Apple's closed world draws new fire
A wide range of Apple's practices that flew under the radar when the company was an underdog are coming under new scrutiny today.
The big picture: Apple's long history as a second fiddle — first to IBM, then to Microsoft — earned it freedom to set its own rules even as it built much more tightly controlled ecosystems than its rivals. But now it's the world's most valuable and arguably most powerful tech company.
Driving the news:
- On Monday, the EU notified Apple that it has reached a preliminary finding that Apple violated its antitrust laws by limiting the iPhone's touchless instant payment system to only support Apple's service. Bloomberg reported Monday that online payment rival PayPal helped spur the complaint.
- Europe's Digital Markets Act, meanwhile, would force Apple to allow users to download iPhone apps via third-party platforms and allow developers to offer their own payment systems.
- The scrutiny isn't limited to Europe. In South Korea, a relatively new law is forcing Apple to allow rival payment mechanisms. Apple's conduct would also be further limited under many of the antitrust bills being considered in the U.S.
What has changed isn't Apple's approach, but rather its size.
- For most of its history Apple has gotten away with practices that might have drawn regulatory attention if the company had a larger market share.
- When Microsoft was under fire in the '90s for bundling Internet Explorer and media players into Windows, Apple was doing the same on the Mac.
- As Apple moved into digital music, the iPod was the only music player that worked with iTunes, and iTunes was the only way to buy music to play on an iPod.
With the iPhone, Apple extended its control far further, making its mobile browsing engine the only option for web access on the phone.
- The first iPhone only allowed Apple's own apps. When the company opened the device to other app makers, Apple made itself the sole arbiter of what apps users could download, while taking a cut of both app sales and payment for in-app digital goods.
Between the lines: Most competition laws don't focus on control per se but target companies with a grip on a particular market that use their power to dictate prices or expand into adjacent markets. But Apple has been pushing the boundaries of antitrust law for a while.
- Its first big brush came via a lawsuit over ebooks nearly a decade ago.
- There, though Apple wasn't judged to have a monopoly over the phones and computers used to download content, the courts ultimately found it to have conspired with publishers to inflate the price of digital books.
Be smart: The highest stakes for Apple right now lie in the fight over the iPhone's App Store rules.
- Apple has made modest tweaks to its policies, including some as a result of lawsuits or legislation, bringing significant changes to its once-standard 30% commission on most App Store transactions.
- But the company has made clear that it views its control over who gets to put apps on iPhones as a line in the sand it intends to defend. It argues that efforts to reduce that control — either through rival App Stores or so-called "side-loading" — will harm users, making their phones less private and secure.
- "We are deeply concerned about regulations that would undermine privacy and security in service of some other aim," Apple CEO Tim Cook said in Washington last month, referring to both the EU's DMA and a number of bills working their way through Congress that would also force Apple to open up the App Store.
What to watch: It's yet to be seen how Apple will comply with the Digital Markets Act, and none of the U.S. antitrust bills has passed Congress.
- Momentum may be building for further curbs, but Apple has found ways to resist major changes, even in face of laws like South Korea's that take careful aim at its business.