Big Tech is Like a Fast Food Franchise
A McDonald’s franchisee invests several hundred thousand dollars building and equipping a restaurant, recruits and trains staff, manages daily operations, and absorbs the risk of a bad location. McDonald’s sets the menu, the supplier list, the pricing guidelines, the design specifications, the training requirements, and the standards against which the franchise can be audited and revoked. The franchisee’s capital is at risk; McDonald’s corporate’s is not. McDonald’s also, in most arrangements, owns the real estate and charges the franchisee rent. The arrangement is voluntary in the sense that no one forces the franchisee to sign. It is asymmetric in the sense that every significant decision rests with one party.
The franchisee agreed to all of this in advance.
McDonald’s corporate revenue derives primarily from real estate, not from food. The company acquires the land and building, then leases them to the franchisee at rates that capture a substantial share of the location’s economic value regardless of operating performance. Franchise royalties are calculated as a percentage of gross sales, not profit, meaning the franchisor collects whether the franchisee makes money or not. The hamburgers are the mechanism by which the real estate and royalty revenue are generated. This structure is not incidental to the model; it is the model.
The parallel to third-party sellers on Amazon, app developers on iOS and Android, and content creators on social media is structural: the platform sets the rules, extracts a percentage, and can change the terms or terminate the relationship on short notice. Platform fees work like franchise royalties: they are a take on gross transaction value, not on seller profit.
Apple’s standard rate is thirty percent of revenue from in-app purchases, a figure that it set unilaterally and has adjusted modestly only under regulatory pressure. The developer has no alternative distribution channel for iOS users, because Apple prohibits sideloading and third-party app stores on its platform. This makes the fee unavoidable for any developer who wants access to iOS customers. What’s more, Apple and Google review apps before they are listed, can remove them after listing, and adjudicate appeals internally. There is no neutral third party with authority to override a platform’s decision.
All this creates an investment trap for platform participants. A seller who has accumulated reviews, rankings, and sales history on Amazon cannot transfer that reputation to another marketplace; a developer whose app has a rating history on the App Store cannot move that history to Google Play. This is not an accident: it is the mechanism that keeps participants in the system after the platform has extracted the value of introducing customers to them.
Antitrust law has historically been reluctant to treat voluntarily agreed contractual terms as coercive, even when practical alternatives are nonexistent. The prevailing view is that if the franchisee chose this arrangement, it is presumptively legitimate. But this framing does not account for information asymmetry or the way switching costs increase over time. And it does not account for the fact that the “voluntary” choice is often a choice between accepting a bad deal or having none at all.
- Schlosser2001
- Eric Schlosser: Fast Food Nation: The Dark Side of the All-American Meal. Houghton Mifflin, 2001, 978-0395977897.
- Stoller2019
- Matt Stoller: Goliath: The 100-Year War Between Monopoly Power and Democracy. Simon & Schuster, 2019, 978-1501183089.