Apple in the hot seat

From The Verge’s “Congress is diving into the App Store fight” posted Wednesday:

The [Senate antitrust] hearing brought in representatives from companies like Spotify, Tile, and Match Group, a dating app company, to explain how Apple’s App Store fees and walled-garden business strategy harms their companies. All three companies gave harsh testimony, accusing the iPhone-maker of anti-competitive behavior over the burdensome fees it charges some app developers on its App Store.

The timing couldn’t be worse for Apple, coming just a day after the company announced an iPhone-linked item tracker called the AirTag in direct competition with Tile. Speaking to Congress, Tile’s General Counsel Kirsten Daru said that once Apple decided to develop its own item-tracking devices and services in 2019, the two companies’ friendly relationship dissolved.

“If Apple turned on us, it can turn on anyone,” Daru told lawmakers. “And Apple has demonstrated that it won’t change unless someone makes them, making legislation so critical.”

Apple’s shifting platform relationships were a theme in the hearing, with each company testifying to how quickly Cupertino’s collaborative outreach could turn competitive. Match’s Chief Legal Officer Jared Sine told lawmakers that app store fees amount to the company’s single largest expense, totaling around a fifth of the company’s total sales. Spotify’s Head of Global Affairs and Chief Legal Officer Horacio Gutierrez said that Apple’s business model equated to “a classic bait and switch,” luring developers into its app store and suddenly changing the terms to benefit the iPhone-maker.

“We all appreciate app stores and the roles that Apple and Google have played in helping to create many of the technologies that have defined our age,” Sen. Amy Klobuchar, chair of the subcommittee, said on Wednesday. “We’re not angry about success… It’s about new products coming on. It’s about new competitors emerging. This situation, to me, doesn’t seem like that’s happening.”

My take: It will come as no surprise to regular readers that I believe the App Store is an antitrust problem for Apple — not for charging rent, but for playing hardball with competitors in a park where it sets the rules and calls the balls and strikes. The full 3:15-hour hearing is available here. It starts at the 30-minute mark.

21 Comments

  1. Fred Stein said:
    Meanwhile, Apple will set records when AirTags go on sale.

    3
    April 22, 2021
  2. Jonny T said:
    Do not think Spotify’s Horatio is right in his bait and switch allegation. What terms changed – presumably for the worse? Spotify just decided they no longer liked the terms they signed up for to build their business.

    2
    April 22, 2021
    • Bart Yee said:
      @Jonny Precisely. Both Spotify and Epic both signed business agreements that they agreed with and to for access to their (and Apple’s) best revenue producing customers. They profited mightily with these relationships and grew their businesses and models. They even benefited from the 30% to 15% reduction in fees for subscribers over 1 year old. But once THEY grew to a certain point, or saw competition from others (including Apple) begin to eat away at THEIR slice of monopoly (Spotify = music, podcasts, Epic = Fortnite and Unreal), they try to unwind their SIGNED AGREEMENTS unilaterally in order to change the rules they agreed to in order to grab more away from their hosts (Apple).

      Personally, I say eff them, let them go straight over to Android entirely since Android is BY FAR the dominant ecosystem worldwide in unit numbers, active devices, reach to users, and “techy” people. Android is also, by far, the least secure, slowest updating, highly fragmented OS, and least demographic to be monetized, but hey, you won’t get to complain so hard against them.

      Want to gain access to APPLE users, not your users, pay some rent to have a place in APPLE’S marketplace, simple as that. A marketplace that Apple keeps expanding with products and services that keeps growing the hugely successful and willing-to-spend demographic year after year after year. Ingrates!!

      2
      April 22, 2021
  3. Senator Klobuchar gets to the crux of her argument 8 minutes into the hearing. Apple and Google are highly profitable and she wants a cut of those profits. She clearly says Apple and Google’s profits are driving regulators to go after them. Both Senators did not describe any monopoly actions. Senator Lee was mostly upset that the app at the center of the Jan.6 Insurrection was taken down. Some former politican ordered Senator Lee to complain about his lost Parler and Twitter access.
    Senator Klobuchar fails to understand GM has a monopoly on what shows up on the dashboard of GM Cars & Trucks. So does Ford & Toyota… Together they sell most cars and trucks. It that failure to fully open up the dashboard a monopoly too? Why are only Sirius XM and Bose allowed in?
    Does Tesla allow anybody’s software to be installed anytime? Where’s the discussion of Nintendo, Sony and other gaming sites that also take ~30%?
    If you search ‘Senate Antitrust’ at c-span.org the first link takes you to Recent Programs. Pick the April 21, 2021 program and at least listen to Apple’s Chief Compliance Officer, Kyle Andeer. He’s outlining their solid defense, based on security. Around this time Quanta announced Apple’s schematics had been stolen by BEvil. Odd timing, huh?

    4
    April 22, 2021
  4. The timing of the hearing — with Tile as a witness, the day after the AirPod unveil — couldn’t have been worse for Apple. Klobuchar knows how to do this stuff.

    1
    April 22, 2021
  5. Jerry Doyle said:
    @PED: My take: “…. but for playing hardball with competitors in a park where it sets the rules and calls the balls and strikes.”

    I disagree respectfully with your take. If Apple’s setting of the rules and calls the balls and strikes are targeted to give Apple enhanced competitive advantage then you have a valid point. If Apple’s setting of the rules and calls the balls and strikes are targeted to maintain a continuity of integrity, security and efficiency in the running of the App Store for Apple users (which is my perspective) then I see no anti-competitiveness by Apple in its running of the App Store.

    6
    April 22, 2021
  6. The independent expert, Dr. Mark Cooper, emphasized privacy and Opt Out and pretty much all of Apple’s talking points.
    Spotify’s Gutierrez spoke of ‘Digital sovereigns and how Apple rose to dominance by providing a platform to 3rd party developers instead of restricting the iPhone to Apple apps alone. Somehow Apple letting in 3rd party app developers so they can sell products and Apple making rules is abusive. I’m amazed to hear politicians arguing against Apple’s rules that protect consumers from fraud. US Consumer Protection Bureau being grossly underfunded.
    Ms. Kirsten Daru of Tile clearly described Apple’s use of nonproprietary, unhackable UWB technology for Find My. She insists the more easily hackable Tile method makes it easier for everyone to find objects or people. Everyone. Including Putin? Not a word about the landfill space taken up by old Tiles.
    On and on, none of the witness’ convinced me as juror and App Store consumer. Don Quixote had a better chance tilting at those windmills.

    7
    April 22, 2021
  7. David Emery said:
    There have been a couple interesting articles on AirTags that emphasize how Apple thought through security implications. One concluded “most Apple-like product in years.” It could well be that Apple looked at Tile and decided their products had not thought through these issues, and represented a danger (e.g. as a stalker’s device) both to the user and legally to Apple for selling them. In that case, Apple could be both faulted and conceivably praised for not publicly announcing all the flaws with Tile’s product.

    3
    April 22, 2021
    • David Emery said:
      And thinking about how Apple should respond: There are continuing posts about crap apps that get through the App Store review process. Apple should come armed with statistics on how many do NOT get through, and the potential harm those could have caused. App store curation is by no means perfect. BUT it’s a huge part of the value proposition when it does work. That’s a point that needs to be hammered to Congress, that messing with the Apple ecosystem would hurt voters.

      It’ll be interesting to see how Epic manages/curates their store.

      3
      April 22, 2021
  8. Daniel Epstein said:
    While Apple is not close to perfect in its execution or management of its business and relations with customers and app developers it seems like people who are demanding change in the App Store have much more self serving motives than Apple. Using terms like monopoly to describe Apple’s control make sense as propaganda but not in fact. What the developers who are complaining are asking for is a freer ride if not completely free. They say Apple is profiting too much without offering any counter offer of what is fair except seemingly zero profit for Apple. Contracts between businesses have many restrictions over what one party or the other has to do to fulfill the agreement. From what I can tell Apple has based its charges very similarly to other platforms. Not the cheapest but not the most expensive. Certainly very similar to other retail areas. It is some of the developers who seem naive about the cost of doing business and who gets to profit and how high or low that might be. If Apple’s store is such a bad deal then the businesses will not make Apps for it. If the chaos of every app developer can make up its own rules is the economic model for this area then it is likely the App Developer community will end up suffering.

    3
    April 22, 2021
    • Gregg Thurman said:
      If Apple’s store is such a bad deal then the businesses will not make Apps for it.

      Of all the valid arguments made on Apple’s behalf, this one is my favorite.

      Before the App Store there little, if anything, in the way of a central distribution point. Symbian was the dominant mobile OS, but even it had variations that were incompatible with other variations. You had to find the app through publications that you wanted, then find where it could be purchased, then hope it was compatible with your model Nokia handset.

      When the Appl Store was introduced at WWDC the audience stood up and cheered, despite Apple’s 30% cut. 100% of nothing is nothing. 70% got them more, much more, and they knew it. Not only would sales skyrocket, but the expense of maintaining multiple variants disappeared.

      4
      April 22, 2021
  9. Match is upset that Apple insists they verify the age of dating site users. Match wants access to the pictures and birthdates of all Apple ID owners, simply for verifying the age of those seeking a date and no other purposes, except marketing, honest!
    Both Senators insinuating the largest corporate tax payer, the largest dividend payer is some kind of organized crime syndicate. Unknown witnesses are too afraid to speak out for fear of retaliation from Apple in-house Yakuza. I’m surprised the committee has not gotten to RICO laws yet.
    The cost of designing the hardware & OS wasn’t mentioned. Apple must also eat the cost of maintaining their stores, virtual or brick & mortar. Senator Blumenthal is for rolling out the Sherman Act and wants interoperability between Google and Apple apps. ‘AirTags are a carbon copy of Tile.’ Tile controls 80-90% of the market now. But that’s not a monopoly today. Clueless, for such an otherwise intelligent gent.
    Finally, Senator Hawley, the fist-pumping Insurrectionist, went directly after share buybacks and Apple’s money, while insinuating Apple spends nothing on Security. Huh?

    3
    April 22, 2021
  10. Gregg Thurman said:
    I actually hope this goes to trial. The arguments against Apple are pitifully, illogically weak. Apple’s defensive arguments aren’t just strong, they’re unassailable.

    1
    April 22, 2021
  11. Thomas Larkin said:
    Half the problem is sorting out the legitimate gripes and need for higher scrutiny of dominant players, from the red herrings, false arguments, populist crusades and First Amendment issues (many members of both parties seem to have little grasp of them). Like others, I think Tile is just looking to protect a tired, legacy product, and the effect of giving them what they want would inevitably be to stifle innovation (Tile stopped innovating so Apple shouldn’t be allowed to? – Absurd). I could see allowing Spotify to simply include a website address, where people go to sign up and pay outside of the App store; that said, there are a great number of us consumers who really do want to be able to choose whether they are tracked and profiled, with their data not just used to target advertising, but also sold to third parties including domestic and foreign government entities (and private parties wanting it for . . ., ?). Privacy and security matter, and those who don’t want to give this consumer that choice can choke on their own business model, as far as I’m concerned. I also see huge Constitutional problems with government in effect mandating that customers have to share their data if they want a smart phone. Oh, and let’s not forget there’s a trial coming up, so definitely more information to come on the whole Epic ‘crusade.’

    3
    April 22, 2021
  12. Michael Goldfeder said:
    After Epic loses their idiotic case in the US Federal District Court in Oakland, this entire “Antitrust Hysteria” will evaporate much like the Ireland/Apple tax case brought by the EU’s Margrethe Vestager.

    Which BTW ought to issue a final ruling later this year after the EU’s highest court took up her appeal to overturn her loss in the lower court that vitiated her $13 billion tax claim.

    2
    April 22, 2021

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