This morning, I heard a report that anti-trust enforcers might be considering an investigation against Apple. So I started to do a little research. Business Week reported the story as follows:
U.S. antitrust enforcers are considering an investigation of Apple Inc. following a complaint from Adobe Systems Inc., according to people familiar with the matter.
Adobe says Apple is stifling competition by barring developers from using Adobe’s products to create applications for iPhones and iPads, said the people who spoke on condition of anonymity because they aren’t authorized to discuss the case.
I’ll admit right off the bat that anti-trust is not one of my areas of expertise. But this intrigued me, so I started doing a little reading up on The Sherman Anti-trust Act and there is a great overview of Anti-Trust law here, courtesy of West’s Encyclopedia of American Law.
The general definition of a monopoly is:
An economic advantage held by one or more persons or companies deriving from the exclusive power to carry on a particular business or trade or to manufacture and sell a particular item, thereby suppressing competition and allowing such persons or companies to raise the price of a product or service substantially above the price that would be established by a free market.
And the general legal definition of a cartel is:
cartel n. 1) an arrangement among supposedly independent corporations or national monopolies in the same industrial or resource development field organized to control distribution, to set prices, to reduce competition, and sometimes to share technical expertise. Often the participants are multi-national corporations which operate across numerous borders and have little or no loyalty to any home country, and great loyalty to profits. The most prominent cartel is OPEC (Organization of Petroleum Exporting Countries), which represents all of the oil producing countries in the Middle East, North Africa and Venezuela. Many cartels operate behind a veil of secrecy, particularly since under American anti-trust laws (the Sherman and Clayton Acts) they are illegal. 2) criminal syndicates like the international drug cartel headquartered in Colombia. (See: antitrust laws)
Ok, so let’s look at the Apple case more closely. Apple, which up until the past three years, only controlled a tiny fraction of the computer industry, has been getting bigger. Its iPods, iPhones and now iPads, along with the iTunes store, created a new market for digital information, from music, movies and entertainment, to mobile productivity applications, audio books and now digital books as well. They provide an opportunity for just about anyone to access this market, as long as you obey their admittedly somewhat vague standards or program in the languages that are compatible with their platform.
As a podcast producer, I have used iTunes to distribute my podcasts for free, and have been able to develop an audience and a business as a result. While my podcast is also available directly from my website, and that of sub-projects like OB-GYN To Go, and from the Zune Marketplace, it’s clear the bulk of my audience gets the shows directly through iTunes.
I don’t see this as very different from setting up a shop at the mall. The mall creates a “platform” or marketplace, which, for compliance (ie. paying rent) I can sell my wares. It’s unlikely they’ll rent to me if I am selling illegal drugs or other “inappropriate” merchandise, and I choose to be there and comply with their rules. If I tried to sue the mall for being anti-competitive, people would laugh and say there are plenty of other places where I could set up shop and if I have a bad business model, that’s my problem.
Let’s move into computers. Microsoft got into trouble by not allowing other internet browsers on its systems- in essence limiting someone’s access to the internet to Internet Explorer. And Microsoft certainly benefits directly and indirectly from people using its operating systems on PC’s which still dominate the market of computers. Yet because Microsoft does not manufacture the hardware, they don’t really control, top to bottom, everything about PC’s- you can install LINUX or other operating systems onto PC’s. There’s even a whole community that’s figured out how to install the Mac OS onto netbooks.
So, even though Apple makes what can be a bottom to top integrated experience, the Mac OS can be used on non-apple systems as well. And people have figured out how to “jailbreak” iphones to do all sorts of things not controlled by Apple or iTunes, including act as a 3G modem for your new iPad. In this way, it’s hard to see Apple’s computer business as being a monopoly or cartel. Let’s take a look at it’s ever-growing share of the mobility market, in comparison.
Apple was late to the cell phone/netbook game. But the platform it created with the iphone, ipod touch, and now iPad have blossomed, because it allows people to take digital data and information in just about any form with you, essentially putting a computer in your pocket. This means music artists rush to put their music on itunes, TV and movie producers, despite their concerns about the demise of DVD’s and other established delivery systems and ecosystems are largely playing along and reaping the benefit. Even Amazon is selling digital books for the Kindle to iPad users like me. (More on Amazon in a minute.)
Software developers, who used to concentrate on the PC market because of the volume of users out there, are now developing applications for the mac and mobile platforms ranging from Google’s Android, RIM’s Blackberry and of course, Apple’s iPhone, iPod Touch and iPad. They have built stuff for Palm and other platforms as well- even Windows Mobile, (here’s a good write up of mobile platforms) although Windows 7 mobile seems to be delayed with phones from HTC not shipping until the end of the year.
If I’m a developer, I build stuff for where the customers are. If I build for the iphone, I get access to iPod Touch and iPad users, and while Apple takes a cut, they are acting as an agent, and I still make 70%, which is more than most authors make on books, regardless of the distribution channel. I can also build apps across platforms, if I choose- I am not “limited” to one mall or marketplace, and I can choose where to go. I could still build things in BASIC if I wanted to- (but I might not find any customers)- and that’s not Microsoft’s or Apple’s problem, is it?
This does not sound anti-competitive to me.
Adobe is annoyed because flash crashes with a lot of Apple devices. Apple contends there are better coding platforms out there, more robust and stable. And they’re probably right. Adobe has a choice to make flash more compatible with mac products and access their customers, or decide to work with other platforms- that is their choice. Apple may be the current 500 lb. gorilla, but they do not have a lock or even 50% of the PC or mobile marketplace, so I have a very hard time understanding how they could be meeting the definition of Monopoly or Cartel under the law.
It’s possible that the attractiveness and quality of Apple’s offerings may push it into a place and time where it does have to content with allegations of monopoly. I also wonder why Amazon does not face these same allegations because of their impact on the book market from publishers or even other book sellers like Barnes & Noble or Borders, if an appearance on a convenient, winning ecosystem that people seeking distribution can’t do without.
Now Amazon does do some price setting on books and takes a cut of the price, like Apple. Apple controls its ecosystem, but there are plenty of apps, songs, podcasts, books and other information that are free of charge. If you want the popular stuff, you have to pay, just like in real life- no different than going down to the mall, except buying things on the fly or from your home is generally more convenient.
Adobe is annoyed that its Flash cash cow is on the downswing, with even Microsoft talking about HTML5 and H.264 and robust industry standards for video, which is essentially Apple’s position. Flash is known to have security issues, performance issues, and it’s more of “a monopoly” , in that requires Adobe software to use. Adobe’s Creative Suite starts at $1,899, where joining the iPhone developer’s program costs only $99 a year in comparison.
I think this anti-trust allegation is silly, and is not going to go very far for Adobe.
The future is going to be developing web applications and even mobile applications that are, as far as possible, platform agnostic. Your app and the “idea” or reason behind it should work as well on a PC, mobile phone of any platform, and Apple device equally. That’s like selling your product online, at a bricks and mortar store, and through friends and neighbors- you take advantage of where your customers are, simple and easy.
Yes, you have to pay rent and meet standards to be admitted to Apple’s mall and customers, but the same is true everywhere else. And Adobe should be concentrating on making flash better so it wins based on excellence, not whining about its decline.
What do you think? Am I wrong here? How did Apple go from last place and dying to an industry leader, if not by creating things people want, and creating an infrastructure/sandbox where people want to play and profit? When does this become a monopoly?