May 25, 2021 - Technology

Services push makes Apple a target

Data: Company earnings reports; Chart: Danielle Alberti/Axios

Apple's successful long-term effort to generate new revenue from the services that run on top of iPhones and Macs is also carving out new vulnerabilities for the giant — including antitrust charges, lawsuits by developers and new conflicts over privacy and content moderation.

Why it matters: Apple has been relatively unscathed by the criticisms that dog Facebook, Google and Amazon, but the more cash it squeezes out of its App Store and other services, the more of a target it will become.

Driving the news: Arguments wrapped up Monday in a three-week trial pitting Apple against Fortnite maker Epic Games, which wants to force Apple to open iOS to rival app stores and payment systems.

  • The decision will dictate whether Apple can continue to dominate how apps get onto its phones and shape whether the company can continue to boost its services income.

In Monday's closing arguments, Judge Yvonne Gonzalez Rogers pushed both sides on potential weaknesses in their cases.

  • While Epic is widely seen as facing an uphill legal battle, the judge has expressed skepticism about how much competition Apple faces.
  • At one point Friday she suggested that it was fear of lawsuits or regulation, not competition, that led Apple last year to take a smaller cut from small businesses.

The big picture: One reason Apple has faced less criticism than its Big Tech peers is that its profits depend much less on user-generated content or advertising revenue, which have become Achilles' heels for Facebook and Google. But Apple is facing new vulnerabilities on multiple fronts.

Developers: Apple's emphasis on services revenue has placed it squarely at odds with some key app developers — not just Epic but Spotify, Tinder and others.

  • The Epic trial could be the first of many. Several lawsuits are seeking class action status to sue Apple on behalf of either developers or consumers who contend they have been victims of Apple's anticompetitive behavior.

China: Last week, a New York Times investigation alleged Apple has ceded control of the data of its Chinese customers to the Chinese government.

  • Apple says it's simply obeying local law and has denied compromising the security of Chinese users.

App store reviews: The size of Apple's App Store makes governing it increasingly difficult, particularly with regard to user reviews, where critics say fraud has multiplied.

Privacy: As Apple rolls out new privacy protocols, it faces allegations of monopoly abuse from competitors, primarily Facebook, who argue Apple is trying to undermine competitors' advertising businesses.

What they're saying: Apple's requirement that developers use its app store and payment system "is basically stopping people from finding out they can get a better deal," said Sen. Amy Klobuchar (D-Minn.), chairwoman of the Judiciary antitrust subcommittee, previously told Axios.

Be smart: A recent Axios/Harris poll suggests Apple's reputation among consumers remains strong. But public image is a lagging indicator — and by the time Apple's gets dragged down, it could be too late to remedy.

The bottom line: Apple remains very good at selling beautiful, functional devices — lots of them. But as its hardware business stops growing and services become a bigger part of its revenue, its headaches are likely to multiply.

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