Apple

What is the U.S. Department of Justice’s lawsuit against Apple about?

In 2010, a senior Apple executive emailed Apple’s then-CEO about an advertisement for the new Kindle e-reader. The ad began with a woman using her iPhone to buy and read books on the Kindle app. She then switches to an Android smartphone and continues to read her books using the same Kindle app.

The executive wrote to Jobs, “One message that can’t be missed is that it’s easy to switch from iPhone to Android. Not fun to watch.” Jobs was unequivocal in his response: Apple would “force” developers to use its payment system to lock both developers and users into its platform.

For many years, Apple has responded to competitive threats like this by making it harder or more expensive for its users and developers to leave, and more attractive for them to stay.

But before we start, let’s put things in context. Where was Tim Cook on the day this lawsuit was announced? In his office meeting with an army of lawyers. No, far from it, because big tech CEOs don’t give a damn about lawsuits. What matters here is the money.

Tim Cook was in Shanghai, where Apple makes most of its phones, where it forges all its relationships with Chinese leaders to increase its iPhone sales in China because, surprise, surprise, they are not doing well in the Asian giant.

And why are they not doing well? Because Apple has competition in China. Apple has dedicated itself in the US and Europe to boycotting any attempt to pass Right to Repair because the smartphone market is an aftermarket. This favors high retention rates in the US and Europe, but not in China. But that is not the only reason.

In the U.S., 98% of iPhone owners buy another iPhone. In China, only 50%. WHY IS THAT? In the US and Europe, it’s hard to get out of the Apple ecosystem. In China, it’s easy. Why is this happening in China? Because of “super apps”. Apps that let you do everything, like WeChat in China.

From communicating, to paying, to managing your bank account, to managing your business. But this is not happening in Europe or the US because Apple has banned super apps and any attempt to create super apps through its App Store. In other words, super apps give the user another choice.

Apple understood this a long time ago. It understood that disruptive technologies and innovative apps, products and services threatened its dominance by making users less dependent on the iPhone or easier to switch to an Android.

Over many years, Apple has built a dominant iPhone platform and ecosystem that has driven the company’s astronomical valuation. And what has Apple done to counter competitive threats? Lower prices? Improve developer monetization? Nothing could be further from the truth.

Apple has imposed higher fees, stifled innovation, provided a less secure user experience, and stifled competitive alternatives. It has done this across many technologies, products, and services, including super apps, SMS, smartwatches, and digital wallets, among many others.

In the cloud, Apple feared disintermediation of its iPhone platform and chose to “lock in” its users and developers to protect its profits.

Apple’s monopolistic behavior is not limited to the iPhone, but to everything an iPhone can touch. It affects industries affected by these restrictions, including financial services, fitness, gaming, social networking, media, automotive, entertainment, and more.

Apple is rapidly expanding its influence and increasing its power in the automotive, content creation and entertainment, and financial services sectors, often in exclusionary ways that further strengthen and deepen the competitive moat around the iPhone.

One of the most well-known examples is Apple’s extortion of Android and the “little green bubble”, which is nothing more than a text message sent from an Android to an iPhone. The message appears in a green bubble, which means that it does not allow emoticons, that videos can hardly be seen.

Apple has even tried to destroy messaging companies like Beeper, which offers iPhone messaging on Android phones. It has grown rapidly, and its duel with the tech giant has caught the attention of antitrust regulators.

Beeper tries to innovate and create compatibility between messages. In this way, Apple is punishing its users for communicating with Android users by forcing them to do so without any encryption.

Apple was caught off guard when Beeper Mini gave Android devices access to its advanced iPhone-only service. Less than a week after Beeper Mini’s launch, Apple blocked the app by modifying its iMessage system. It said the app posed a security and privacy risk.

Why? Simply because it would give families with iPhones another reason to buy more iPhones and never an Android. The money, kids, the money.

Apple does the same thing it does with Beeper with all of its products. It blocks non-Apple smartwatches to lock users into the Apple ecosystem. It prohibits anyone other than Apple Wallet from using tap-to-pay features, and even forces automakers to give in to Apple’s options on digital car keys.

I know some neoliberal-minded folks think Apple is doing just fine. But folks, if this didn’t happen, the consequences for us would be much more favorable, because

(i) Our iPhone and Apple services would be cheaper if Apple had to compete.

(ii) Apple spends twice as much on share buybacks as it does on R&D because it has no competition. This shows that a monopoly doesn’t care about innovation. What does it care about? The money!

And (iii) this monopolization by Apple means that we are handing over the future to Apple. Apple Pay is the only app authorized to use the tap-to-pay feature. The goal is for Apple Wallet to replace the functions of physical wallets and become a single app for shopping, digital keys, transit, identification, travel, entertainment, and more.

This will contribute to the loyalty of the Apple ecosystem and your wallet, because Apple already charges banks a 0.15% fee for every transaction that goes through Tap-to-Pay on your iPhone.

This is not only true for banks, but also for car companies. Apple has already announced that it will control the user experience of all cars in the United States. Most new cars support CarPlay, “an Apple infotainment system that allows a car’s center screen to serve as a display for the iPhone, and allows the driver to use the iPhone to control maps and in-car entertainment.” It’s a must-have if you want to sell your car.

You also have a movie studio, and you want to manage newspaper payments, games, and many other businesses. Simply put, you can’t manage all that well. A company this big doesn’t innovate (the latest iPad ad is a joke), it thinks about profits.

In the words of the US Department of Justice (the whistleblower), “Apple wraps itself in a cloak of privacy, security, and consumer preference to justify its anti-competitive behavior.

Do you remember Tim Cook’s speech at the European Commission defending the right to privacy as a fundamental right? I remember it very well, and what I thought was: what a nerve this guy has, and I don’t know what the EC is thinking!

Remember when Apple gave us the ability to opt out of Facebook surveillance with a single click? Obviously, an overwhelming number of people opted in. It cost Facebook $10 billion in a single year. So Apple became a golden prison for its customers.

And it’s not that I care what it cost Facebook, it’s just that it’s further proof of Apple’s hypocrisy, now it’s just them spying on us. But as Groucho Marx says, “These are my principles, and if you don’t like them, I’ve got others”. China has forced Tim Cook to remove all tools that would protect the privacy of its citizens, as well as give them access to all cloud services to satisfy the surveillance desires of the Chinese government.

Apple, changing its principles because that is how neoliberalism works, betrayed the trust of its users by starting to collect the same data it denied Facebook for the purpose of targeted advertising.

Apple, in a show of changing principles it never had, and in the words of the DOJ, “selectively compromises privacy and security interests when it is in its own financial self-interest to do so, such as (i) degrading the security of text messages, (ii) offering governments and certain corporations the ability to access more private and secure versions of its App Store, or (iii) accepting billions of dollars each year for choosing Google as the default search engine when more private options exist.”

The complaint highlights five examples where Apple has used these mechanisms to suppress technologies that would have increased competition in the smartphone market. The suppression of these technologies does not reflect competition on the merits. Rather, it is designed to protect its smartphone monopoly and its extraordinary profits.

Apple repeatedly chooses to make its products worse for consumers in order to prevent competition from emerging, thereby contributing to Apple’s ability to secure, expand, and maintain its smartphone monopoly by increasing switching costs for users, resulting in higher prices and less innovation for users and developers.

Let’s go through the five examples:

  1. Super apps provide users with rich functionality in a single app. They can improve competition in the smartphone industry by providing a consistent user experience that can be transferred from device to device.

Suppressing super apps hurts all smartphone users – including Apple users – by denying them access to high-quality experiences, and hurts developers by preventing them from innovating and selling products.

  1. Cloud game streaming apps offer users a way to play games in the cloud that consume a lot of computing resources. Cloud streaming games (and cloud streaming in general) can improve smartphone competition by reducing the importance of expensive hardware to perform computationally intensive tasks on a smartphone.

Suppressing cloud-streaming games harms users by denying them the ability to play computationally intensive games, and harms developers by preventing them from selling such games to users.

  1. Messaging applications allow users to communicate with friends, family, and other contacts. Messaging applications that work equally well on all smartphones can enhance competition among smartphones by allowing users to switch phones without changing the way they communicate with friends, family, and others.

Apple makes third-party messaging apps on the iPhone worse overall and relative to Apple Messages, Apple’s own messaging app, by prohibiting third-party apps from sending or receiving carrier-based messages.

In doing so, Apple is knowingly and intentionally degrading the quality, privacy, and security of its users and others who do not have iPhones. Apple is also harming developers by artificially limiting the size of its user base.

  1. Smartwatches are expensive accessories that typically need to be paired with a smartphone. Smartwatches that can be paired with different smartphones allow users to retain their investment in a smartwatch when they switch phones, including reducing the literal cost of switching from one smartphone to another.

By removing key features from third-party smartwatches – including the ability to respond to notifications and messages and maintain a consistent connection to the iPhone – Apple has denied users access to high-performance smartwatches with preferred designs, better user interfaces and services, or better batteries, and has harmed smartwatch developers by reducing their ability to innovate and sell products.

  1. Digital wallets are an increasingly important way to use smartphones and a product in which users develop great comfort and trust, as they often contain users’ most sensitive information.

Digital wallets that work across smartphone platforms allow users to, among other things, move from one smartphone brand to another with less friction.

Apple has denied users access to digital wallets that would have provided a variety of enhanced features, and has denied digital wallet developers – often banks – the ability to offer advanced digital payment services to their own customers.

Apple’s anti-competitive behavior has benefited its shareholders – with more than $77 billion in share buybacks in fiscal year 2023 alone.

Moreover, Apple itself has less incentive to innovate because it has insulated itself from competition. As Apple executives openly admit, “In retrospect, I think going forward we need to put a stake in the ground about what features we think are ‘good enough’ for the consumer. I would argue that we’re already doing more than good enough. But it’s very difficult for us to go backwards in our YOY [year over year] product features.

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