What do Amazon Prime, Google Maps, and the iPhone App Store have in common? They all rely on a process called “self-preferencing,” which is when a commercial platform favors its products. Few customers would think twice about this practice as it is widely used across industries and benefits consumers. For example, virtually every major retailer sells lower-cost products using its own store brands.
However, some politicians and business competitors beg to differ as shown by the recently re-introduced American Innovation and Choice Online Act (AICOA), which would hamper American tech innovation and take away valuable digital tools from consumers and small businesses alike.
AICOA would prohibit online platforms with a market capitalization of over $550 billion from self-preferencing their products. A consequence of prohibiting “preferencing” would directly impact popular services like Amazon Prime and app store pre-installments, which rely on preferencing to ensure quality assurance. When a marketplace can preference goods, consumers and other businesses benefit as high-quality services are distinguished from the pack.
Many small businesses operating on Amazon have opposed the bill because it may prevent the company from rewarding high-quality products and great customer service. Small businesses are also affected by the restriction of services allowing consumers to interact with and be exposed to their branding. AICOA would competitively harm small businesses by targeting technologies like Prime that expose consumers to small businesses with competitive services (i.e., prime shipping), as well as limiting the ability of small businesses to use such technologies to promote their products.
For app developers, the removal of self-preferencing could end the pre-installment of this critical marketplace. The removal of Apple’s App Store from iPhones, and the equivalent stores on other devices, would create needless barriers between smartphone users and app developers. A potential for multiple app stores on one device also runs the risk of removing network effects, as app customers are split between marketplaces. Developers used to working through Apple’s App Store will need to increase development costs to operate in other marketplaces while reaching fewer customers. Higher investment costs and lower returns mean prices for consumers would likely increase.
Even when developers can produce quality applications, the device they operate on may find it harder to integrate them. The developer tools used to create device applications require active management and constant updates, something that cannot be guaranteed by third-party app stores. No one knows the iPhone’s operability better than Apple; thus, quality assurance can be easily maintained on the App Store. Without that quality assurance, innovation could suffer as development is slowed due to operability issues.
When looking at businesses that have publicly supported the legislation, it is clear that the consumer is not a primary concern. Since the bill would only apply to companies with a market capitalization over $550 billion, many large companies that didn’t make the “Big Tech” cut have issued statements of support. It’s clear from these statements that many of these firms see the AICOA as hurting competitors to benefit themselves, not consumers. The government should not be in the business of picking winners and losers at the expense of the consumer.
Small businesses and consumers value services that large tech companies provide, but policymakers supporting the AICOA are jeopardizing these services. When push comes to shove, services small developers rely on are on the cutting block. A policy that aims to satisfy ill-focused concerns by prohibiting high-value goods will ultimately backfire as voters see innovation stagnate and prices on applications go up.
Isaac Schick is a policy analyst at the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.