Hot on the heels of cases against other tech titans, the US government has filed a lawsuit against Apple. The Department of Justice is accusing Apple of adopting anti-competitive practices to maintain its monopoly in the US smartphone market.
The case has attracted less attention in the media than cases against others like Google, but it is different and stronger. And like the antitrust case against Microsoft in the late 1990s, this one has the potential to significantly change the tech landscape.
Apple’s fortunes changed with the launch of the iPod in 2001. This success was driven largely by the consent decree in the Microsoft case, which forced Microsoft to open up its Windows PCs to Apple’s iTunes. The subsequent success of the iPhone was largely built on that initial breakthrough.
Now, Apple and Samsung control around 90% of the smartphone market in the US, with Apple controlling 70%. There are only two smartphone operating systems, Apple’s proprietary iOS and Google’s Android, which is available freely.
Apple’s primary goal is to ensure that its monopoly in the smartphone market remains unthreatened. To do so, it has created a range of applications, services, and devices like Apple Pay, Apple CarPlay, and Apple smartwatches to lock in customers. The entire point is to create ‘stickiness’, making it difficult for customers to move away from the Apple ecosystem.
It would be great if people using Apple and Android phones could seamlessly access the same services. But if that were to happen, many customers would no longer need to pay for the higher-priced iPhones, which would threaten Apple’s dominance in the smartphone market.
Think about New Zealand’s broadband internet service. The fibre optic cables are all owned by Chorus, but there is active competition over who provides the service between OneNZ, Spark, 2 Degrees, Skinny, and others. Suppose Chorus said that since they own the cables, they should be the only ones allowed to provide a broadband service, not anyone else. This would be anti-competitive.
So, what potentially anti-competitive tactics is Apple employing to ensure customers remain tied to its devices?
First, the tech behemoth ensures its devices don’t work seamlessly with other devices for messaging services. It does this by deliberately downgrading the quality of the experience to give customers the impression that the inferior quality of Android devices is causing this. To do this, Apple often sacrifices the encryption and privacy of messages sent. The Department of Justice lawsuit quotes an Apple executive: “…in going forward, we need to set a stake in the ground for what features we think are ‘good enough’ for the consumer. I would argue that we’re already doing more than what would have been good enough. But we find it hard to regress our product features YOY [Year over Year]”. Consequently, in 2023, Apple “spent more than twice on stock buybacks and dividends as it did on research and development.”
Another way that Apple downgrades the user experience is by actively disallowing the development of ‘super apps’ and other cloud-based apps. A super app allows users access to multiple apps within a single app such as Expedia that allow users to search for flights and hotels without having to check multiple different sites, or Netflix, which allows you to search for numerous movies or TV shows within the same app.
Apple does this by denying developers access to Application Programming Interfaces (APIs). This means that developers must write separate programs for Apple and Android phones, which is often impractical. Apple can restrict access to APIs via its role as an intermediary between the developers and users.
The company is fully aware that the development of such ‘middleware’ that allows users to access super apps or cloud-based apps (including games) makes the underlying phone software and hardware less important. Users can easily access these apps using cheaper Android phones rather than more expensive iPhones.
A final way Apple locks customers into its ecosystem is by using tying arrangements. Anyone with an Apple Watch knows you need an iPhone for the watch to work. iPhones don’t work with Android watches. There is no reason why this should be so: smartwatches should work with smartphones.
Apple’s response is that there are valid technological reasons for its choices and that the US DoJ case effectively tries to turn an iPhone into an Android phone. However, some strategies adopted by Apple, such as tying arrangements for smartwatches, have already been litigated in other cases and have been struck down as anti-competitive.
It remains to be seen whether Apple can provide a comprehensive rebuttal on the basis of technological arguments.
The case against Apple may force the tech giant to provide greater access to APIs, just as Microsoft was forced to do. This will result in greater availability of apps that will work across iOS and Android devices, greater competition and innovation across the smartphone ecosystem and cheaper smartphones.