Mobile Apps: Redefining the Virtual California Economy and the Laws That Govern it
| Publication year | 2015 |
| Author | By Alexandra McDonald, Jason McDonell, and Caroline Mitchell |
By Alexandra McDonald, Jason McDonell, and Caroline Mitchell1
As the virtual world integrates seamlessly into our everyday lives, mobile applications ("apps") have become a hub of both social and commercial activity. As a result, they have drawn increasing attention from courts and regulators. In California's Silicon Valley driven economy, savvy businesses closely monitor their apps portfolios, making sure they have the legal protections necessary to optimize their value, while also guarding against the legal and regulatory pitfalls that could plunge them into high profile and costly disputes. This article reviews the rapid rise of apps in the economy and the legal issues that companies using apps to drive their business need to manage.
The recent proliferation of mobile apps has rapidly changed the way consumers interact with businesses, and there are no signs that these changes will slow down. According to Statista. com, the global mobile app industry has grown from an $8 billion a year market in 2011, to a $45 billion market in 2015.2 Statista.com projects that the industry will generate $76 billion, with an estimated 268 billion downloads, in 2017.3 Mobile device sales and use are staggering: as of 2014, 91% percent of the U.S. adult population owned a cell phone, and 61% percent of those owned a smartphone.4 Mobile devices now outsell personal computers by double and by 2016, mobile devices in use worldwide will exceed the number of people on the planet, with each person owning approximately 1.4 devices.5 Similarly, mobile app availability and consumer use are on the rise. At the end of 2013, 57% of U.S. mobile users said they use their apps daily and, on average, mobile device owners each use 26.8 apps collectively for more than 30 hours per month, with users age 25 to 34 logging even more time on their apps.6
On any given day, the average mobile user could use an app to make a credit card payment, get a ride with a private driver, share photos on social media, chat with a potential date, purchase extra lives in their favorite game, sublet an apartment, track the number of steps taken throughout the day, trade stock, video chat with a doctor, and have dry cleaning delivered. It's no wonder we are used to hearing the catchphrase: "There's an app for that." Among the apps with the most usage by mobile app audiences are: Facebook, reaching 74% of users per month; Google Play, Google Search, and YouTube, reaching around 50%; and Pandora, Google Mail and Maps, Instagram, and Twitter, reaching roughly 30 to 45% of user per month.7 Notably, as of mid-2014, there were 399 million Facebook users who accessed the site exclusively through a mobile device.8 In terms of availability on Apple's App Store, games account for over 20% of available apps, with education, business, entertainment, and lifestyle apps following.9
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California is at the epicenter of this revolution in how consumers use mobile devices and the economic and legal issues that come with it. As of July 2015, the California-based Google Play Store and Apple App Store had 1.6 million and 1.5 million apps available for download, respectively.10 Google and Apple each offer about twice as many apps as Amazon, Windows, and BlackBerry combined.11
While most apps are offered at little or no cost, they are able to generate tremendous amounts of revenue. They do so in five ways: by charging to download the app; by promoting advertisements; by offering in-app purchases; by completing purchases of out-of-app goods and services; and by selling the user data they collect. "In-app purchases" or IAPs are purchases of a virtual good delivered within an app—like virtual coins in the Bejeweled app or a Kindle e-book delivered via the Kindle app to your iPhone.12 This is in contrast to a purchase of a tangible good or service external to an app, like a pair of shoes purchased within the Nike app or an Uber ride.13 The majority of apps in which IAPs take place are initially free to download but allow access to premium content at a price, earning these apps the moniker "freemium."14 But don't let the word "free" fool you: in 2012, global revenue from mobile IAPs was $2.11 billion, with future growth projected at $14 billion for 2015 and $35 billion for 2017.15 IAPs—the majority of which take place in games—also generated ten times more revenue than advertising for games and substantially more than pre-paid games (meaning those games that a user pays to download on a mobile device or game console).16
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But free and low cost apps do more than generate enormous revenue: the data they collect and store is, by itself, extremely valuable—generating an estimated $5.5 billion in revenue in 2013.17 The ubiquitous availability and use of mobile apps has resulted in an unprecedented collection of rich, inter-connected consumer data. The emergence of the term "big data" refers to the omnipresent tracking of every digital process we undertake and apps play an essential role in this process.18 Apps can access a mobile-device-user's contacts, text messages, photos and videos, credit card information, and even facial features. They can then combine user data with the mobile device's unique ID, wireless signals, and geolocation history to create a down-to-the-minute profile of any user, whether or not an app is open or in use.19
The app provider or distributor can then sell this layered and complex profile to third-party researchers and even companies and advertisers trying to target consumers. For example, Verizon's "Precision Market Insights"20 collects and sells statistical data about the activities of mobile phone users in locations like malls, stadiums, and near billboards; Air Sage uses wireless signals from mobile phones to track consumer habits, such as movements of California commuters;21 and Sprint, among many other companies, collects and sells aggregated and anonymized data of its mobile users for market research purposes.22 As every detail of our lives become linked to Internet-connected devices and associated apps—from smartphones and fitness trackers to interconnected thermostats and self-driving cars—the data this "Internet of Things" will supply will become more and more valuable.23
With this new app-economy and the proliferation of "big data" come an array of legal issues, as the law tries to catch up with the new realities in the marketplace. Existing legal doctrines and regulations are just beginning to address these issues, which include consumer rights, contractual relationships, privacy, data protection, and regulated industries. As a result, the legal landscape related to apps is changing rapidly, and will continue to evolve as app use and the data generated from it grow exponentially.
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The mobile app ecosystem includes providers of hardware, software, and services. Mobile devices are manufactured by original equipment manufacturers (OEMs) such as Apple or Samsung. Content providers, like Facebook, create the apps using software development kits and related tools licensed from the owners of the major mobile operating systems (e.g. Apple's iOS, Google's Android, and Microsoft's Windows Phone).24 Wireless telecommunications service providers, like Verizon Wireless and AT&T Mobility, operate the wireless networks necessary for mobile communications. The vast majority of apps are sold through a handful of distribution platforms:
| Company | Platform | Date of Entry | Available Apps25 |
|---|---|---|---|
| Apple Computer | App Store | July 2008 | 1.5 million |
| Google Inc. | Google Play | October 2008 | 1.6 million |
| Amazon.com, Inc. | Amazon App Store | March 2011 | 360,000 |
| Microsoft Corporation | Windows Store | February 2012 | 340,000 |
Layered on top of these elements, are providers of many specialized technologies and services that can be built into or linked to an app. These include advertising, measuring tools (such as Google Analytics for Mobile Apps, which measures the value of apps), cloud storage services, network messaging, monetization services, and payment systems.26
B. Contractual Building Blocks.In bringing an app to market, there are important contracts entered into between (1) the app providers or developers and distributors; (2) the providers and end users; and (3) the distributors and end users. These agreements define and protect the parties' intellectual property rights and confidential information, establish basic commercial terms for the distribution, purchase and use of the apps, and provide for compliance with privacy and data security laws and policies.
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1. Agreements between App Providers or Developers and Operating System Distributors.To create an app for a particular operating system, the developer must enter into agreements with the operating system owners/distributors to get access to the software development kits (SDKs) and related tools that are used to build the apps. Each of the major distributors has a standard developer license agreement for this purpose. In addition, the providers must accept the distributors' terms and conditions for making the apps available through the distributors' mobile stores.
Apple licenses its operating system to developers through its iOS Developer Program License Agreement.27 This agreement governs the app provider's use of Apple software to develop iOS-compatible applications as well as the app's submission to and distribution on Apple's App Store. Google has separate agreements for development of the app using its Android software and distribution on the Google Play store. Google makes Android software available under the Android Open Source Project28 and uses the Android Software Development Kit License Agreement29 to license its SDK to Android-compatible app developers. Google's terms for distribution are set...
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