Apple’s antitrust mess could easily be ended, at likely minimal cost

Apple’s antitrust mess keeps getting worse, with today’s Apple Pay announcement as the latest example. The company is now under fire on so many flanks in so many countries that it spends half its PR life trying to defend its stance – and legislation is ultimately going to force it to change anyway.

To me, the most baffling thing about the company’s stubbornness on this issue is that the mess could so easily be resolved, and my bet is that it wouldn’t even cost the company much money.

If you think it’s about monopolies, read this first

We need first to clear up a very common misapprehension about antitrust laws: that they only apply to monopolies. This has literally never been the case. Indeed, as we point out in our guide, the very origin of the term assumes multiple large companies working in the same space:

In most jurisdictions around the world, it is illegal for large companies to band together to form agreements or “trusts” to behave in a particular way – for example, to all sell their products for the same high price. Laws designed to outlaw this type of behavior are called antitrust legislation.

We go on:

However, the term is used more generally to refer to laws designed to prevent companies from engaging in any kind of anti-competitive action – that is, do anything that would tend to artificially distort competition within a market.

There is a large market for mobile phone apps. Worldwide, Apple controls around 27% of this market. Within some countries, it’s around 50%. In Apple’s home market of the US, it’s well over 50%. Any way you slice and dice the numbers, Apple is one of the largest companies to have a dominant position in this marketplace.

Many antitrust disputes, with one common element

Apple is facing antitrust battles on a whole range of fronts. The main one is the fact that Apple has full control over the App Store. It sets its own commission rates, and iOS developers have no choice but to pay it. Many regulators want to see multiple app stores allowed so that there is competition in the sale of iPhone apps, and developers and consumers alike can choose which stores to support.

There are a bunch of other issues, with some overlap with the App Store …

Apple Music vs Spotify. This is a special case because Apple Music directly competes with Spotify, and Apple gives its own app big advantages when it comes to attracting paying subscribers:

• You can subscribe to Apple Music within the app;
  Spotify would have to pay Apple 30% to do this (which is economically impossible)
• Apple has Apple Music promos within iOS
• Apple Music is available as part of a discounted bundle (Apple One)

Preinstalled Apple apps. Apple makes its own apps and preinstalls most of them on iPhones. This gives them a massive advantage over competing third-party apps because the default position is people will use Apple apps. If iPhone owners had to choose which apps to download, it would be more of a level playing field.

Apple Arcade vs Epic Games. Apple allows itself to have an in-app store for games (albeit renting rather than buying them), but it doesn’t allow other companies (like Epic Games) to do the same.

Apple Pay. Apple only gives NFC access to its own mobile wallet app while denying it to competitors. Additionally, since bank apps have no access to the NFC chip, banks and card companies are obliged to sign up for Apple Pay if they want their customers to use iPhones and Apple Watches for contactless payments.

The common element to all of these is that Apple benefits financially while competitors are left disadvantaged.

Apple’s defense

If you listen to Apple, it has nothing to do with money. Oh no, siree! This is purely about protecting customers.

To be fair, the company does have a point. If you compare the malware rates between iOS and Android – especially when it comes to those Android users who venture beyond the Google Play Store to third-party stores and sideloaded apps – then it’s clear that the App Store is safer.

Apple would make a similar point about Apple Pay. This is a very, very safe way to make payments. For example, Apple generates single-use card numbers for each transaction, and only shares this unique number with payment terminals.

But third-party companies could offer the same safeguards

Apple says it ensures all apps allowed into the Apple Store are safe. That’s a slightly disingenuous claim, as it’s mostly the protections built into iOS – like sandboxing – which protect users. This would be true no matter which app store an app came from.

But, Apple continues, it also protects users from scam apps. Erm …

• Developer exposes multiple scam apps on the App Store, some bringing in millions of dollars in revenue
• Fake reviews and ratings manipulation continue to plague the App Store charts
• Developer reveals how fake reviews and ratings play a major role in App Store scam apps
• Developer exposes another multimillion-dollar scam app on the App Store
• Scam heart rate app is back in the App Store, trying to steal $85/year
• Latest App Store scam exposed is a kids’ game with a hidden online casino

The broader point here is that any third-party app store would be free to do its own vetting, and there’s no reason why it couldn’t do at least as good a job as Apple.

Same with Apple Pay’s single-use tokens. This is not Apple tech: it is instead an industry-wide protocol known as EMV Payment Tokenisation (the EMV stands for Europay, MasterCard, Visa – the three bodies who jointly developed the approach). Google Pay and Samsung Pay do the same thing, and individual banks are free to create apps that use the same tech. Yet only Apple Pay can use it on iPhones because you can’t do it without access to the NFC chip.

So any protection offered by Apple could be offered by third-party companies. However, this isn’t even my main point.

Most people would still choose Apple’s walled garden

Even if Apple’s scare stories were accurate – that only Apple can properly protect customers from the big scary world outside its own walled garden – that isn’t really the point.

While there is the occasional suggestion that Apple should be broken up, the vast majority of antitrust regulators are not telling Apple it can’t offer its own app store or music streaming service or mobile wallet product or weather app or gaming subscription or anything else.

All regulators are saying is that Apple should allow third-party companies to compete on a level playing field – in other words, Apple should continue offering the official App Store while allowing third-party ones too. iPhone owners can then choose which app store to use. Continue offering Apple Pay while also allowing bank apps to use the NFC chip. And so on.

My bet is that this wouldn’t even cost Apple much money – for two reasons.

First, the average nontechy Apple customer is going to choose Apple every time. Offer them an Apple app store and an Epic Games app store, and the vast, vast majority are going to choose the Apple one.

Second, even techy people are mostly going to stick to Apple. One of the main reasons I buy the Apple kit is because I actively like and appreciate the Apple ecosystem. I like the way everything is integrated because there’s one company running it all. So even people who consider the alternatives and examine what they have to offer will still mostly stick to Apple’s offerings.

Apple is inviting legal trouble for no good reason

This is why I’m baffled by Apple’s obstinacy on antitrust issues: There is virtually no cost to opening things up and there’s a significant risk to not doing so.

If Apple opens things up voluntarily, it can (within reason) choose its own terms. So long as it goes about things in a reasonably fair manner, there will be little reason for politicians to insist it goes a little further.

But if it waits until legislators define the terms, it risks ending up with a significantly worse deal. Right now, for example, a lot of people are arguing that Apple’s 30% commission for large developers is too high. If Apple waits until legislators act, it might be forced to take a lot less. If it simply allows third-party app stores – which hardly any iPhone users will bother using – it can continue to take its cut while shrugging and telling legislators that developers and consumers alike are free to use any of the other iPhone app stores out there.

Apple is now the leader and should act like it

Macworld’s Dan Moren suggests this stubbornness is part of Apple’s DNA.

There’s something in the company’s DNA — probably handed down in part from late co-founder Steve Jobs — that promulgates the idea that there are two ways to do things: an Apple way and a wrong way.

There may be something to this. Steve often did things that people said were outlandish, and he won most of those bets.

But today’s Apple isn’t Steve’s Apple – the upstart company fighting against better-established corporations. It’s no longer the little kid in the playground bravely defying the bullies. Apple is now the school team’s 240-pound quarterback who is increasingly looking like he wants to do the bullying.

It’s time for a more mature approach. Apple, accept the fact that antitrust pressures are not going to magically disappear just because you want them to. Recognize that you’ll get a better deal through voluntary change now than via regulated change later. Acknowledge that there’s a reputational cost to fighting all the way to defeat, and a PR gain to be had from acting now. Act like a leader, not a reluctant follower.

That’s my view; what about yours? Please take our poll, and share your thoughts in the comments.

Photo: Rock Staar/Unsplash