The Revolt Against the 30% Mafia

When did Big Tech gatekeepers from Apple to DoorDash decide they were entitled to a third of the internet’s sales?

Apple CEO Tim Cook speaks via video conference to the House Judiciary Subcommittee during an antitrust hearing in July. Photo: Graeme Jennings-Pool/Getty

An unlikely trend in local governance started taking hold last spring while most Americans were still sewing their own face masks. Starting in San Francisco, American cities and later whole states began enacting extremely simple regulations designed to soften the financial blow of a malign force choking America’s most vulnerable businesses with extreme commissions. The bills passed too quickly for lobbyists to festoon them in loopholes or deliberately ambiguous language, and they were such obvious no-brainers that copycat bills eventually passed in some 73 municipalities, in the end saving probably thousands of merchants from financial ruin.

The laws were the delivery app fee caps, which for the most part placed 15% limits on the commissions DoorDash, Uber, and Grubhub could charge restaurants during the pandemic. These laws cut restaurants’ delivery app bills in half in the cities that passed them, saving any restaurant that did a substantial amount of delivery app business thousands of dollars a month. Often, the apps retaliated by tacking on $1 to $2 order fees to customers in the cities that mandated the caps (called, say, the “Philadelphia fee”), but that was okay: Cost-conscious customers started picking up their own food. For casual restaurants selling food that held up well in takeout boxes, the fee caps made operating without their dining rooms almost sort-of viable, at least so long as they didn’t get evicted.

But the caps also represented the start of a grassroots revolt against the 30% Mafia, an unimaginative label I’ll use for the increasingly unimaginative syndicate of Silicon Valley gatekeepers who’ve made a business model of charging businesses from booksellers to hotels 30% of their top-line revenues for the privilege of existing on the internet.

I can’t find many examples of middlemen that commanded that kind of take during the 20th century; Sotheby’s is an exception, as was the actual Mafia, at least according to Rudy Giuliani, who told the producers of the Netflix mob series Fear City he grew up hearing stories about how Mafia thugs arrived at his grandfather’s barbershop one day demanding 30% cut of his income. Tellingly, in New York, any restaurant with a liquor license is prohibited by state liquor control statutes from funneling any percentage of its sales to any party, save its listed owners and the landlord — and the landlord’s cut is capped at 10%. That’s because such a punishing financial arrangement was once taken as an obvious red flag that an enterprise was under the stealth control of a potentially malevolent actor, be it a crime family or a front for Big Alcohol itself.

Alas, Steve Jobs raised no such flags when he founded the 30% Mafia upon debuting the iPhone, when he elected to round the 27% he used to charge record labels for selling iTunes up to an even 30% for developers who wanted to sell iPhone software applications in the official App Store. At the time, he euphemistically referred to it as the “agency model” — which might have been accurate if his cut had been 15%. More evocatively, a Dallas restaurateur named Omar Yeefoon last fall likened the 30% commission to the revenue sharing arrangement enjoyed by “pimps,” writing on Facebook that his vegan restaurant was “being trafficked.”

Today, 30% is essentially a tax every company in many sectors of the economy must pay the richest men in America for the right to exist on the internet.

The delivery apps are relative newcomers to the 30% Mafia, having abruptly informed restaurant owners I’ve spoken with in multiple markets that 30% was the new “market rate” around 2017. Similarly, Amazon now charges 30% to book publishers and also the third-party sellers on its marketplace, but only charged the latter group about 19% in 2015. Google’s Android app store charges app developers 30%, as does the Microsoft store and the Samsung Galaxy Store. And Facebook charges 30% to developers that make games for its platform as well. Online travel agencies like Expedia (which also owns among others Vrbo, Orbitz, and Travelocity) and Booking (also owns Priceline, Kayak, CheapFlights, OpenTable, and others) increasingly charge small hotels 30% of their top-line revenues and sometimes even more. (Airbnb only charges between 15% and 20%, though as with virtually all the companies I just mentioned, that figure has risen significantly over time.) Just six or seven years ago, these fees were a fraction of what they are today, even as any small time entrepreneur who contends with the internet can vouch that service standards from GrubHub to Google have cratered.

Today, 30% is essentially a tax every company in many sectors of the economy must pay the richest men in America for the right to exist on the internet. (And maybe those companies are the lucky ones: Newspapers and other content providers have made virtually no headway outside Australia at getting any share whatsoever of the revenue they generate for Facebook and Google.)

As dozens of city councils and four state legislatures stepped in to save their struggling restaurant industries from the 30% Mafia by passing the fee caps on delivery apps, so now seven states have introduced bills that would require both Apple and Google to open their app stores to alternative payment systems that could bypass the 30% toll. In North Dakota, the first state to introduce such legislation, Apple quickly defeated the bill by threatening to shut down its App Store to users in the state. In Arizona, following what one state rep called “a very difficult weekend where Apple and Google hired probably almost every lobbyist in town,” the bill passed by a two vote margin.

The politics of taking on the 30% Mafia are a bit weird. The delivery app fee caps were a mostly blue-state phenomenon that usually coincided with strict shutdown orders and restaurant capacity restrictions. (Cincinnati, St. Louis, Cleveland, and Columbus are a few exceptions.) One Miami politician said he considered passing a fee cap, but told reporters such a move would likely be preempted in Tallahassee.)

But while the App Store bills have been cheered on by the likes of leftist stalwarts like Pramila Jayapal and freshman Congressman Jamaal Bowman, the Arizona bill garnered the vote of only one Democrat elected in that state. Like a lot of things involving Big Tech these days, the staunchest support for reform is coming from Republicans, who get virtually no campaign donations from the Silicon Valley giants.

Interestingly, the policy arguments Democrats have deployed in the service of opposing a clampdown on the 30% Mafia appear to be warmed-over Tea Party talking points, as Arizona Democrat César Chávez acknowledged in his speech announcing his opposition to the bill, in spite of his reluctance to side with conservative organizations like “ALEC or the Goldwater Institute.” Indeed, over the past two weeks, Alec Stapp, a veteran of the ALEC/Goldwater-adjacent Mercatus Center at the Koch Industries-bankrolled George Mason University who now directs technology policy at the proudly “neoliberal” Progressive Policy Institute, has published white papers bashing both the delivery app fee caps and the Arizona law.

Tellingly, Stapp argues that the delivery app fee caps are self-evidently bad because “price controls” — the phrase “price controls” is repeated 47 times — are always bad, especially in what he calls a “highly competitive industry,” even though DoorDash controls 56% of the market. But addressing the App Store, Stapp defends the hardline tactics with which Google and Apple protect their (arbitrary) 30% cut of transactions by breezily pointing out that, “for platforms across a wide variety of markets, including video game stores and ride hailing platforms, 30% is the market-going rate.”

Facebook and Google have already been accused of colluding to fix online ad auctions. Google pays Apple $12 billion a year to not build a search engine. Apple and Amazon have also both been independently accused of fixing e-book prices, while allegedly colluding with one another to fix headphone prices. Apple and Google have also been accused of colluding for years to depress the wages of engineers. An antitrust suit against the delivery apps details the scheme by which those companies allegedly contractually outsource their price fixing to their shackled restaurant partners by strictly requiring restaurants to set uniform prices across all apps. An antitrust suit in Europe accuses Expedia and Booking of conspiring to inflate their commissions as well. Oh, and all these guys charge 30%, and that’s their final offer. It is certainly possible that all of them separately, across a broad swath of different industries with many vastly different cost structures, independently and unyieldingly arrived at the same “market-going rate.” But I’d argue it is at least as likely that someone with subpoena power turns up a document named “Top_Secret_Master_Treaty” delineating the 30% strategy on a Softbank executive’s desktop somewhere protected by the password “passw0rd.”

Whatever the case, 30% is just too high, particularly for restaurants, which typically earmark around 30% of their revenues to the food and drinks they sell and another 30% to labor. If you give 30% to the delivery apps, that leaves 10% for rent, utilities, chefs, managers, linens, 10 different forms of insurance, point-of-service software and OpenTable subscriptions, takeout boxes, equipment, plumbing, dish soap. In other words, that leaves 10% for all the least variable fixed costs that typically consume 35% of a restaurant’s revenue.

But even for companies with less terrifying cost structures, 30% is an inherently predatory commission. It’s too much to take even from Uber and Lyft driver,s who would rejoice if their overlords would be satisfied with 30%, too much to fork over to any company that will never in a million years produce a person with a pulse empowered to help a small vendor with anything; too much to pay a middleman that assumes very little risk and orders around the miserable human labor it does employ with artificial intelligence and modified vibrating dog collars; too much, period.

The 30% Mafia’s vast collection of sycophants will of course say there is no such thing, that “if you can find a gap in the economy, in the market, that you can exploit, it is yours to do so freely without government interference!” as the Democratic Arizona state Rep. Diego Rodriguez pointed out in a rousing speech denouncing the App Store bill.

What Big Tech wants is for Americans to tune out, to dismiss it all as another niche battle in an increasingly incomprehensible culture war.

Indeed, if Americans learned anything over the past year, it’s that the price of a Covid test is sometimes $1,622, a bottle of hand sanitizer might set you back $459, and heating a single-family home during a cold snap in Texas costs $16,752.(On the bright side: Invest in the right animated GIF or deep-out-of-the-money “stonk” option, and you, too, might be able to afford basic needs.) There is no such thing as excessive profits in America, and if you argue otherwise about drug prices the conservatives will run ads accusing you of socialism, but if you argue about Apple commissions the liberals will activate the whisper networks to smear you as a crypto Trumper. Indeed, the tech giants have assembled a deep bench of lobbyists to remind you that many of the same folks who want to break up their extortion racket will also tell you Trump won the election and the measles vaccine is a Communist conspiracy and that efforts to rein in their profiteering are merely “a Parler thing.”

What Big Tech wants is for Americans to tune out, to dismiss it all as another niche battle in an increasingly incomprehensible culture war, wherein ardently left-wing dead children’s book authors are reborn as Fox News folk heroes and Marco Rubio endorses an Amazon union drive as a bulwark against the excesses of “the next ‘woke’ human resources fad.” But ask anyone in the Big Tech sycophantocracy to make a culture war-free defense of the 30% extortion racket, and you’ll get something like this, from Rodriguez again:

“If I came up with a system that could effectively compete with Apple or Google, this bill would prevent me from maximizing my profits — my hard work, my innovation, because I would not be able to use the same tools that the market — the market! — allowed.”

Somehow, this stale free-market fundamentalism is even less convincing coming from moderate big city Democrats than raging exurban anti-vaxxers, maybe because they don’t actually believe any of it. Even before the pandemic, fully two-thirds of Americans told pollsters they believed billionaires were rich largely as a product of inherited advantages, and only a third credited “hard work” for their success. Meanwhile, 39% of respondents under 30 said billionaires were an active social ill. If Republicans can grasp that “price controls” don’t have the same old sinister ring to a population that increasingly suspects that billionaires should not exist, the 30% Mafia should probably get wise, as well.

senior fellow at the American Economic Liberties Project, co-founder of Jezebel, former Wall Street Journal reporter, off-again waitress, mommy

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