What is the EU's Digital Markets Act and why does it matter for investors?

The Digital Markets Act is EU legislation designed to curb anti-competitive practices by large tech platforms. It forces companies like Google to allow alternative payment systems in their app stores, potentially reducing their commission income whilst creating opportunities for payment processors and app developers to capture more value.

How do app store commission fees work?

Major app stores like Google Play and Apple's App Store typically charge developers around 30% commission on in-app purchases and subscriptions. This means if you buy a £10 subscription through an app, £3 goes to the app store and £7 to the developer. The new EU rules allow developers to bypass these fees by using alternative payment methods.

What does 'walled garden' mean in tech?

A 'walled garden' refers to a closed ecosystem where one company controls all aspects of the user experience. In app stores, this means the platform owner controls payments, app distribution, and takes a cut of all transactions. The EU's new rules are breaking down these walls to create more competition.

Could these changes spread beyond Europe?

Yes, regulatory changes often start in one region and spread globally. The EU has been a leader in tech regulation, and similar rules could emerge in other markets. This makes the current shift potentially more significant than just a European phenomenon.

What types of companies benefit from more open app ecosystems?

Several types of companies stand to benefit: payment processors who can handle transactions previously controlled by app stores, fintech firms offering alternative payment solutions, and app developers (especially in gaming, streaming, and social networking) who can reduce their commission costs and improve profit margins.

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Beyond The App Store: Europe's New Rules

Following regulatory pressure from the European Union, Google has revised its Play Store rules to permit alternative payment systems. This change creates a new investment opportunity in companies poised to benefit from a more open mobile app ecosystem.

Han Tan | Market Analyst

Updated 2 days ago | Published at August 20