With 60% of the US smartphone market, Apple is undoubtedly huge, but it's not a clear monopoly.
But Apple's years of innovation have effectively given it its own proprietary technology ecosystem. Now, the US Department of Justice (DOJ) has argued that this ecosystem is undermining competition and innovation through Apple's unique market power.
The department's lawsuit will face several major hurdles. Perhaps the most important of these is that many of the “anti-competitive” systems that Apple has built are precisely those that enable the bold innovations that Apple is famous for.
Fee
Apple is the latest major US technology company to be investigated by the US government for alleged anti-competitive conduct.
The Justice Department explains the lawsuit through five consumer-relatable examples of how Apple's iPhone ecosystem stifles competition.
The department blames Apple's closed technology ecosystem for the lack of competitors for “super apps” like WeChat in the United States.All Me/Shutterstock
iPhone cannot provide all the features of a “super app” like WeChat
Game streaming app limitations
Functionality is divided between “blue bubble” friends and “green bubble” friends on iMessage
Poor connection between non-Apple smartwatch and iPhone
Digital wallet technology that locks out third parties.
Read more: Why are Apple, Amazon, Google, and Meta facing antitrust lawsuits and huge fines? And can they protect consumers?
In the United States and other jurisdictions, tech giants have already taken steps to address some of these concerns.
However, the Department of Justice emphasizes that these complaints are not exclusive or exhaustive. These are examples of how Apple's “closed” ecosystem locks customers into what his Apple has built.
Private innovation requires private infrastructure
Part of the problem for the Justice Department is that the world of technology has been left to private design for three decades. To enjoy strong growth and innovation, we must rely on private infrastructure.
Having the most disruptive idea may capture the attention of consumers, but a huge infrastructure will keep them as customers (for example, OpenAI's partnership with Microsoft).
Our research group considers how digital innovation will shape the “infrastructure” that guides our increasingly digital lives.
Even though Apple has long stuck to its “Lightning” connector, it has been heavily involved in the development of USB-C technology. Ivan_Shenets/Shutterstock
Consider Apple's influence on everyday and technological things like USB-C technology. Or amazing cultural changes like Airpods. And how iPhone technology effectively launched Instagram culture.
The Department of Justice's main argument is that Apple's business model has now shifted from being an innovation leader to being a gatekeeper of cultural and technological infrastructure.
Such changes are not necessarily planned evil. Infrastructure can lead to further infrastructure with new benefits. It's no coincidence that the internet's fiber optic cables follow old railroad tracks on land, and telegraph cables lie under the sea.
However, over time, the combination of cultural and technological infrastructure built by powerful companies may dominate the market. To see how this story ends, think of Boeing.
Apple's definition of monopoly
Another problem for the Justice Department is that it is difficult to define the markets that Apple allegedly monopolizes or seeks to monopolize. Such a definition is required to apply the Sherman Antitrust Act of 1890 to corporations.
It makes sense that the department would use this law against Google, which controls more than 90% of the search market. But Apple's market share is much lower, and it doesn't even account for the majority of mobile phone sales worldwide.
To avoid this, the ministry argues that Apple's market is unique. Apple is famously good at creating its own markets. They rehash the familiar (hard drives and MP3 files) and create novel products (iPods) that “just work” for consumers and suppliers.
Apple's competitive advantage lies in creating a proprietary platform, which is currently being pursued.
As many of you may remember, before the iPhone was introduced, people didn't browse the Internet on their mobile phones. Before iTunes, digital music was either a hassle or illegal.
For millions of Apple fans across the United States, the Justice Department's logic is difficult to understand.
reliable intermediary
A particular recurring theme in this case is the need for “disintermediation,'' meaning the removal of “middlemen'' who take a cut between customers and suppliers.
The Department of Justice has found that Apple is restricting consumer choices, including by restricting interoperability with other products and imposing a 30% fee (the so-called Apple Tax) for doing business on Apple's platform. They claim that by imposing themselves, they function as such an intermediary.
The challenge is that in a world of bad actors (bad guys or incompetents) on the internet, people actually seem to like Apple's ability to mediate.
The company has enabled growth across its platform with tight controls over its apps, products, and services, and has developed a reputation as a great “mediator” for privacy, usability, and other consumer concerns.
For example, Apple's Wallet was launched to avoid sending credit card numbers to merchants, where data breaches and leaks regularly occur. This provided an intermediary solution in the presence of many malicious (and incompetent) attackers.
Apple Wallet securely completes transactions without sharing your credit card details with merchants.Kaspar Grinvalds/Shutterstock
The department's assertion that this practice creates “an additional point of failure for privacy and security” is disjointed.
An extensive history of cybercrime incidents around the world shows that retaining customer data is not only an asset but also a liability for consumers, credit card companies, and merchants.
During the pandemic, Apple's trusted intermediary capabilities also facilitated the success of Exposure Notification, a privacy-preserving contact tracing system that keeps individuals' exposure data away from governments and other parties.
However, in other areas, the ministry alleges that Apple is using this reputation in self-serving ways.
Fortnite developer Epic Games' ongoing talks with Apple over its policy of charging a 30% surcharge on in-app purchases is one key example.
Epic Games sued Apple after being banned from the App Store for adding a direct billing mechanism.Mundisima/Shutterstock
Without fear of retaliation from Apple, many developers likely would have followed Epic's lead and tried to take their customers' cash out of Apple's hands.
But Epic Games largely lost to Apple in U.S. courts, with the Supreme Court refusing to hear its appeal this year. This loss may have forced the Justice Department to act.
Read more: Apple, Google and their Fortnite stash is a classic example of how far big tech companies will go to stay in power
Even if this lawsuit is successful, there is no guarantee that it will result in beneficial changes for Apple or consumers.
In Europe, tech giants have already demonstrated expertise in “malicious compliance.” It reacted so viciously to the European Union's new Digital Markets Law policy that its solutions hardly worked and are now being re-examined.
All in all, it's not that Apple is necessarily the “bad apple,” but that “Apple vs. USA” forces us to think differently about what really drives innovation in modern technology.
