DMA for Dummies with Stash and Deconstructor of Fun

The Digital Markets Act (DMA) is one of the most unprecedented pieces of legislation in gaming today. Looking to learn more about what it really means, Michail Katkoff invited Stash Head of Product Archie on the Deconstructor of Fun podcast. Together they break down the implications of these new regulations - for developers, publishers, and the entire mobile gaming industry. 

Tune in below or keep reading for highlights from the episode. 

Why are we talking about the DMA? 

3:21 - “We’ve seen a massive shift in government policy and big tech, manifesting in various ways across different countries. Governments in the EU, China, South Korea, Japan, and even the US have been looking at how digital markets operate and recognizing unfair practices. Game developers are not surprised by this because they've always experienced a tightly controlled distribution landscape.”

4:01 - “The Digital Markets Act (DMA) is a piece of legislation in Europe that came into enforcement on March 7th, 2024. It is designed to regulate core platform services like app stores and ensure they operate in a way that promotes competition.”

7:02 - “The DMA’s framework is a massive divergence from that way of thinking about competition policy. It looks at competition as an inherent good in and of itself and does a couple of things to address that. For example, it designates certain core platform services as fundamental infrastructure of the internet type entities, App Store distribution for example, and it places obligations on gatekeepers to demonstrate fair, reasonable, and non-discriminatory policies. It designated Apple and Google as gatekeepers both in their operating systems and app store distribution payments. The gatekeepers then have the legal obligation to prove that they’re complying with these obligations, which is very different from how you think legal cases work.” 

What Apple has to say

10:59 - Apple’s response was to say, ‘Alright, we’ll give developers a choice.’ So they introduced alternative terms: you can elect into these terms where there’s a 20% commission versus 30% on the App Store, and no commission for downloads outside of the app store, plus a runtime fee of 50 cents per install beginning on the millionth install via the App Store, but starting on the first install outside of the app store.”

11:55 - “Apple’s new model is actually not that bad for a lot of games, and games are maybe the category where these economic terms make sense. Think about it this way: if your game is making more than $5 per user per year, you actually start saving money by switching to the alternative terms, even if you only distribute on the App Store.” 

Will developers make the switch?

13:09 - “I think you’ll see a lot of core games, strategy games, and casino games make the switch. This shift changes how mobile studios think about their operating model because now there’s a disincentive to get large, top-of-funnel installs. This is the opposite of how everyone responded to IDFA, where the focus was on bringing everyone in and then finding your users. Now, you have to figure out who to bring in since you’ll pay 50 cents per install. This will likely require adjustments in how mobile studios operate.”

The rise of antitrust movements 

14:50 - “Regulating digital markets needs to be approached differently than in the past. The last significant antitrust case in technology was Microsoft’s browser wars in the 1990s, which was the only major case in the last 40 years. Digital markets are key because they determine how services are distributed through the internet. Unlike physical markets, where governments have a strong say in how prices are charged for shipping goods, digital markets are privately owned by companies like Apple, Google, and Microsoft. The goal is to enhance competition and innovation in these digital markets.”

16:27 - “So if you’re in the EU, you look at Google and Apple and think, ‘These guys don’t pay any taxes here, and they don’t contribute much to our economy.’ They might have some operations in Ireland, but their overall impact is minimal. This is why you’ve seen aggressive actions from global actors. For example, new legislation in the UK, Australia, Brazil, South Korea, and Japan. Since these are American companies, it’s politically tougher to pass legislation against them in the US. However, American antitrust policy has transformed over the last four years. A new wave of antitrust thinkers has taken office, and they are using the courts to make significant changes.”

Where the industry stands

20:51 - “The prevailing belief has been that as long as consolidation benefits consumers, usually through lower prices, it’s a good thing. This mindset has essentially weakened any government regulation of antitrust because almost every merger can be argued to offer short-term pricing benefits for consumers. The emphasis on short-term benefits is crucial. While economies of scale are advantageous, monopolistic market power allows companies to block competition and start skimming profits. This is somewhat where we are now, recognizing that while the App Store ecosystem has many benefits, it also has significant drawbacks.”

21:30 - “At the same time, it has led to aggressive pricing and a lack of innovation. A good parallel is Steam versus the app stores. Take Baldur’s Gate 3, for example. It was a hugely ambitious game, largely financed through early access revenues. Steam was initially reluctant to adopt early access as they had a much more curated approach to the content they allowed on the platform. That was until Itch.io popped up in the early 2010s and was a competitive threat with its indie distribution model. Steam reluctantly launched its early access program to compete. And then you get all of these indie developers making amazing games because they can finance them through early access. Who benefits most from that? Steam. Steam ends up benefiting massively from a game like Baldur’s Gate 3. This is a clear illustration of the benefits that arise from a competitive market.”

32:16 - “We are seeing a different level of government involvement here, and they’re really not bending. The EU has signaled that it’s going to be aggressively enforcing the DMA. In the US, Apple is the subject of the biggest tech antitrust lawsuit since the 1990s. Even the judge in the Epic case seems very much on the side of Epic.”

The state of link-outs in the US

23:45 - “In the EU, you’ve got the DMA, in the US you’ve probably heard about Epic suing Apple and Google. While Epic lost most of the Apple case, it did win on one count regarding out-of-app payments. Additionally, Epic won an unprecedented ruling against Google, winning all the counts in that case. As a result, Apple now has to allow for link-outs. One of the areas where we’ve seen the most progress is web shops. There are several ways to monetize your app without using Apple’s payment services, and web shops have become increasingly popular. The link-out policy has been a key enabler of this trend.”

The impact of direct-to-consumer

24:54 - “In the last three to four years, there has been a rise in charging for in-app goods outside of the app environment. For example, Playtika has built a $660 million revenue stream by charging for in-game items via web shops. Scopely has done this too. Similarly, companies like Spotify and Netflix are parallels here where a lot of the engagement happens in the app, but you still need to get users to buy outside of the app.” 

Sideloading and third-party apps

27:06 - “One is about where you’re buying things, and the other is about how you’re distributing and getting your apps. I think of it in three parts: how you pay for things in the app, how you pay for things used in the app but purchased outside the app, and how you access or download the app. On Google, you've been in theory able to download things from non Play Store stores forever. On Apple, you’ve never been allowed to download apps officially except through the App Store…

Sideloading is downloading applications outside an app store, either directly from a developer’s website, like on a PC or Mac, or through an alternative app store that you sideload. If you distribute outside of the app store, you avoid paying commissions linked to app store distribution services. Sideloading will be interesting to watch. Apple and Google have put up user experience blockers making sideloading harder, but its potential impact on app distribution is huge.”

Anti-steering

28:41 - “There’s another very important set of policies called anti-steering policies. They prevent you from directing users to alternative payment or install methods within an app distributed by Apple. If you have an app on the App Store, you face significant restrictions on informing users about or linking them to any competitive services or payment options. This means you cannot direct users from within an Apple-distributed app to a web shop or alternative download channel.” 

30:48 - “Anti-steering policies are by far the most vulnerable part of the ‘status quo’ App Store policies when it comes to government action. It’s clearly anti-competitive to say you’re not allowed to tell your users about a competitive service, and this is exactly how Epic won its case against Apple.”

So who are external stores good for?

37:04 - “Right now, Apple and Google are the only ones who can viably do this right now. They have the ability to experiment and take risks, and they’re also able to pay the core technology fees. So right now it’s not really viable for startups to be massively innovative in their distribution model, and that’s just because it’s just expensive.” 

37:58 - “The most excitement should be coming from existing games with large amounts of revenue where you don’t have any other initiatives that could boost your margin by 15-20%. If you’re an at-scale midcore game that's not really growing, shifting half of your spend to a 3% cost channel instead of a 30% cost channel is huge.” 

The future of alternative payment methods 

44:10 - “All of the regulatory changes are great. They are causing Apple and Google to exercise more caution in how they deal with developers. Whereas before they might have been more heavy-handed with banning apps or blocking them through reviews, but now they’ll be more careful. I think this category will continue to grow because of non-regulatory factors like technology, HTML5 distribution, and cross-platform capabilities. These have been the biggest drivers of alternative payment revenues. The regulatory developments will also continue in ways that are favorable for developers.”