Meta Platforms Is Suddenly Trying to Enter 1 of the Most Valuable Duopolies on the Planet

There’s an economy worth trillions of dollars worldwide that most of us interact with every single day: mobile apps. And according to Business of Apps, 95% of this valuable app economy is controlled by just two companies (excluding the app economy in China): Apple (AAPL 2.31%) and Alphabet (GOOG 0.80%) (GOOGL 0.50%). 

But fellow tech giant Meta Platforms (META 1.94%) sees a golden opportunity to break up this duopoly. And it’s working toward this goal right now.

It may take a couple of years before any profound impacts are felt. But companies are jostling for position in this important space now, thanks to some recent changes in the European Union.

Why is Meta making a move now?

In October, the E.U. published two new pieces of legislation: the Digital Services Act and the Digital Markets Act. And with these new pieces of legislation, Apple and Alphabet may not be able to funnel mobile users toward its native app stores like it’s done in the past. Users may find it increasingly simple to use alternative app stores or simply bypass stores altogether by downloading an app directly from an ad.

As reported by The Verge, Meta Platforms plans to experiment with some app developers on its Facebook platform later this year. The experiment will be on devices powered by the Android operating system, which is connected to Alphabet’s Google Play Store. Developers can run ads on Facebook to allow downloads with a single click — consumers won’t be redirected to the Google Play Store. 

Meta’s upcoming experiment is a new development in this story. But the story already started with Microsoft (MSFT 1.64%) earlier this year. In March, the head of Microsoft Gaming, Phil Spencer, referenced the E.U.’s new legislation, saying that the company intends to launch a mobile app store for video games.

Just how valuable is this space?

If Microsoft’s video game app store idea sounds familiar, it might be because Fortnite’s Epic Games tried to get around parts of Apple’s App Store in 2020. The video game developer was tired of giving up a large percentage of its revenue to Apple when users made in-app purchases. Therefore, it offered its in-game currency at a cheaper price on its website, which got Fortnite kicked off the App Store.

For perspective, Apple’s take rate — what it keeps on transactions in the App Store — can reach 30%. This is a quality, high-margin revenue stream. Consider that Apple now manages 975 million paid subscriptions, taking a cut from each. Simply put, this is a lot of money up for grabs, and it’s not surprising that Microsoft and Meta Platforms want to break up the current duopoly. 

Circling back for a moment, Meta Platforms says that it doesn’t intend to make money from its new app download experiment. But I don’t believe the company has charitable long-term plans — Meta Platforms absolutely wants to make money from apps.

For evidence, when Meta Platforms was emphasizing the build-out of its metaverse platform, it was reportedly looking to take a 47.5% cut of digital-asset sales, which is way more than the hefty fees charged by Apple and Alphabet in their app stores. Therefore, one would expect an app store from Meta to eventually have a take rate comparable to its rivals. 

Apple and Epic Games eventually went to court in the U.S., with Apple walking away mostly victorious. However, the E.U. is an entirely different market, and different rules apply. And in the E.U., it seems that Apple’s and Alphabet’s hold on the app economy is about to get weaker because of the Digital Services Act and the Digital Markets Act, allowing for the rise of alternative app stores and alternative payment methods.

Companies will need to be compliant with the E.U.’s new legislation by March 2024.

Why is Meta experimenting only with Android?

Meta Platforms is only experimenting with Android right now, and it may be because Android already allows some alternative app downloads on its platform. Alphabet has a partnership with a small-cap stock called Digital Turbine. And Digital Turbine’s flagship software is SingleTap, a product that allows for app downloads directly from an ad with one click — there’s no redirection to the Google Play Store. 

The Verge report doesn’t mention Digital Turbine when talking about Meta Platforms’ upcoming download experiment. But it wouldn’t be surprising if there was a connection.

Keep an eye on the horizon

This is a big market that will potentially be disrupted by some of the biggest tech companies in the world. However, investors today really don’t know how any of this will shake out. 

Most consumers aren’t aware of the take rates for Apple or Alphabet because it’s not an issue that impacts them directly. So it’s unclear whether users even want alternatives for app downloads or in-app payments. In the end, old consumer habits may die hard.

Therefore, we know that there are changes coming in the E.U. market for the app economy. But it will take time for investors to discern what the financial ramifications will be.