What’s going on? Some of the noise is standard fare for politicians with an election on the horizon. Some of the noise seems to have increased in recent weeks and government officials are using both anti-trust and monopoly phrases to intimidate technology giants.
The Monopoly Game
Guess what? In business, in the good old U.S. of A., a monopoly is not illegal. Monopoly abuse, however, gets the government involved, and many companies have been accused of illegal monopoly abuse.
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity.
Apple is the only supplier of iPhones, so is that a monopoly? Yes. But it is not illegal, mostly because iPhones are smartphones and the market has many, many choices for consumers.
Competition in the smartphone industry is intense.
Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller’s marginal cost that leads to a high monopoly profit.
Monopoly does not apply to Apple’s iPhone but how about the App Store?
That’s the only place you can get applications, but Apple does not dictate prices– developers are in control, Apple simply takes a fee to handle downloads, distribution, promotions, storage, etc.
What is Apple’s view of its seeming monopoly on access to applications for iPhone and iPad?
We believe that what’s in our store says a lot about who we are. We strongly support all points of view being represented on the App Store. But we also take steps to make sure apps are respectful to users with differing opinions, and reject apps for any content or behavior that we believe is over the line — especially when it puts children at risk.
That seems reasonable, right?
Yet, Apple charges Spotify the standard 30-percent fee to host the music app, which also competes directly against Apple’s Music app, which does not have to pay a fee, and therefore has an advantage.
Is that monopoly abuse?
84% of apps are free, and developers pay nothing to Apple.
True, but it’s Apple that collects the money paid to download an application, and the company then pays the app developer– minus the fee.
We also care about quality over quantity, and trust over transactions. That’s why, even though other stores have more users and more app downloads, the App Store earns more money for developers. Our users trust Apple — and that trust is critical to how we operate a fair, competitive store for developer app distribution.
iPhone and iPad users have many free Apple apps which compete against third party app developers who charge a fee. For example, Calendar competes against Google Calendar, Fantastical, and Microsoft Outlook.
The Camera app competes against many other apps, including Instagram and Snapchat. Even iCloud storage competes against Box, Dropbox, Google Drive, and Microsoft OneDrive, among many. Even the free Mail app has competition against Gmail, Outlook, Spark, Airmail, and Yahoo! Mail.
Competition abounds among app developers and Apple, but the App Store is the only place customers can buy and download apps, and the only place where developers can sell their apps.
Is that a monopoly? Or, something else?
A monopsony which relates to a single entity’s control of a market to purchase a good or service
From there it gets complicated.
Spotify has a good argument. It loses 30-percent of its App Store revenue to Apple while Apple’s competing Apple Music app does not.
Is that monopoly abuse? Both government officials and politicians think it may be, and the noise about monopoly and Apple will increase as the 2020 election nears.
Apple CEO Tim Cook:
If you look at our — any kind of measure about is Apple a monopoly or not, I don’t think anybody reasonable is going to come to the conclusion that Apple’s a monopoly… Our share is much more modest. We don’t have a dominant position in any market
Except the App Store where Apple sells products that compete with app developers. Is that bad? Is that an anti-trust abuse? If so, don’t buy Walmart-branded goods at Walmart.
I think some people would argue, if you are selling a good, then you can’t have a product that competes with that good… Walmart shouldn’t be stocking alternative or house brand. … And so this is decades of U.S. law here
This is going to be interesting and it’s just getting started.