The Future of App Stores: Regulation, Innovation & Competition in the App Economy

In an industry where rapid change is already the norm, new regulations from the European Commission are set to reshape the app economy yet again. ‘The EU’s Digital Markets Act (DMA) includes a number of requirements for mobile app stores that aim to promote competition and fairness in the mobile app industry’, explains Jennifer Schenker, Founder & Editor-In-Chief of The Innovator. Apple has responded with updated policies and fee structures for developers, and Google Play is also adjusting its strategy and playbook, but these major firms are still in discussion with the EC about appropriate compliance measures. Meanwhile, AI is already making an impact on this evolving landscape. The state of play is in flux, and the future of app stores is on the horizon.

The current state of app store competition

Historically, the app store economy has been shaped by two big players. According to Paulo Trezentos, CEO of alternative app store Aptoide: ‘Google and Apple protect their own app stores, which is a huge source of revenue – they earn $90 billion a year in these markets, outside China.’

These tech giants have created vast mobile ecosystems that have implications for user experience and developer revenue. For his part, Paulo sees the DMA as a potential levelling force and a sign of things to come, as regulators in Japan, India and the U.K. also consider how best to open up ecosystems to encourage more competition in the app economy.

Ben McOwen Wilson who is the Managing Director of Google Play in EMEA, reminded us that Google is an open ecosystem. Indeed, Android has always allowed third-party app distribution channels, such as third-party app stores, sideloading, pre-installation and progressive web apps, to be available for free within its ecosystem. ‘Over 80% of Android devices today have at least one app that’s been downloaded from outside of the [Google] Play store, and over two thirds of Android’s phones have actually got at least one other app store alongside the Play store’, Ben says.

One such third-party platform on Android is Aptoide, an app store that started in 2009. The company works with 100,000 developers and sees one billion downloads a year and around five million transactions, according to Paulo. Still, this represents a relatively fractional market share. ‘Between independent app stores like Aptoide or One store in South Korea, OEM [Original Equipment Manufacturer] stores like OPPO, Vivo, Samsung – [they] get around 3% to 5% in some geographies. In South Korea, for instance, it goes up to 20%, but that’s an exception’, says Paulo.

Speaking specifically about Android, Ben mentioned that third-party app stores  get 30–40% of the total spend in some of their markets in Southeast Asia. 

In these markets where competition is stronger, Ben believes that Google knows how and why their challengers are proving successful. ‘We’re being outcompeted on forms of payment’, he says. ‘You see that less often in a market like the EEA (European Economic Area) where most people will have a credit card or PayPal or something that’s relatively easy to process, but in markets where cash to electronic value is a big part of that space, Google has been less rapid at recognising that, and our market share suffers as a result.’

The DMA: regulation that’s redefining the rules of engagement

The DMA was signed into law in November 2022 and has only been applicable since May 2023, leading to plenty of uncharted territory for firms to navigate. Since the new regulations have come into effect, firms identified as ‘gatekeepers’, including Alphabet (Google’s parent company), Apple, Meta and Amazon, have submitted proposals to the European Commission to outline their compliance plans. When it comes to app stores, the proposals address four major areas outlined in the DMA: alternative billing solutions, sideloading apps, third-party app stores, and external offers.

Because its app ecosystem is already relatively open, Google is starting from a different position than Apple. Its proposed measures aim to give developers greater choices – for example, a wider range of billing and payment solutions – and to better service the process for sideloading apps, such as by reducing friction and allowing automatic updates for sideloaded apps.

Overall, Ben sees these changes positively:

‘All of that will continue to push a new level of openness in the app environment. And critically, […] both halves of the mobile ecosystem [are] opening up simultaneously, which I think really is the game changer.’ – Ben McOwen Wilson

How gatekeepers are responding to the DMA

However, although it may seem inevitable that app ecosystems will become more open, the response from the major players has been different. ‘The stance of the different gatekeepers is revealed in terms of where they are in their current discussions with the EC’, observes Ben. The European Commission has signalled that it may fine Apple or pursue legal action for non-compliance. That said, the company has recently made some significant steps that have opened up a competitive opportunity for Aptoide. ‘We were able to launch the first commercial app store for iPhone in Europe’, Paulo says. ‘It was a great achievement for us and we are thankful also to Apple, because it’s not easy internally to open such a valuable market.’

In Google’s case, external offers – allowing apps to redirect users to complete transactions off-store – has been a persistent point of contention, although Ben hopes that they can find ways to collaborate successfully with the EC in this area. He explains: ‘The external offers component of the DMA requires that we facilitate those connections [to transact off-store] much more easily.’ It also requires that app stores only charge users an initial acquisition fee and, optionally, an ongoing services fee. Developers decide for themselves whether to charge ongoing services fees for their apps, so this external offers provision leaves app store operators like Google with fewer revenue-generating levers to pull. ‘What the EC has done is force us to break out the bundle of services that we had previously offered to partners, and we will need to compete on each of those elements individually’, Ben says. ‘We now need to be really clear on what our point of difference is versus the rest of the market.’ Paulo agrees:

‘The mobile market is completely in disruption, because these ecosystems will enable new ways of distributing apps and games, of building [and] establishing direct connection with the users and consumers.’ – Paulo Trezentos

While generally positive about the DMA and the EC’s work, Paulo acknowledges that the regulations may need adjustments. He cautions: ‘Sometimes changes create so much friction, so much blockage to the users, that actually the business cases cannot be implemented [as intended].’

The (successful) app stores of the future

With the landscape changing constantly, it’s not easy to pin down a vision of the future of app stores. What’s certain for Paulo is that experimentation and innovation require resources. ‘Innovation comes with a budget for research, otherwise it’s hard. And to have a budget for research, you need to have business’, he thinks. 

As proven concepts emerge, however, the drive to scale is strong. ‘We’ve actually begun rolling out the alternative billing solution that was originally developed for the EC in multiple other markets’, Ben shares. Google Play has found that expanded choice in billing has increased the total volume of transactions. ‘We’re now in almost 70 markets globally, […] with that solution’, he adds. This approach has also benefited their app store, as Ben notes: ‘We only grow if our partner’s revenue and their business grows.’

Both Paulo and Ben foresee a more varied app store landscape in the future, with specific verticals emerging for industries like streaming or video gaming, and for devices such as cars or TVs. ‘I think we’ll see a much more exciting market’, says Ben, adding: ‘[With] some of the apps both on TV and on auto, you suddenly realise that the experience that you’d previously had on a mobile phone was so suboptimal. When you see Google Maps in a car, you realise that was the screen and the form factor it was designed for.’ As app ecosystems become more porous and developers less limited, we may see a rise in innovative, device-specific apps.

Paulo also points out the opportunities for companies to explore new verticals and business cases, such as Aptoide’s partnerships with US mobile carriers to provide a curated game-focused environment. In his view, the specifics remain difficult to predict. ‘There are business cases that we can envision that benefit from having an app distribution strategy, and there are others that we cannot envision [but] will happen, because that’s innovation. When you have some regulation disruption or technology disruption, the business cases just appear’, he thinks. ‘The important part is just to explore the business cases that can deliver value.’

Trust and safety: do fewer options equal more security?

As a piece of antitrust legislation, the DMA is in part intended to protect and benefit consumers. ‘There’s probably not a device that any of us owns that feels more personal than our mobile phone’, acknowledges Ben.

‘Protecting users’ experiences and protecting them from potentially bad actors is central.’ – Ben McOwen Wilson

He notes that Apple has historically emphasised safety to justify their more closed ecosystem; this now necessitates careful messaging to their users as the landscape opens up.

With changes coming in several different areas, messaging to users and developers will be key for all players. ‘[It’s] all underpinned by a trust on both sides that we have spent many years building up’, says Ben. For app stores to continue to succeed, their participants need to trust in the security framework and the user experience, for example, in search and discovery. As one Platform Leaders participant commented during this panel discussion with Paulo and Ben, ‘I need to be able to trust the recommended apps, especially under direct search. If I get presented with less relevant alternatives, it seems like paid promotion, which goes directly against my interests as a user.’ And if a user chooses to sideload an app or download from a third-party app store, it’s vital that they can trust it to be secure.

‘Safety is one of the most important variables for a mobile user’, Paulo agrees, but he also believes that restricting options doesn’t guarantee safety. Instead, he advocates for fostering collaboration among various players in and adjacent to the app economy to ensure user security. Paulo asserts:

‘There is the possibility of collaborating to establish that we can have choice and safety at the same time.’

– Paulo Trezentos

Embracing AI and driving innovation

The DMA may already be in force, but generative AI is on everyone’s lips, promising to revolutionise entire industries. It’s sure to significantly impact the app economy and the app stores of the future, reshaping how apps are developed, distributed, and experienced.

Ben highlights one concept that Google is currently working on: the potential for AI to enhance app usability by determining when and how to surface information without users needing to open the app. He explains: ‘[Your phone’s] probably got 100 to 150 apps that you’ve installed, of which you probably make regular use of 10 to 20.’ AI might help by understanding when and where particular information could be surfaced from an app to a user, unprompted. ‘[When] your phone says it is the end of the day, or as you switch from being on a mobile network to your home wifi, are there different apps that should be surfacing their content to you to plan what you’re cooking for dinner or what you’re going to watch for the evening?’ Ben asks. However, he also notes that this potential is rife with unique opportunities and challenges. On one hand, an AI assistant that has been unleashed to navigate, collate and surface information from anywhere online could provide fantastic value. On the other hand, there could be safety or reliability concerns if assistants pull information from unknown external sources, like apps that a user hasn’t installed on their device. 

At the highest level, Paulo predicts that AI will add value in four key areas: safety, app store interfaces, search and discovery, and user acquisition for developers. He believes that many more interesting breakthroughs are ahead, driven by regulatory changes and technological innovation like AI.

Explore further

This panel with Ben McOwen Wilson, Paulo Trezentos, and Jennifer Schenker was part of the Platform Leaders online event on 11th July 2024 (full list of speakers and agenda), organised by Launchworks & Co. To watch the full event, you play the video below.

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