
Antitrust, the App Store, and Apple - djug
https://stratechery.com/2018/antitrust-the-app-store-and-apple/
======
scarface74
While I don’t care either way about the lawsuit, he did make one great point.
Apple under Tim Cook is more concerned about being profitable through rent
seeking than making products that people are willing to pay a premium for.

On an unrelated note, when people call Apple a monopoly because the only way
that you can reach IOS users is via the App Store, I always say how is that
different than the console makers[1]? But even more broadly, if you want to
reach Facebook users you have to go through the Facebook and the same with
Google and Amazon. How are any of the other platform providers any different?

[1] yes the physical media you buy for consoles still has to be approved by
the console makers, they are cryptographically signed and they have to pay a
license fee to the console makers.

~~~
snowwrestler
> Apple under Tim Cook is more concerned about being profitable through rent
> seeking than making products that people are willing to pay a premium for.

This just does not match any available data. Look at where Apple gets the bulk
of its revenue and profits: hardware products and optional services.

Look at their investment: the bulk of it goes toward developing new products
and acquiring new technical capabilities.

Look at their pay services, none of which are required. You don't have to buy
apps from the App Store; many apps are available for free, including almost
all of Apple's own apps. You don't have to subscribe to Apple Music. You don't
have to use iCloud for backups, for photo management, for anything, really.
You don't have to use Apple Pay.

Look at their open access to the Internet. You can load any website you want
in Safari... don't want the Facebook app? Just go to facebook.com, it works
great.

Look at their most popular service, iMessage, which is still free.

Look at their required software updates, which are all free. New iOS? Install
it for free. New version of Garage Band? Download it for free.

I think people are getting confused about what "rent seeking" actually means.
Apple's paid services are _upsells_.

Rent payments are not optional (just like paying rent for real estate--you
have to live somewhere). Microsoft made tens of $billions charging for non-
optional OS updates and application updates... that was rent seeking. Again:
note that Apple does not charge for their software updates!

~~~
ballenf
You may be strictly technically correct, but it doesn't reflect reality:

\- iCloud free tier is 5gb -- not enough for even a casual phone user with 1
minute 4k 60fps video (option on iPhones for 2-3 years now) takes 400mb.

\- The alternative to "paid" apps are ad-supported apps. You're paying either
with your bank account or your data and attention. I don't think we should
call this optional and otherwise encourage ad-based ecosystem. (And, side
note, I argue Apple should also tax ad revenue to prevent the current
artificial advantage ad revenue has over IAP.)

The rent seeking point from Stratechery is taken directly from Apple's own
earnings calls where they are now measuring their success based on revenue
from this rent-seeking instead of on devices sold.

Whatever is measured will drive the company focus. To sell more devices they
have to innovate and increase excellence. To increase rents they have to wring
more and more $$ from existing users (with a secondary focus on increasing the
hassle of switching). Apple themselves explain that they have shifted their
focus from the former to the latter.

~~~
snowwrestler
> The rent seeking point from Stratechery is taken directly from Apple's own
> earnings calls where they are now measuring their success based on revenue
> from this rent-seeking instead of on devices sold.

I challenge you to find one instance of Apple describing their own strategy as
“rent seeking”.

Again: people are getting confused. Optional paid services are not the same
thing as rent seeking.

~~~
scarface74
Rent seeking is the amount that Apple charges for media it sells.

------
dkrich
I agree with most of the article, but don't really like how it just breezes
through this part:

 _[Apple] can leverage its smartphone share into monopoly profits on digital
goods and services that are on iOS not because iOS is anything special, but
because that is the only possible way to reach nearly 50% of the U.S.
population._

But it _is_ something special precisely because Apple has enforced such strict
quality control measures for its apps. It has refused lots of apps because
allowing them would damage users' trust of its store. So just having an app
show up in the store is a signal of quality. This is precisely why the store
can reach 50% of the market. This is significant because without those
standards from day one, I don't think Apple would have achieved its reputation
as best in class which allowed it to gain the leadership position it has. So
its a symbiotic relationship and you can't just focus on one side of the
equation.

There probably aren't a lot of people who remember the Palm app experience
which was way before the App Store. Apps were horribly unreliable and one had
to rely on outside reviewers to determine which if any should be installed.
Granted technology has changed drastically since then so its not an entirely
fair comparison, but still I believe that you can't simply look at the App
Store as a provider that could be replicated by anyone in the exact same
manner as Apple if only they were allowed to. I do agree that users shouldn't
be restricted from visiting other sites from within apps or even download from
outside sources if a particular developer chooses to release its apps through
an outside distributor.

~~~
pentae
You nailed it on the head in your last sentence. Consumers can enjoy all of
the benefits you mentioned with the App Store but should still have the
ability to side load apps from Safari with a big "Warning - this app is not
approved by Apple and may harm your device" popup. The fact that it's not even
remotely an option like it is on Android devices is the issue. As a developer
I want to be able to provide my customers with my iOS software without going
through the app store, and if they don't want to load it that's up to them.
But we should all have a choice.

~~~
macintux
Part of the reason Android has a reputation as a malware-ridden platform is
due to that freedom of choice.

~~~
ronsor
I'm pretty sure most android crap is delivered through Google Play

------
AlexandrB
I think what bothers me most about Apple's behaviour with the App Store is
this:

> Apple does nothing to increase the value of Netflix shows or Spotify music
> or Amazon books or any number of digital services from any number of app
> providers; they simply skim off 30% because they can.

30% is a huge cut for what amounts to hosting, payment processing, and basic
QA. Despite taking this big chunk, quality control in the App Store feels like
it's on the decline - with a bunch of malware and scams slipping through in
recent years. And of course, charging 30% for non-app content distributed
through the App Store is completely insane.

~~~
ubernostrum
How does Apple get a 30% cut out of me using Netflix? If I want Netflix, I go
to netflix.com, sign up and give them payment information, and then use my
browser, or Netflix apps on phones, TVs, etc. The Netflix iOS app is listed as
free to download. Where is Apple's 30% cut of my Netflix subscription coming
from?

Same for Amazon's Kindle and video apps. Same for Spotify's app. The trend
there seems to be they make the app free, and let you sign up and pay for
their service on their own website (which you can do in Safari on iOS, if you
want to). So I don't understand how Apple's "skimming" anything out of those
apps -- 30% of $0 is $0.

~~~
luigi23
Here are the rules: you can offer subscription on your site, but you can't
link to it in the app. If you want to buy a subscription for Netflix/Spotify
in the app, then Apple will take 30% cut. Some sites give this option with
increased price by 30% to move payments to their sites, some don't.

~~~
ubernostrum
I know you _can_ offer subscriptions and purchases in the app. I just don't
understand how anyone thinks Netflix, Amazon, etc are _forced_ to, because
they aren't.

~~~
zapzupnz
They're not forced to, no, but they are forced to keep the price in the app
the same as elsewhere if they choose to offer in-app purchase subscriptions in
their apps; to be on the App Store, you're not allowed to offer a discount to
the same subscription cheaper outside the App Store. If there is a generally-
available discount (say, for a promotion), that discounted price must also be
reflected in the in-app purchase cost.

The net effect is that sellers lose 30% of the potential earnings from the in-
app purchases compared to getting subscriptions from elsewhere, and they're
not allowed to increase in-app purchase prices by 30% to compensate.

Because Apple disallows sellers from having messages or buttons in their apps
that take users to the sellers' websites in order to make the subscription,
users who don't know better than to use the in-app purchase system wind up
making the sellers less money — in theory. I say "in theory" since, after all,
the sellers don't have to deal with payment systems, credit card processing,
the sorts of hosting costs associated with popular app downloads, and so on.

On the one hand, it's clearly unfair and heavy handed for Apple to disallow
those messages enticing users to the websites so sellers can take the full
price. On the other hand, with apps moving to free-to-download but requiring
subscriptions to function, especially big ones like Netflix and so on, it
mightn't be that surprising: a 30% cut of the subscriptions might turn out to
be rather reasonable given that Apple's hosting the App Store, addressing and
directing complaints, handling payments, and more.

On yet a third hand, companies don't need to provide in-app purchases for
subscriptions at all, mandating that users go to their websites. It's up to
the sellers to decide what provides users with the least friction, though.

~~~
ubernostrum
_handling payments_

FWIW this is the main thing I like about the App Store rules. There are some
sites and services I'll trust with payment information, but there are many,
many more I won't. Being able to buy/subscribe to things anyway, with Apple as
the trusted intermediary handling the payment, is pretty convenient.

~~~
zapzupnz
I don't think people give enough credit to how expensive it can be to pay the
payment processors, given enough transactions. Maybe not so cost-effective for
smaller businesses, but excellent for the bigger ones or when there are heavy
spikes in payments.

Not only that, but letting your users not need to deal with credit card
details or remembering their PayPal logins, whatever, is very frictionless and
thus an attractive proposition for regular, non-technical users.

------
lbacaj
I love the analysis that Ben does on so many pressing tech related issues.

I agree with the majority of what he said but I disagree that it is that clear
cut that Apple’s rent seeking isn’t hurting costumers. While I’m no lawyer
either, the Supreme Court case that is relevant here was dealing with the
state of Illinois as a customer and the mass consumer markets are two
different things and I believe the Supreme Court will deal with this in a
separate lens.

Could be very well that Apple does win but the fact that a product like
Spotify, to name one, is cheaper when bought through the Spotify website and
more expensive on the App Store shows clearly that in fact this does harm
customers. I think the Supreme Court could rule in a whole other direction on
this because of that fact coupled with Apple allowing no other competition on
the platform, meaning no way to download a second App Store or even link to
purchasing the product on a website especially for digital goods.

~~~
nihonde
In your own example, you have the option to buy Spotify through other,
readily-available distribution channels. That’s evidence _against_ a claim
that Apple is abusing its position in an anticompetitive manner. The test for
monopoly isn’t what’s best for consumers; it’s whether a dominant player is
abusing its position to restrain competition.

~~~
slantyyz
I think what you're saying is true for probably 99% of apps on the App Store.

In Spotify's particular case, however, Apple owns the marketplace (App Store)
as well as a giant competitor in iTunes/Apple Music (and if I'm not mistaken -
I'm not an iOS user- Apple Music is pre-installed on every iOS device).

~~~
danaris
The music app is preinstalled. It happens to be the method you use to access
the Apple Music service (and yes, Apple _has_ been pushing that service
increasingly, to my mild personal irritation).

However, it's also the method you use to access music you own that is on the
iPhone, whether you've synced it from your computer or purchased it through
the iTunes Store.

Now, maybe I'm just a dinosaur for wanting mainly to listen to music I own
rather than streaming services all the time, but I don't think you can just
claim that use case doesn't exist or matter.

~~~
slantyyz
I'm not saying that use case doesn't matter, but one could make the argument
that the deep integration between Apple Music/iTunes into the Music app
combined with a 30% premium on competitors selling music subscriptions in an
app could be a non-level playing field.

Having said all of that, I think that because iOS is Apple's platform, and
they should basically be able to do whatever they want with it.

------
kyleandrew
I've been thinking about this case a lot as it compares to the investment
industry and it's troubling. Apple is the "market maker" here, not unlike the
NYSE or NASDAQ and they certainly add value to the consumer and the developer
by facilitating sales for devs and offering some level of protection for the
customer. Apple of course deserves to be compensated for that value-add. On
the other hand, Apple has built this "walled garden", which is another way of
saying monopoly, and that comes at a cost to both the consumer (higher prices)
and innovation (devs spend time/effort/energy complying with Apple's app store
policies).

I'm not terribly familiar with the case law but I do know that NYSE has had at
least a handful of similar antitrust cases in the past. I'm not sure if the
cases were getting at transaction costs but the crux of every antitrust suit
is generally that XYZ action by a monopoly leads to unjustifiably higher
prices. It occurred to me that as a result of this case Apple might change
their pricing structure to align with the pricing strategy stock exchanges
typically use. That is, a nominal transaction fee that covers _only_ the cost
of the transaction but then charges the companies an annual "listing fee."
That would be awful for innovation, small developers, and by extensions,
consumers who would then having fewer apps to choose from.

I suppose thats just a long way of me saying that I fear the Plaintiffs may
actually hurt consumers more in the long run.

~~~
scarface74
_devs spend time /effort/energy complying with Apple's app store policies)._

And that’s a good thing. Nintendo figured out in the 80s that crap devalues
your platform and they had to approve what games were allowed to run on it.
They saw what happened to Atari.

I’ll download basically anything on my iPhone because I know an app can’t do
much damage - unlike a Windows computer or a Mac.

~~~
kyleandrew
I absolutely agree from a consumer perspective. From the developer side though
I'm certain that there are some app store policies dev's have to comply with
that benefit neither consumer nor developer and are solely in Apple's
interest.

I guess it's just interesting to me because Apple is both the market _and_ the
market regulator here. Continuing with my stock exchange analogy Apple plays
the role of NYSE and the SEC. The nature of wearing both hats means there are
going to be conflicts of interest and Apple has a fiduciary duty to their
shareholders, not to their consumers. I see both sides but struggle to see a
solution that doesn't leave app store customers worse off.

------
andrewla
Full transcript of oral arguments :
[https://www.supremecourt.gov/oral_arguments/argument_transcr...](https://www.supremecourt.gov/oral_arguments/argument_transcripts/2018/17-204_32q3.pdf)

------
shmerl
A functional anti-trust would have blasted Apple a long time ago for banning
competing browsers on iOS. And I mean really competing ones, that aren't using
Apple's browser engine.

~~~
dep_b
Browsers are huge attack vectors as they allow you to run arbitrary code. I
wouldn't say there isn't a case to not allow third parties to run a platform
in your platform.

~~~
kllrnohj
Nonsense. If Apple was worried about arbitrary code they wouldn't have allowed
apps in the first place. Browsers are restricted to the same security context
that Apple trusts anyone who pays them $99 with.

They just don't want competition on their platform, and Apple is typically
remain small enough to get away with that position. Particularly in stronger
pro-anti-trust places like the EU, where iOS is less than 30% market share.

~~~
dep_b
Either you don't understand what arbitrary code is or you're just too angry
with Apple to want to understand it. But apps either run static code or use
the Safari JS engine to run code. That's all the flavors you have. Statically
compiled Swift code is much easier to deal with than whatever creative things
somebody can come up with with JS.

~~~
kllrnohj
Static code _IS_ arbitrary code. Apple didn't author it and didn't vet it.
They ran a static analyzer over it (not remotely foolproof) and then trusted
the actual security to the process sandbox.

Besides, nothing stops you from still running arbitrary code in iOS downloaded
from the web. You're simply restricted to doing that either interpreted or via
Apple's JIT. In either case you're still getting arbitrary execution that
Apple never statically analyzed, interacting with any APIs that the app wants
that code to have access to (intentionally or not).

------
amelius
The same arguments hold for the entire platform-economy.

See also: Uber, AirBnb, Amazon, UberEats, ...

We need some new laws, fast.

~~~
nabnob
Yup. Anti-trust legislation has lost its teeth.

Analyzing monopolies based on whether there is harm for the individual
consumer is completely insufficient for determining whether a company is a
monopoly. From "Amazon's Antitrust Paradox", in the Yale Law Journal:

>This Note argues that the current framework in antitrust—specifically its
pegging competition to “consumer welfare,” defined as short-term price
effects—is unequipped to capture the architecture of market power in the
modern economy. We cannot cognize the potential harms to competition posed by
Amazon’s dominance if we measure competition primarily through price and
output. Specifically, current doctrine underappreciates the risk of predatory
pricing and how integration across distinct business lines may prove
anticompetitive. These concerns are heightened in the context of online
platforms for two reasons. First, the economics of platform markets create
incentives for a company to pursue growth over profits, a strategy that
investors have rewarded. Under these conditions, predatory pricing becomes
highly rational—even as existing doctrine treats it as irrational and
therefore implausible. Second, because online platforms serve as critical
intermediaries, integrating across business lines positions these platforms to
control the essential infrastructure on which their rivals depend. This dual
role also enables a platform to exploit information collected on companies
using its services to undermine them as competitors.

[https://www.yalelawjournal.org/note/amazons-antitrust-
parado...](https://www.yalelawjournal.org/note/amazons-antitrust-paradox)

~~~
pitaj
If a monopoly exists, and doesn't harm the consumer, what's the issue?

~~~
amelius
Two points:

• You don't know if it doesn't harm the consumer, because if there were more
players on the market, the consumer could (possibly) have more choice and
access to better products.

• The monopoly could harm the consumer in the future. At that point it may be
more difficult for the market to bootstrap competing products (especially if
the monopoly controls the entire supply chain). This is a bad situation, even
if it doesn't harm consumers now.

~~~
pitaj
You can know if consumers are dissatisfied, which is a sign of market failure.
It's impossible to prove that harm doesn't exist, because you can't prove a
negative.

If the monopoly does start substantially harming consumers, then I'd say
that's when action should be taken, not before the market has a chance to
respond.

------
makecheck
I would add to this that there is no way for developers to actually know what
their sales are without depending on Apple APIs, there is no way to even
_communicate_ with customers without Apple APIs, etc. Furthermore, Apple
forces you to take out a short-term loan with them because they won’t pay you
until some threshold is met every month or so (great, let me tell my web host
to not charge fees this month). Sometimes they will not show you any numbers
_at all_ , even for history that you know is nonzero, if your app falls below
threshold for awhile.

And these are completely unnecessary Apple dependencies.

~~~
willio58
What would you suggest for knowing sales of apps without Apple's APIs?
Basically all of these issues come from Apple requiring all apps to be sold
through their store. For the end-user experience this has proved very good.

------
throwaway122378
This should be looking at allowing users porting capabilities for their Apps
from iOS to Android (or others). That’s the real monopoly across all platforms
and devices, not the App Store.

------
auslander
It is a counter-attack by Adtech industry. They were not amused by Safari ITP
2.0 and other Apple privacy features.

iPhone market share in US is ~50%.

