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Apple has always been a control freak. But is it guilty of abusing its monopoly power? Apple has always been a control freak. But is it guilty of abusing its monopoly power?
(about 2 months later)
A strange thing happened last week: Microsoft passed Apple (briefly) to become the world’s most valuable company. Two factors seem to have accounted for this. The first is that Microsoft (which many people – mistakenly – think of as the tech equivalent of the Singer sewing machine company) has been on a roll recently as its CEO, Satya Nadella, successfully pivoted the company to focus on cloud computing (in addition to Windows, the Xbox and its Surface tablets).A strange thing happened last week: Microsoft passed Apple (briefly) to become the world’s most valuable company. Two factors seem to have accounted for this. The first is that Microsoft (which many people – mistakenly – think of as the tech equivalent of the Singer sewing machine company) has been on a roll recently as its CEO, Satya Nadella, successfully pivoted the company to focus on cloud computing (in addition to Windows, the Xbox and its Surface tablets).
The second is that Apple shares have been on the slide because investors fear that iPhone sales may have reached a plateau and that the remarkable growth in Apple’s “services” business will not make up for the decline in iPhone revenues.The second is that Apple shares have been on the slide because investors fear that iPhone sales may have reached a plateau and that the remarkable growth in Apple’s “services” business will not make up for the decline in iPhone revenues.
In that context, a case that was heard in the US supreme court last week has acquired a new salience. It concerns the App Store, the most important and profitable part of Apple’s services business, which was one of the big ideas Steve Jobs had in 2007 when he launched the iPhone.In that context, a case that was heard in the US supreme court last week has acquired a new salience. It concerns the App Store, the most important and profitable part of Apple’s services business, which was one of the big ideas Steve Jobs had in 2007 when he launched the iPhone.
The great insight embodied in the iPhone was that it was primarily a powerful, hand-held computer that could also make voice calls. And if it was a computer, then it could run small programs called apps, which meant there could be a new digital marketplace for these programs written by independent developers. That marketplace was set up by Apple and called the App Store.The great insight embodied in the iPhone was that it was primarily a powerful, hand-held computer that could also make voice calls. And if it was a computer, then it could run small programs called apps, which meant there could be a new digital marketplace for these programs written by independent developers. That marketplace was set up by Apple and called the App Store.
Because Apple has always specialised in control freakery and doesn’t allow anybody else to use its iOS platform without prior approval, the App Store was from the beginning owned and controlled by Apple. If you wanted to create an app for the iPhone (and later the iPad), it had to be approved by Apple and sold on the App Store. And if a developer wanted to charge for the app, then Apple took a 30% cut on the price.Because Apple has always specialised in control freakery and doesn’t allow anybody else to use its iOS platform without prior approval, the App Store was from the beginning owned and controlled by Apple. If you wanted to create an app for the iPhone (and later the iPad), it had to be approved by Apple and sold on the App Store. And if a developer wanted to charge for the app, then Apple took a 30% cut on the price.
So, in relation to the App Store, Apple is definitely a monopolist. The question underlying the supreme court hearing was: is it an abusive monopolist? And if so, are customers of the App Store entitled to damages? Does the operation of the store give rise to consumer harm and thereby trigger redress under US antitrust law?So, in relation to the App Store, Apple is definitely a monopolist. The question underlying the supreme court hearing was: is it an abusive monopolist? And if so, are customers of the App Store entitled to damages? Does the operation of the store give rise to consumer harm and thereby trigger redress under US antitrust law?
The case goes back to 2011 when a guy named Robert Pepper and some other iPhone users launched a class-action lawsuit against Apple, arguing that they “paid the full price for the apps directly to the monopolist, which kept all the monopoly profits for itself”.The case goes back to 2011 when a guy named Robert Pepper and some other iPhone users launched a class-action lawsuit against Apple, arguing that they “paid the full price for the apps directly to the monopolist, which kept all the monopoly profits for itself”.
The arguments against Mr Pepper and his friends came from a 1977 supreme court ruling that only the “direct purchasers” of a product can sue a company for damages on violations of antitrust law. So the question at stake was: is someone who buys an app on the App Store a “direct purchaser” or a customer who is buying from the app’s developer through an agent (Apple), which just happens to take a commission?The arguments against Mr Pepper and his friends came from a 1977 supreme court ruling that only the “direct purchasers” of a product can sue a company for damages on violations of antitrust law. So the question at stake was: is someone who buys an app on the App Store a “direct purchaser” or a customer who is buying from the app’s developer through an agent (Apple), which just happens to take a commission?
Like many things in life, what sounds like a linguistic quibble turns out to have significant legal ramifications. The question is important because only direct purchasers have legal standing. So, as the Apple Inc v Pepper case wound its way through the American lower courts, this became the question that the supreme court judges have to decide. If they conclude that Pepper and friends do have legal standing, then the real fun begins.Like many things in life, what sounds like a linguistic quibble turns out to have significant legal ramifications. The question is important because only direct purchasers have legal standing. So, as the Apple Inc v Pepper case wound its way through the American lower courts, this became the question that the supreme court judges have to decide. If they conclude that Pepper and friends do have legal standing, then the real fun begins.
If courts then subsequently decide that the 30% commission is indeed an abuse of monopoly power, then an awful lot of customers would be entitled to damages. And maybe this is what some investors are beginning to factor into decisions about whether to hold Apple shares.If courts then subsequently decide that the 30% commission is indeed an abuse of monopoly power, then an awful lot of customers would be entitled to damages. And maybe this is what some investors are beginning to factor into decisions about whether to hold Apple shares.
Apple’s iron grip on the App Store ensures that very few dangerous, insecure or malevolent apps get on to itApple’s iron grip on the App Store ensures that very few dangerous, insecure or malevolent apps get on to it
What factors will lower courts take into account in deciding whether Apple is abusing its monopoly power? US tech analyst Ben Thompson, the most perceptive observer of all this, puts it this way: “Apple profits handsomely from having a monopoly on iOS: if you want the Apple software experience, you have no choice but to buy Apple hardware. That is perfectly legitimate.What factors will lower courts take into account in deciding whether Apple is abusing its monopoly power? US tech analyst Ben Thompson, the most perceptive observer of all this, puts it this way: “Apple profits handsomely from having a monopoly on iOS: if you want the Apple software experience, you have no choice but to buy Apple hardware. That is perfectly legitimate.
“The company, though, is leveraging that monopoly into an adjacent market – the digital content market – and rent-seeking. Apple does nothing to increase the value of Netflix shows or Spotify music or Amazon books or any number of digital services from any number of app providers; they simply skim off 30% because they can.”“The company, though, is leveraging that monopoly into an adjacent market – the digital content market – and rent-seeking. Apple does nothing to increase the value of Netflix shows or Spotify music or Amazon books or any number of digital services from any number of app providers; they simply skim off 30% because they can.”
All of which is true. But what it ignores is the intangible value iOS users get from the App Store monopoly. For example, Apple’s iron grip on it ensures that very few dangerous, insecure or malevolent apps get on to it – or into consumers’ iPhones and iPads.All of which is true. But what it ignores is the intangible value iOS users get from the App Store monopoly. For example, Apple’s iron grip on it ensures that very few dangerous, insecure or malevolent apps get on to it – or into consumers’ iPhones and iPads.
By comparison, the marketplace for Android apps looks like a bazaar. And, for a variety of reasons (mainly due to the fragmentation of the market), Android devices tend to be less secure.By comparison, the marketplace for Android apps looks like a bazaar. And, for a variety of reasons (mainly due to the fragmentation of the market), Android devices tend to be less secure.
So maybe monopoly does have some upsides. Which may be why we only have a single Competition and Markets Authority.So maybe monopoly does have some upsides. Which may be why we only have a single Competition and Markets Authority.
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Excellent rule of thumbBicycles for the Mind: The Slide Rule. Lovely history, on software company Retool’s blog, of the calculation aid that every engineer (including this one) used before the arrival of electronic calculators.Excellent rule of thumbBicycles for the Mind: The Slide Rule. Lovely history, on software company Retool’s blog, of the calculation aid that every engineer (including this one) used before the arrival of electronic calculators.
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Who you gonna trust?How our corporate regulators are failing and why antitrust laws have to be updated. Good essay from the Economist.Who you gonna trust?How our corporate regulators are failing and why antitrust laws have to be updated. Good essay from the Economist.
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OpinionOpinion
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US supreme courtUS supreme court
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