the happiest it's been in a very long time because everyone is making money right now. The amount of money that's pouring in from big tech into lobbying efforts is just astounding. And this is the thing, we're 56 people, we can't spend millions of dollars every month on lobbying. The only thing we can say is like, hey, we're being shaken down and we need some urgent

• 27:14Speaker 02

  relief. That's the other thing. If Apple kicks us out of the App Store, follows through on their threat tomorrow, what are we gonna do? They're gonna smash our kneecaps and I mean, we may be laying in the hospital watching the TV like months from now that there's gonna be some relief, that's really great, but my kneecaps are still gone, right? So I think that's the other thing where we're really kind of desperate. I said at the hearing, I ended it with like, please, you're our only hope. I mean, we really don't have anywhere to run. We don't have anywhere to go. And this is what just feels so wrong about this and why for me, it's not about economics, it's about the principle of being squeezed into a corner and having nowhere to go.

• 27:49Speaker 00

  You're right, and it is about the economics, but that's why this investigation is so critical. Because there are many, thousands of small businesses all across America that are facing the same kind of bullying, the same kind of gatekeeping from these large technology platforms. And it's the responsibility of Congress to answer those pleas and be sure that we are doing everything we can, both to understand the marketplace, but then to fix it so that there's real competition. So innovators and entrepreneurs like David can be protected and encouraged and grow. And the next great new businesses can be created in this country. We had the field hearing in Colorado, and I think what really struck people from that hearing is they heard for the first time real examples of people that were being bullied

• 28:31Speaker 00

  and ransom being extorted from them as a result of the size of these large technology platforms. And David's right, a lot of people are unwilling to come forward because they're fearful of economic retaliation. I'm grateful for his courage and others who have shared their experiences with our investigation. Because you can understand with the kind of market share and market power that these large platforms have, there's reluctance to come forward because you change one algorithm, you kick one person off your platform, and their business is over. And so this is real, and this is why this investigation is so serious.

• 29:02Nilay Patel?

  So Congressman, I know we're out of time with you. I want to ask you one more question. When we spoke in January, you reminded me that Congress has many powers, but actually breaking up companies is not one of them. And we've already seen Apple kind of move in response to pressure from other regulators, right? They've opened up a little to Spotify. I think Daniel Ek in May said, "I expect these platforms to open up in response to pressure." Do you think there needs to be some affirmative legal remedy from Congress? A new law, a new bill that talks about how platforms work? Or do you think the pressure will be enough?

• 29:34Speaker 00

  Oh, no, I don't think there is any question that the large technology platforms have demonstrated unequivocally that we cannot rely upon them to regulate themselves or fix this problem alone. This will require legislative action. It will require Regulatory action and statutory changes. This is something that Congress has a responsibility to fix. I don't think the platforms, the platforms are motivated by a single objective, to grow and make money. And good for them. I don't fault them for that, but it's our responsibility to be sure that they are doing that in a way consistent with our laws, consistent with our pro-competition policies, consistent with antitrust laws, and not using their market power to bully and exact ransoms

• 30:16Speaker 00

  and rents from folks that hurt consumers, hurt innovation, prevent people from, you know, creating and starting up new businesses. So this, I don't think there's any question that it will require legislative action. The question is going to be, once we complete the report, we come forward with a second set of recommendations, is there enough courage collectively in the Congress of the United States to move forward and actually enact those changes? And I hope there will be.

• 30:43Nilay Patel?

  I have some questions about that, but we'll call you back when your investigation is done and we'll talk to you. Congressman, thank you so much. David, I have a couple more for you if you want to hang on, but Congressman, thank you so much.

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• 31:55Nilay Patel?

  So David, to bring the segment to an end, and obviously now Dieter and Casey. Now it's just us.

• 32:00Speaker 02

  Yeah, we could do two hours. I'm ready.

• 32:01Nilay Patel?

  Well, I don't know if these two have questions, but um.

• 32:03Speaker 05

  Yeah, why do you think I've been sitting here for 30 minutes? Of course we have questions.

• 32:08Nilay Patel?

  Go ahead. All right, all right, Casey, get into it.

• 32:10Speaker 05

  Here was the thing that I was just thinking like the whole time, uh, that I think really speaks to what David is getting at. You know, there was a lot of, we'd heard, we just heard a lot over the past 30 minutes about how scared people are. So, uh, you know, after David and his 56 person company sort of put their asses on the line to talk about what's going on. In the New York Times today, uh, Facebook just sort of lets it be known that it has, uh, had its gaming app rejected from the App Store five times. Now, they didn't do it on the record and I, you know, I don't know officially that it was them, but it's one of those, uh, three people familiar with the situation type of sourcing's.

• 32:44Speaker 02

  Oh, I have some info.

• 32:46Speaker 05

  Well, yeah, what do you know, David?

• 32:47Speaker 02

  So again, I mean, this is all grape wine, so maybe this should be in a second segment from, from sort of the other thing. But what I heard was that Facebook tried very hard to squash the story. They did not want this story out because they too are afraid that there's going to be retaliation from Apple on that account. That that story got out, not with Facebook's blessing at all. And this is exactly the same thing I heard from another of other, maybe not Facebook size, but very large tech companies that I spoke to yesterday. None of them wants a head on fight with Apple.

• 33:16Speaker 05

  Wow.

• 33:17Speaker 02

  Like, there's just, there's not enough there yet. Like, they're all waiting, they're all like on the fence, like when it's safe to go out, we'll come out. But right now it's not safe at all. And I mean, we've just proven that. We've just, I mean, I testified in Congress in January and we get smacked in June and, and Apple seems like, well, that's just business, right? Like, there's nothing to fear, three different investigations, who cares? We could do whatever we want. So do you know what? If I was Facebook, I'd actually also be afraid.

• 33:47Speaker 05

  Well, look, we had the, the incident last year where because of some shady stuff that Facebook was doing, Apple just canceled their enterprise certificates. And Facebook couldn't work for the entire day, right? I mean, it was actually like the most terrifying demonstration of market power I think we've ever seen by like a tech company in, in the modern era.

• 34:06Speaker 02

  We were just talking about this regarding, hey, so right now I think we've had tens of thousands of people download the app. And we were thinking, what actually happens if they kick us out of the App Store? Would they reach into people's phones to delete the apps too? And we were like, I hope not, but didn't that just happen? So, do you know what? I wouldn't put it past Apple. I hope that there's now enough attention on it that they wouldn't do it. But you know what? They've been pretty brazen otherwise. You'd think they could not pick worse timing. You don't pick timing that bad. And double down on it through an app board review. This was not just some staffer who made a mistake and then they went like, oh, actually that was a mistake. No, this was all the way up through the chain in the App Store that said, no, this is right. We're going to do this this week, just before WWDC, just the week the EU announces this

• 34:51Speaker 02

  stuff, none of it is going to matter. We can shoot someone in the middle of Fifth Avenue, no one's going to care.

• 34:56Speaker 06

  Wow. So, maybe this is a gimme, but like, I'm wondering what you think the original sin here is. Is it choosing a high rent, 30%? Is it, you know, setting capricious rules? Or is it simply, is it not allowing apps installed outside the App Store? Or is it just, they got really frickin' big and therefore those other things become problems? And they wouldn't be if Apple wasn't really frickin' big and influential amongst, you know, wealthy tech people who happened to be the first customers for apps?

• 35:28Speaker 02

  I think it's all of the above. And I think the comparison that I like to make is that Apple 2020 is Microsoft 1998. They're at the peak of their power. In fact, they have more power today than Microsoft ever did. When Microsoft had Windows, they weren't kicking people out from making apps. People were afraid that Microsoft was going to move in, they were going to make a competitor app, they were going to make things difficult, they were going to make some defaults. Apple has way more power. They're way bigger than Microsoft were at the time. And you know what? That type of absolute power corrupts absolutely. And that's where we are. I don't think it's because it's a bunch of bad people at Apple. I know lots of people at Apple. Just two months ago, Jason and I, pro bono, gave 200 Apple employees a seminar on remote work.

• 36:14Speaker 02

  We didn't charge them that. We were just, I mean, we're Apple fans. I don't want this fight. I want Apple to just, like, I was gonna say, leave us alone, but that's not enough, because it's not just about us. If they just cut us a little PR deal and we get let in, it doesn't help anyone. They need to fundamentally reform here and stick with their developers. It's about to be WWDC. Nothing could please developers more than if they actually did the due diligence, rolled down some serious reforms, stopped being this gatekeeper, allowed people to distribute their apps without a 30% shakedown. Do you know what? The room would stand up and cheer. And do you know what? Of all companies, Apple can afford it. Microsoft, again, the example, Microsoft reformed. I used to be petrified of Microsoft,

• 36:58Speaker 02

  right? I was around when Microsoft cut off the air supply to Netscape. They were the big menace. What are they today? They're not that at all. We're in the Windows Store with the Hey app. It's in the Windows Store. Did Microsoft ring us up and say like, hey, give us 30% and we're gonna bust your kneecaps? No, they didn't. They sent like, hey, can we help you? Like, can we do something together? I get, they're not a warm, cuddly bear either, right? But they don't have the power that they have in 98.

• 37:23Nilay Patel?

  The Windows Store is just like not a success.

• 37:25Speaker 02

  Yeah, I was gonna say like.

• 37:26Nilay Patel?

  Like, of course.

• 37:27Speaker 02

  They need all the help they can get with the Windows Store.

• 37:29Nilay Patel?

  They were just happy to talk to someone.

• 37:31Speaker 02

  Exactly. And this is what competition brings. When you're not the controlling gatekeeper, you actually have to be a nice person, because otherwise they won't like you. Apple have decided they don't need to be nice anymore. They can just do whatever the hell they want.

• 37:45Speaker 06

  What do you think of the Android ecosystem? Because, you know, you can install third-party apps outside the Google Play Store. Android makes it seem very, very scary, but you could do it. And it seems like the vast majority of people that do that are just pirating apps. So I think.

• 37:57Nilay Patel?

  And that did not work at all for Fortnite, right?

• 37:59Speaker 02

  No. And it's not the solution. I don't actually have a beef with this idea that Apple does some security wedding. But don't tie those two things together. They're bundling everything up in one thing, and they're using security and they're using privacy as a cover for doing all this extortive stuff. I would very much pay to have my app certified. As again I said, they wanna charge me an hourly rate for that? That's fine. Listen. Come on, we've been in business for 20 years. We're not selling malware. We have a long history on the App Store. Apple knows this, right? Like, they're not investing millions into due diligence on every single app out of the millions they have in the App Store, right?

• 38:38Speaker 02

  What we're doing as a small software developer is making Apple more valuable. The iPhone, if you did not have any of the apps on your iPhone that you like to use, would the iPhone have this place? No, it wouldn't. Apple has literally become a trillion-dollar company because millions of app developers made apps for them. And this is how they repay us. We duck their moat. We duck their moat, and they're charging us for the shovels now.

• 39:04Nilay Patel?

  So, you know, I asked the congressman, like, does this need government intervention? And of course, he said yes. What else would he say? But if, you know, Phil Schiller gets up at WWDC next week and says, "We did all the reforms David wanted. Here they all are." Do you still think it needs government intervention?

• 39:20Speaker 02

  Oh, of course they do. Because whatever they're gonna do now, they could choose to not do tomorrow. This is why, as Cecilia was saying, we can't allow them to police themselves because they have demonstrated that they are unwilling to do so. And of course, they're unwilling to do so. How much growth does Apple need to show every quarter to keep Wall Street happy? Quite a lot. What did they just say? "We're gonna pivot to services." Right? So, it's not that hard to connect those two dots and say, like, they're seeing an economic opportunity here. If they could capture 30% of essentially the software world, yeah, that's probably good for a $3 trillion company or a $5 trillion company. That's a nice growth path, right? The economic incentives that are in place, they need laws to constrain them.

• 40:03Speaker 02

  This is why we have antitrust laws in the first place, that we can't expect that everyone is going to play nice. And what I really liked about Congressman Cecilia's comparison here is, this is the railroads. If you make shoes in Chicago and you need to get them to Illinois, and there's only one company that will ship them there, do you know what? You're gonna pay whatever they ask because they have a monopoly. This is why we have all these enforcement, to ensure that there's fair and equal competition. And do you know what? I was actually being modest when we asked what we wanted from Apple. I said, "All we want is the power to put a closed store in the App Store, not rely on your marketing power at all, and then use our own billing." Right? But, you know what? Even that is the sound of a hostage.

• 40:48Speaker 02

  And when I talk to Spotify, for example, what they're asking for is quite a bit more. They're asking for A, the power to use their own billing system, and B, the power to tell customers about it. This is the thing that really gets me. Apple keeps hiding about, "We're just doing what's best for consumers," right? Again, download the Netflix app. Look at that text. Is that what's good for consumers? This really confusing experience? Like, I got tricked by this myself. When I started using Audible on the iPhone, I was like, "The app is broken." I go to a book and like, I can't click anything. How do I get the actual books? It was so confusing. And Apple can't say like, "They're doing this for consumers." No, they're not. They're doing this for their 30% cut. And that's just uncautious.

• 41:32Speaker 05

  The thing that's really interesting to me is some of the reporting we've seen over the past, you know, 24 hours. I think Ben Thompson in his newsletter today said he's heard from 50 companies who say that just within the past couple of months, something has changed. And Ben is saying that this is a concerted effort to drive more revenue out of the App Store and that a thing that used to be okay is no longer okay, and that's not based on any sort of public process. It's just there was some internal communication at Apple, and then all of a sudden, they send the squad out to drop the ban hammer on all these bug fix updates, which, I mean, I have to say, does seem like really thuggish behavior.

• 42:10Speaker 02

  This is what I've heard as well. And this is where I hope, I'm speaking with the Department of Justice Antitrust Division later today, they have the power to subpoena. So I really hope that there's going to be some subpoenas to go out for some internal executive communication. This is how we found the email in 1998 that said, "Let's cut off the air supply," right? This was the cornerstone of the Departments of Justice antitrust into Microsoft back then, that there was a smoking gun in the emails, basically saying, "We're going to kill these, we're going to kill Netscape through our monopoly," right? I would be very surprised if there are not similar smoking guns hiding inside of Apple's email systems.

• 42:48Nilay Patel?

  So David, next week is WWDC. These hearings are coming up.

• 42:54Nilay Patel?

  Maybe not for the consumer audience. For the developer audience that comes to W W C that's trying to build businesses on these platforms, what should they be thinking about? What should they be looking for? And how should they be, I think, participating in this process? Because it's going to affect every software vendor. Everybody who's trying to build a business on a platform. What's your perspective over the next couple of weeks? What do you think people should be paying attention?

• 43:17Speaker 02

  What's interesting here is I got a bunch of D M's saying, this has happened to me. And then I got another set of D M's going, oh, shit, is this going to happen to me? Right? There are a bunch of people this has happened to already. They're pissed. They're terrified. Then there's a much, much larger group of people who are like, well, first they came for these people. When they're done with them, they're going to come for us. Right? Now is the time to speak out. I totally get why it's super scary. But I've also been talking to a bunch of journalists, including some very capable ones at The Verge, who guarantee confidentiality. Right? Talk to them. Speak out.

• 43:56Speaker 02

  I know that the D O J and Congressman Sisalini's offices, they're both very eager to hear from people. This was what was so staggering about the hearing in January, that we thought, well, everyone knows, right? Everyone knows that Apple's a gatekeeper. They're doing all this stuff to shake people down. And we show up in front of Congress and it seemed like Congress didn't know, because no one told them. Right? We have to tell. This is why I'm willing to, I mean, I tweeted sort of hyperbolically, we're going to burn our house down before we pay the ransom. And I just want to make a point of this, that, okay, maybe we're going to be the martyr in this, and maybe Apple's going to drop the hammer tomorrow and they're just going to squash us, kick us out of the app. But if they're allowed to do that, you will be next.

• 44:39Nilay Patel?

  Okay, my friend, I want to make sure we have you back sometime soon to actually talk about products. I think you're more interested in those generally.

• 44:47Speaker 02

  That's what I thought I was going to do this week. This is the other thing. We literally just launched on Monday. I've been sort of working quite diligently for two years to do this. We have such a great launch, I could not imagine a better reception from customers, from the press, and then it's Apple. Apple of all People who decides to piss in our parade, right? Like, why, Apple?

• 45:08Nilay Patel?

  It does seem... Have you talked to Phil Schiller?

• 45:10Speaker 02

  No. I've met a couple of other senior executives. This was the other thing, right? I thought I was in good. I thought that, like, we were not going to be the company that was going to be made an example of. I mean, literally, two months ago, we were telling Apple employees how to work remotely. We weren't charging them consulting fees. We were just like, hey, we're Apple fans. Awesome. You reach out, you want some help? We'll help you. Won't charge your thing. Then I reach out to my contacts from that, right? Like, hey, guys, can you give us a hand? Fucking crickets.

• 45:41Nilay Patel?

  All right. Well, next week is WWDC. I imagine we'll be hearing about this either... Actually, I doubt we'll hear about it during the keynote, but I know it's going to be the back channel of the whole thing. I'm very interested to see how that plays out.

• 45:53Speaker 02

  I'm available for live commentary if...

• 45:56Nilay Patel?

  This live blog is getting crowded, but I'm very curious to see how it plays out. I'm desperate to know your reaction when it's all said and done. So we'll talk to you again soon, and I promise we will one day have you back on to talk about products. David, thank you so much.

• 46:08Speaker 02

  Awesome. Thank you so much.

• 46:12Nilay Patel?

  All right. My thanks to everyone involved. Thanks to David Hanamar Hansen, thanks to Congressman Cicilline, thanks to Casey, thanks to Dieter. That was a great conversation. We realized when we were done with it, it needed to stand alone. So I hope you don't mind having three episodes in the feed this week. We're going to do a more traditional chat show later on. It'll be a little shorter. That's coming out tomorrow, as usual. We love your feedback, and as David was saying, if you're a developer, you want to talk about this stuff, you can reach out to us. You can reach out to Casey. We have all kinds of reporters poking at this, trying to understand what's going on with these policies, with these app stores, with these platforms. We'd love to hear from you. You can also just tweet at me and tell me what you think about the show, I'm at Reckless. But if you're affected by this stuff, we'd love to hear from you, so reach out to us. We'll be back tomorrow with the chat show. We're going to have to do a regular WWDC preview. We'll just mention this stuff on the side.

• 46:57Nilay Patel?

  But we got to talk about ARM, we got to talk about all kinds of stuff. That's going on tomorrow. We'll talk to you soon.