The world loves Apple products. They’re some of the best designed consumer devices ever produced. They look great, work great, and are easier to use than the alternatives. Their customers also love Apple’s support system that makes it easy to get help by phone or in one of their stores, and get products quickly serviced. Their stores set an example of treating their customers with respect. As a result Apple has become one of the largest and most successful technology companies in the world.
In spite of its success, the iPhone is not a monopoly, selling fewer phones than its Android competitors worldwide and having a 65% market share in the U.S. But because of their superiority, iPhones have been able to command a higher average selling price than Androids. It’s quite an accomplishment to be able to sell most models for about $1000, while Android phones can be purchased for less than $300.
Apple also makes their products work better together, including the Apple watch, AirTags, AirPods, and MacBooks, which is something Apple users love, and leads to their buying other Apple products.
From its inception, Apple always took a different approach to its business. By creating a walled garden around their iPhone ecosystem and guarding against the least bit of encroachment, they could maintain control over the user experience and make it the best it could be. That set them apart from the competition that often copies each other, adds tons of useless features, and piles on crap ware in exchange for payments. This just seems to be a brilliant business strategy.
Challenging Apple’s Business Model
The DOJ is challenging Apple, arguing that its success also comes from using anti-competitive practices that hurt their customers, their competitors, and app developers. Those practices include not sharing and supporting their technology with others to let their products work more seamlessly and incorporate similar features. That, the DOJ says, prevents iPhones from working as well with Android phones to purposely create the impression that Android phones are inferior.
This seeems like a very weak argument and even ill-informed. There’s no legal reason why Apple needs to share technology or work to give Android phones the features they put on an iPhone.
But in one area where the DOJ surprisingly says very little, Apple’s behavior should be questioned. It has restricted how software is sold to iPhone users, and take a big cut of every transaction. It requires that apps only be sold through the Apple app store and pay it a huge percentage of sales. Apple takes 30% plus anything purchased through the app, including subscriptions, renewals, and physical products. (In a few cases that drops to 15%, such as on some renewed subscriptions sold by small businesses.) Apple enforces this by not allowing app makers to direct users elsewhere to make a purchase, such as displaying a link to their website.
Ironically, these policies can make using an iPhone more difficult and often confusing for users. Want to buy an eBook from Amazon on your phone? Not possible. You need to do it from a computer and then download it onto your Kindle reader app. Want to buy tickets for a concert from your favorite artist’s app. Not possible because it’s not economical for the artist to give away 30% of the sale.
The Department of Justice (DOJ) goes on to accuse Apple of using “monopoly power” to extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others. They say Apple purposely makes other phones, watches, messaging services, etc. work less well with an iPhone as a plot to discouraging iPhone owners from switching.
But the lawsuit also gets many things wrong and is overreaching. Apple has been successful because of its product design and engineering, its ability to make hardware and software work together, and its amazing design skills and support of their customers. While Apple can be faulted for not playing nice with other watches, tags and services, that would seem to be their perogative.
Attorney General Merrick Garland cites this example: “For example, if an iPhone user messages a non-iPhone user in Apple messages, the text appears not only as a green bubble, but incorporates limited functionality. The conversation is not encrypted. Videos are pixelated and grainy, and users cannot edit messages or see typing indicators. As a result, iPhone users perceive rival smartphones as being lower quality because the experience of messaging friends and family who do not own iPhones is worse.”
Two competitive systems not perfectly working together does not seem anticompetitive. In fact it seems pretty typical of competitors trying to make their product better than the other.
Another DOJ accusation is that Apple has been able to raise their iPhone price from “$299 to $1000” because they somehow hold back their competitors’ products from being as good. First, to correct their error-filled report, Apple’s first model was $400, not $300. Secondly, the phone today is much more advanced with better cameras, faster microprocessors and larger screens, so why shouldn’t it cost more? In fact, the cost of living index accounts for most of the difference. But regardless, it’s a strange argument when the iPhone provides so much satisfaction that it’s capable of commanding a high price.
Some of things the DOJ has accused Apple of doing, are already being addressed by the EU regulatory agencies, and Apple has been forced to make some small concessions in Europe. These include allowing alternative app stores and ways to buy apps out of the Apple ecosystem.
The DOJ has a very weak case, most of their charges are erroneous, and the filings show an ignorance of business and technology. Apple is no saint, has overstepped in some areas, but it’s certainly undeserving of most of the charges.
