(First in a series)
Will Apple face the type of antitrust issues Microsoft had to contend with in the 90′s? Possibly, but not with the same magnitude. Apple is by no means locking up its market the way Microsoft controlled the personal computer field with Windows. Still, the question arises for the iTunes Store, the App Store and their tightly controlled transaction and subscription systems.
Today, we’ll take a look at the issue from a news business perspective.
The fact that scores of publishers are flocking to the iTunes system doesn’t mean they are happy with it. For any publisher willing to access the burgeoning tablet market currently dominated by the iPad, a presence in the AppStore is mandatory. But I never met a publisher happy with his relationship with Apple. For most, what started as an enthralling partnership is slowly morphing into a feeling of servitude.
That perception is tinged with schizophrenia. Media people are usually fond of Apple products. From top bosses to tech reporters, they cherish their iPads and their iPhones. Then, each time Apple introduces a well-polished new device, it gets glowing coverage worth hundreds of million dollars if converted in media space.
Enjoying great products and admiring Apple for its many achievements does not prevent anyone from taking a stern look at the way the Cupertino folks do business. In a nutshell, publishers feel increasingly locked-in, and sometimes abused by Apple’s tight ecosystem.
As always, there are excesses on both sides. Difficult as it might be, let’s try and take a balanced view of three majors issues:
#1 the Application ecosystem
#2 the validity of a business model build on a 30% commission
#3 the issue of the customer data.
(We’ll start with #1 today, and address #2 and 3 next week)
The following is based on my ongoing contacts with publishers and conversations I had with lawyers specialized in antitrust and intellectual property. They spoke anonymously as they are quietly loading their guns for a possible legal action before the European Commission.
#1 The App Ecosystem
The context. Apple set up a huge technical and human infrastructure in order to provide tools to anyone, large of small, willing to build an application and yearning to make it available to any market. Amazingly, from the outset, Apple decided to provide all this machinery (software development kit, tracking system, testing) for free (let alone the symbolic cost of a $99 developer account).
Entrepreneurs voted with their keyboards and mice: there are 500,000 applications in the AppStore today, and counting. It created a huge new business. As Apple gives back 70% of the revenue for paid-for applications, by June 2011, the company had paid over $2.5B to developers, many of them individuals or very small companies.
Well, is there really a matter to complain about here?
Surely not for the developer working from a high rise in Seoul or a barge in Amsterdam. But for the large publishing company, it’s another story. Once it enters the system, two keywords begin flashing : “discretionary power” and “locked-in”.
Let’s face it, Apple has life and death power over the apps it harbors in its store. Its approval system it completely opaque, left at the discretion of an elusive army of people working at “undisclosed locations”. Welcome to the kingdom of the arbitrary. The same set of features that once raised a red flag triggering a rejection will be accepted the next time around — without explanation. Approval delays vary widely, making it difficult to plan the roll-out of a critical product. What is acceptable for a mom and pop operation becomes anxiogenic for large organizations.
The question of “choice”. To those who criticized its “black box” system, Apple’s retorts we evolve in a free market: if a publisher is not happy with its App Store it can: (a) go to the Android market, or (b) build its own web-app, i.e. an app that will live and function independently of the iTunes Store.
Antitrust lawyers don’t see things that way. Their argument: for someone controlling 75 % of the tablet market, invoking such a marginal alternative isn’t relevant. A publisher willing to join the tablet business has no choice but being available on the iPad. In practical terms, this means investing serious money to join a platform operated in a discretionary and opaque way, with unclear and changing rules.
As for the web app, antitrust attorneys suggest they represent a degraded and dangerously uncertain alternative to the iTunes Store. Degraded because a web app such as the Financial Times’ — the poster child of the “resistance” to Apple — doesn’t work as well as a native app. And this notion of “slightly less good” is absolutely critical. Given the sate of HTML5 (the programming language used for independent apps) and whatever the skills of its developers, a web-app will never be as fast, as fluid, as features-rich as a native application. As for the uncertainty, it lies in the fact that a web-app depends on features Apple can change without warning, such as the ability to use its browser (no choice here, it’s Safari) to store content. Put another way, web-apps are likely to work — no more than OK — until Apple decides otherwise. Again, it’s difficult to build a sound business upon such quick sand.
Evidently, Apple is entitled to defend the integrity of its operating system by not giving independent applications access to critical layers of its iOS. This precaution provides better security against rogue code such as viruses and other malware; it is an indisputable justification for tight control. Agreed, said the antitrust lawyers, but: (a) for the native apps, rules could be more transparent and stable, (b) as for web apps, such rules should evolve within a framework of well-documented Application Programming Interfaces (APIs), a set of coding conventions used by programs to communicate with each other and with the underlying operating system. These APIs would be controlled by Apple on the sole basis of technical concern in order to protect the integrity its OS while creating a clear and well-defined framework for publishers.
Evidently, these suggestions sound a bit naïve. Apple has no business interest whatsoever in easing its allowance for independent web-apps. Most likely, it will carefully adjust the cursor to appear reasonably open while, at the same time, protecting its own ecosystem.
Things are likely to get worse before they get better: Apple is likely to unleash features that will benefit only applications and services of its choice in order to preserve its position. The best example is its Newsstand’s background downloading for publications (your iPad automatically wakes up to download the publications you subscribed to in the Newsstand, see a previous Monday Note on the matter). Lawyers says this is the perfect example of a feature that creates an unfair advantage favoring Apple’s own distribution channel.
Apple’s attitude towards competition epitomizes a often-seen scenario of the technological evolution: a company acquires a dominant position in a given market (in today’s case, several ones) thanks to superior products and services. As the company further gains ground over its competitors, the admiration for its quick success morphs into growing suspicion. Features that once were lauded as innovative market boosters begin to be seen as instruments of a market lock-down. At the same time, competition tries to imitate the leader as fast as it can. As it feels both unfairly copied and threatened, the market leader reacts by further tightening its grip on its business, using whatever it takes to buy time. In doing so, it triggers more hostility, etc. A vicious spiral begins.
Next week, considering market domination, we’ll see why Apple takes a different approach from the one Microsoft once used. Unless it becomes completely intoxicated by its own success, a clever “cursor adjustment” could preserve Apple’s lead and, at the same time, favor healthy competition.
—frederic.filloux@mondaynote.com
Related columns:
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- Rotten Apples in the Reviews Barrel TweetA few weeks ago, professional blogger Kevin Dixie received a strange proposition: a US‑based company offered to buy from him 30,000 reviews for a new iPhone application at $1 per review. Positive reviews, needless to say. Moreover, the marketing company proposed to extend the deal for 30 applications, about 10 to 20 times a month. [...]...
- iTunes’ Windows Problem TweetThe best thing that happened to Apple in the last two decades was Steve Jobs’ 1997 return to power after he reversed-acquired the company he’d co-founded 20 years before. And the best thing that has happened in the Apple 2.0 era is iTunes. Without iTunes’ innovative micropayment system and its new way of selling songs [...]...
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19 Comments
I find nearly every attempt at logic in this piece flawed. For example, yes Apple controls 75% of the tablet market, but this is not monopolization. They don’t have this market share because they illegally block others from participating, they have it because they built a demonstrably better product. Likewise iTunes and the hardware/software ecosystem. You act as though Apple is some kind of public utility when, in fact, they are business that has a perfect right to do all the things you rail against. They are not blocking development of HTML5, their browser code was the first to support it.
The fact is that publishers did nothing to build their own alternative distribution system, zero. They stuck their heads in the sand and when they discovered that the world had changed they looked for someone to blame- and there was Apple.
And when it comes to the 30% revenue share, remember retailers take from 50-65% to distribute virtually every product out there including media products.
Very disappointing post.
“In a nutshell, publishers feel increasingly locked-in, and sometimes abused by Apple’s tight ecosystem.” So publishers don’t like getting the treatment they’ve been given content creators? The publishing market is undergoing massive disruption because everyone is now asking, what value do they add?
I also do not understand the point of this article. Like in the 80′s, Apple is Apple, and it looks like Google is in Microsoft’s seat. So Apple’s market-share is sure to drop as more and more competitors will get their acts together in the tablet scene as they have done already in the phone business.
Apple’s current monopoly position is an illusion. The company is extremely vulnerable and this is why they have started a patent war.
When most of the Apps are WebViews, they are exactly like the web.
Please demonstrate how Apple is hindering competition by not selling
a certain item in their store. Do you cry about WalMart not selling.
Do you cry about Nintendo being only in their system that you can’t
play XBox games in it.
Apple can have a monopoly as long as they can demonstrate fundamental
patents that they brought to the market. That is 20 years of crying for you.
I like to see you cry about copyright material being a monopoly for 80+ years.
Where is they cry for competition from reporters.
So When Google steals others patented innovation and gives it away for free.
your solution is monetary compensation. Apple doesn’t want their dirty money.
I think urban legend and a few 10s of app developers have created a mythology regarding the store. Apple has been pretty fast days to a few weeks approval or feedback for 99.99% of developers. It has a curated environment to protect the brand and assure quality to the user. The rules are generally very clear and while there have been some exceptions e.g., flash code, interpretative code, approved API access (how many apps don’t work on upgraded OS or approved devices 500000 apps and 100M devices and diff comfigurations), no porn, and junk apps are being weeded out, etc.
These seem reasonable in general, amazingly fast, and have been adjusted as everyone learns. it will not be the wild wild west of the PC or in other words user beware. Perhaps that is where Android is and wants to be, but not Aplle or their users.
This is way different from illegally demanding QT be dropped by Apple for Windows media or give up Netscale for IE.
I do not understand why people skip over and over one simple, but crucial fact:
Apple build their own product. They build software and hardware and they can set rules whatever they like for their own product. If you do not like Apple product, go to competition. (things will start to look really ugly if Apple manage to cripple/destroy competition with this “patent war”…)
I am not sure why Apple trying so hard to kill Android – if they succeed, than we will have new “Wintel situation” from 90′s!!
and there is one big difference: Microsoft abuse xxx times it’s monopoly position!
solution for Apple is simple not to go same path and everything should be just fine
Ok, why is it that so many people equate monopoly with automatically bad? Monopolies are only bad if they negatively affect the customer through lack of innovation or prices higher than they should have to pay. Neither of these things are true with Apple. Apple is the one innovating, everyone else is trying to copy and/or catch up to them. Check they law folks, Microsoft abused it’s hold on the operating system market and to a lesser extent on the productivity suite market. Apple has yet to even come close to hurting customers, instead they are working hard to make things even better for their customers.
As have shown the delay in Mac OSX to made a must to go through a sand box it seems that this way of control is actually needed.
There are two uses of the term ‘cursor adjustment’ in this article. What is this a reference to?
Yea, your ENTIRE PREMISE is not based on legal facts. It is NOT ILLEGAL to have a high market share. REPEAT – It is NOT ILLEGAL NOR A MONOPOLY to have a high market share. it is illegal to leverage that market share – that is the big difference. Microsoft illegally tried to lock out others Apple DOES NOT operate that way. The perfect example is iTunes. It is a FREE piece of software to load apps & media. But you are free to load every IOS device with your own mp3′s, your own ripped movies and you can only load free apps. AND it’s also free WIN PC software … AND you can read your Kindle & Nook books on it and buy music tracks from Amazon to load on it. It passes every “monopoly” test.
It’s incredible the number of Apple fans roaming around.
The facts in this article are terribly clear, and that’s why they deserve to be fought : because they tell the truth.
Yes, Apple has a Dominant “near-monopoly” position in the Tablet Market. As much as Microsft has one in the PC market. Don’t forget that MAC OS X is a competitor to Windows, and so are the variant Linux Distro. But they are, all combined, much inferior to Windows. That’s being dominant. That’s exactly the situation of iPad.
When being dominant, there are specific Duties. You might not like it, but that’s not your way to choose : the US Federal and European commissions are the right organisms to select which conditions are right and compulsory.
Usually, whenever a Dominant position is leveraged to force one’s way into **another** market, it is a right target for commission complaint for market power abuse.
This is exactly what’s happening to the IPad/AppStore situation, which uses its dominant position to force Publishers to give away not only money but also customer information control. Clear and simple case.
Not one of your finest, Frederic.
Adding to earlier comment Safari isn’t the only web browser in the Apple eco-system. Opera and iCab come to mind as having both OS X and iOS versions and there are many others that exist for one or other operating environment. So HTML5 delivery isn’t limited to just Apple solutions.
Your very generalised comments on performance native versus web browser ignore that in many instances great performance isn’t required. This is very much horses for courses territory.
Lastly questions of monopoly and antitrust usually only come about once a particular market has become mature. This just isn’t the case for tablets or smartphones and by the time it is you may expect Apple to modify its stance to avoid antitrust clashes that bedevilled Microsoft for many a long year.
Do enjoy your articles but this one missed its target by a looonng way.
If the EU wants to protect a publishing business that is being seriously disrupted due to new technologies and new business models and companies that refuse to invest to keep up with those things, then go ahead. It’s stupid and in the end, it will be anti-consumer.
If the EU wants to kill the nascent tablet market, simply because all the other tablet manufacturers haven’t figured out how to make a tablet with a good user experience, then go ahead. It is clearly anti-consumer.
If the EU does these things, it will be certainly par for the course.
Apple’s App Store is a retailer, like Walmart or Nordstrom, but it only exists on Apple products. Only in the so-called “tablet” market does an Apple product have a dominant position, through the bumbling of its competitors, but not through any illegal actions by Apple. In the cellphone market, Apple has about 5% of the market. When you combine the two into a mobility market, Apple still has less than 10% of the total market. That’s far from dominant.
Just like any product supplier dealing with a retailer, if these publishers don’t like the business terms for operating in the AppStore, they are free to invest in (subsidize?) and set up shops on those other tablets – there’s lots of them, and there’s nobody stopping them but themselves. If the publishers’ content is so desired by customers, they will buy those other tablets. That’s the free market operating. If their cherished content can’t overcome the poor user experience to have those tablets be bought by customers, then the market has spoken and the content simply wasn’t worth it.
The publishing industry needs to get its head out its butt, and look around. The simple truth is that Apple has set up its AppStore/Newsstand on prime real estate; prime because Apple’s product owners have highly desirable demographics. As it has always been in the physical world, if you want to set up shop on prime real estate like Fifth Avenue or Av des Champs Elysees, you pay more, and most likely not on the terms you want. If you don’t want to pay, you can go set up your shop in a Kmart or elsewhere like Eighth Avenue or Avenue d’Lena, and figure out how to get customers to even see your goods.
There is no “Tablet Market”, there is a device made by Apple which is very successful and which other companies have attempted to copy. They have been spectacularly unsuccessful, I don’t believe the 75% market share being touted, these numbers are based on these companies’ shipping numbers not sales. Apple’s percentage is in the 90s. So to suggest that somehow Apple is controlling the “Tablet Market” is bizarre. What market?
The idea that EU regulators are going to attempt to control what happens in the app store is also strange. Who cares if a few developers don’t get what they want, There are other stores, Android has a few and Microsoft would definitely appreciate their attention, they’ll probably even pay developers to make apps for windows phone 7 ultimate edition or whatever it’s called.
From the customer perspective, the App Store, iPad and iPhone are pretty much perfect, we have never had it so good, we don’t need regulators to mess things up so that the copyists at Google, Microsoft etc have a chance to catch up.
High Quality watches said:
“We truly appreciate your blog post”
Well ain’t that nice.
But seriously. Even if apple would control the “tablet market”
A) this is through adeptness, without collusion or competition restriction and (more importantly)
B) it’s a nascent market (I think it might be the first time a device type has reached this Importance this quick) and any regulatory measure woul be premature (like slapping Microsoft in the early eighties for their near monopoly through the IBM PC.
My two eurocents.
dominant position in the tablet marke
With the help of computers and other advance technology, whole process of recording can be done in home studios but with real orchestral people recording studio is necessary.
The Nightingale appears to be more closer to workplace culture.
On the other hand, I was having some really bad handshaking problems
that seemed worse when playing SACD, DVD-Audio and BD Audio discs at 1080p output (or on “auto”) and Source
Direct helped here.
At the end of the day, we almost felt as if our brains were about to explode, but in the sense that
we got so much encouragement and advice, at some point
some of us just wanted to drop everything and go create a startup to change the world.
All these aspects are kept into consideration during
the overall development of any website. Yet not all small
businesses are job creators but only those that are relatively young and expand rapidly during their early stages.
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