Needham: The House antitrust report didn't lay a glove on Apple

Analyst Laura Martin quotes at length from skeptical regulatory experts at the Technology Policy Institute (TPI).

From a note to clients that landed on my desktop Wednesday, starting with Martin's preamble:

Yesterday, the House subcommittee on Antitrust released a 450-page report outlining anti- competitive threats posed by AAPL, AMZN, FB and GOOGL. Our key take-aways from the 45 AAPL pages include: a) dozens of complaints about AAPL (out of the 20mm app developers and 1.8mm apps in AAPL's App Store), with zero positives about AAPL's value to consumers or life- improving innovations; b) underscores AAPL's strong shareholder value proposition and finds fault with widely used business practices such as bundling; and c) most complaints about AAPL are biz judgments (they charge too much, they pre-load their apps, etc), and not easily fixable through regulation. Finally, because AAPL's core asset is access to nearly 1B of the wealthiest consumers, we do not expect this report to materially impact valuation.

Quoting from the TPI's "Is There Evidence of Antitrust Harm in the House Judiciary Committee’s Hot Docs?"

Relating to key issues raised by the House report about AAPL, regulatory experts at Technology Policy Institute (TPI) believe:

  1. "The key regulatory question is whether Apple uses the App Store to systematically foreclose competition or engage in unfair or deceptive practices using quality control as an excuse. This question cannot be answered by claims of a few developers, whose particular apps may have been technically deficient, failed to meet some security standard, or whose apps were unfortunately harmed by legitimate changes in the App Store. "
  2. "Determining whether Apple behaved anti-competitively when it pre-loads its owned 40 apps will involve considerations such as the difficulty of downloading and installing replacements for AAPL's pre-loaded apps (ie, none), the level of integration of AAPL's owned apps with its operating system, and any negative effects on innovation inside AAPL's app ecosystem."
  3. "Whether Apple’s app review policies are antitrust violations will hinge on how its policies affect the market and whether prosecutors can prove that the issues raised are not just disputes between large companies over how to distribute profits and protect user privacy/security. Not being able to pay for Netflix and Spotify within an app are not, by definition, harms. To prove harm, a plaintiff would have to demonstrate that their absence foreclosed access, thereby harming consumers."

Buy rating and $140 price target unchanged.

My take: Martin (or staff) did her clients a huge favor by stripping out the footnotes and weird formatting in yesterday's committee report and quoting the full text of the 45-page Apple section.


  1. David Emery said:
    Most of all, whether or not Apple behaves illegally depends on how you define the market! I think legislators will struggle to come up with a definition of “market” that addresses the problems they see with the Apple App Store, but doesn’t do substantial collateral damage to other businesses/industries. I guess they could start with the Thompson notions of an ‘internet platform’ and define markets soliely in terms of ‘a market in a digital platform is ….. ”

    The one thing we know is that, even with a Democratic majority in both Houses of Congress and the Presidency, such legislation is unlikely to move rapidly.

    October 7, 2020
    • Fred Stein said:
      Good points, David. Thanks to you, PED, and TPI’s Sarah Oh.

      Your point about political process matters to investors. Voters won’t want Apple to be constrained. People, especially parents, want privacy, safety and security. They also like simplicity and cross-platform-ness, which would be diminished with regulation or breaking up Apple. Voters don’t complain about prices on App Store, mainly because there are so many free Apps that provide great value.

      October 7, 2020
  2. Fred Stein said:
    More about the political issue, w.r.t. Apple.

    1) Voters who are investors, consumers, and 99%++ of 23M developers love Apple and benefit economically from Apple in many ways. Microsoft were slammed because the really stifled Netscape/Mosaic; And their UX mad people angry.

    2) TPI says, misquoting the Captain in Cool Hand Luke, “What we have here is a failure to negotiate”… on the part of 17 out 1,700,000 Apps. The legislation process will collapse because it make no sense. Where is Judge Judy?

    October 7, 2020
    • Jerry Doyle said:
      @Fred Stein: “…. TPI says, misquoting the Captain in Cool Hand Luke, ‘What we have here is a failure to negotiate’… on the part of 17 out 1,700,000 Apps.”

      I chuckle because we older folk who grew up as teenagers in the ‘60s all remember that great movie line by the prison captain (Strother Martin) to the titular Cool Hand Luke (Paul Newman) on that south Florida prison farm: “…. What we’ve got here is a failure to communicate.”

      The irony of TPI getting it so wrong is parties never can “negotiate” until the parties first are communicating. 🙂

      October 7, 2020
  3. Jerry Doyle said:
    I compliment David Emery for his incisive comments. They are spot-on. Just to add my own basic political precepts in addition to David’s comments of which I agree, the House anti-trust committee and regulators will attempt to show that the United States is run by the federal government, not by self-interested capitalists with huge sums of revenues, market caps, cash and no scruples. Much depends on which party controls the Oval Office and the Houses of Congress.

    The Democrats are running on a platform calling for much stronger regulations in the running of big tech. While the Republicans make such cries because it is good politics, the Democrats make such cries because they literally mean it. Democrats honestly see tighter regulatory control over big tech as a form of nation building. State Attorney Generals see political benefits to ride this clarion.

    I do believe long term under a Democratic led administration and Congress we definitely will see reforming laws consisting of bolder actions to shape the digital age through imposing structural separations, and Elizabeth Warren already has said as much with Apple’s App Store.

    October 7, 2020
    • Jerry Doyle said:
      “… Democrats honestly see tighter regulatory control over big tech as a form of nation building.”

      What I meant to write above, and it is a critical omission is: Democrats honestly see tighter regulatory control over big tech as a form of nation building in reforming laws to fit the digital age.

      October 7, 2020
  4. Steven Philips said:
    To go with the “not getting political” theme…!
    The Republicans brought this on themselves.
    Now the Democrats are trying to retaliate.
    It doesn’t make for good governance!
    Biden might have an inclination to actually “govern” but the party’s agenda driven direction might not let him – any more than the few “never Trumpers” could influence the Republicans agenda driven politics.
    It’s interesting that the Democrats are trying mightily to accomplish exactly what this committee is condemning! A monopoly with the specific aim of restraining competition!
    If the Republicans could have just stuck with economics instead of trying to dictate everyone’s lifestyles. Their SOCIAL conservatism sucks!

    October 7, 2020

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