In the battle for smartphone dominance, Google could soon gain an advantage over Apple from an unlikely source: a new European law.
Starting this week, the world’s largest technology companies have to comply with the European Union’s Digital Markets Act, a sweeping new law aimed at boosting competition from smaller companies in the realms of digital advertising, online search and app ecosystems.
In the near term, one of its biggest impacts could be in the rivalry between Apple and Google.
The new law is pushing Apple to open up certain parts of its app ecosystem in the EU, allowing third-party app stores for the first time and offering alternative in-app payment services on iPhones across the bloc. Apple had lobbied heavily against the moves, which reshape a part of its business that brings in billions of dollars in revenue.
By contrast, Google lobbied in favor of mandating a more open approach to how apps are downloaded. The Alphabet unit already allows outside app stores on its Android mobile operating system and could seek to take advantage of other provisions in the law to win more users for its Chrome browser on Apple devices.
The new law “strikes closer to the heart of Apple’s philosophy, approach to security and its business model,” said Zach Meyers, an assistant director with the Center for European Reform, a think tank. “Unlike Google, there is not much obvious upside or opportunities for Apple.”
Apple declined to comment on how the changes—which for both companies apply only in Europe—would affect competition with Google. The company has previously said that its integrated app ecosystem ensures users’ security and privacy, and that the legislation is forcing changes to those protections.
A Google spokesman said the company has “always believed in offering people and businesses choice and competing on the merits of our services.” In a blog post, Google called for “consistent interpretation and enforcement of these new rules across all the designated companies.”
It isn’t unusual for companies to make arguments to European regulators that would hurt their rivals. EU legislators, for their part, say they weren’t trying to pick winners with the new law, and that the rules are meant to be neutral.
Under the law, companies could face fines of up to 10% of global annual revenue if they are found to be in violation of the rules, or 20% in case of repeated violations.
The rules, which take effect late Thursday, come days after the bloc issued its first-ever antitrust fine against Apple. The European Commission, the EU’s executive arm, on Monday fined the company $2 billion, saying it violated existing antitrust rules by restricting app developers from telling users about alternative ways to subscribe to music-streaming services. Apple said it would appeal the decision and that the commission failed to uncover “any credible evidence of consumer harm.”
The new law addresses the same behavior Apple was fined for but applies more broadly to cover all apps, not just music-streaming apps, and also requires Apple to allow alternative payment systems within apps. The commission has said the law is meant to complement its traditional antitrust enforcement tools and the fine issued this week deals with Apple’s past and current behavior.
Google has for years been at odds with EU regulators over competition issues. The bloc has fined the company a total of almost $9 billion in three antitrust decisions and is considering whether to pursue a breakup of the company’s advertising technology business.
Still, Google has leaned into at least some of the new law’s changes. Before the law’s passage last year, the company lobbied EU officials to include the requirement to allow apps to be downloaded outside of a device’s main app store, according to people familiar with the matter.
The inclusion of the provision in the new law could theoretically allow Google to make its own app store for iOS devices in the EU. The company declined to comment on whether it would.
Google has also advocated for all companies to implement so-called choice screens, which give users the option to easily select different default software on their devices.
The implementation of choice screens under the new EU law could help Google’s Chrome browser gain market share on iPhones, which are dominated by Apple’s Safari browser, and in turn drive greater use of its services.
And Google moved early to allow developers to use alternative payment systems in its apps across Europe and other regions.
The law does present potential challenges for Google. While the company has the opportunity to gain market share for its services on Apple devices, rivals have the same chance to gain more of a foothold on Android devices.
Google is also changing search results in the EU to give more prominence to competing listings for products and services, such as flights, hotels and restaurants—changes that will be visible to users and could cut into revenue from ads from those businesses.
For Apple, though, the changes take aim at a core part of its business. The combination of its iOS mobile operating system and its associated App Store—the only way to install apps on its devices—has proven lucrative for the company. The App Store accounts for a big chunk of Apple’s $85 billion in annual services revenue, analysts say.
The company has long said the tight integration of its app store and operating system with its devices makes iPhones more secure and usable. Loosening those ties in the EU could threaten what the company considers a main differentiator when marketing its cash-cow iPhones.
While the new law means Apple has to allow apps to be downloaded outside of the App Store in Europe, some developers have criticized the new fees and restrictions the company plans to levy on developers who opt to use outside stores. Those new terms would result in worse terms for them than existing rules, developers say.
Some antitrust lawyers have said Apple’s position may lead to conflicts with the EU under the new law.
Apple says fees and restrictions are needed to maintain a high level of security on its devices, and that 99% of developers of iOS-compatible apps in the EU would have to pay Apple the same or lower fees under the new rules. It also said this week that it had tweaked its plan to give developers more flexibility when signing up for the new terms.
On Wednesday, Epic Games complained that Apple had effectively blocked the company’s plan to create its own app store and return to iPhones, nearly four years after Apple banned the Fortnite creator for circumventing the smartphone maker’s in-app payment system.
Apple said Epic’s previous violation of its developer rules give it the contractual right to block the company again, citing a U.S. federal court decision in 2021. “In light of Epic’s past and ongoing behavior, Apple chose to exercise that right,” it said.
Write to Sam Schechner at Sam.Schechner@wsj.com and Kim Mackrael at kim.mackrael@wsj.com
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