Apple’s best defence against the DOJ antitrust lawsuit is its customers

After literally years of investigation, the DOJ antitrust lawsuit is finally official. Apple is accused of using a dominant market position to lock in customers, block competitors, profiteer, and stifle new technologies.

The lawsuit mirrors moves made in the EU, most notably through the Digital Markets Act (DMA), which obliges Apple and other tech giants to adopt a less aggressive approach to protecting their own financial interests against competition …

The DOJ antitrust lawsuit

While I’m still working my way through the 88-page bedside reading, it’s already clear that it’s the very definition of a ‘spray and pray’ approach: throwing as many things into the mix as possible, and hoping that some of them stick.

The DOJ has taken every antitrust complaint ever levelled against Apple – plus one that has never been made – and turned them into official charges against the company.

Bizarrely, the department even takes credit for the turnaround in Apple’s fortunes!

Apple struggled to compete against Windows personal computers and by the late 1990s, it was on the brink of bankruptcy.

Apple’s fortunes changed around the time it launched the iPod in 2001. Innovative design and savvy marketing had not been enough to drive a successful business strategy. This time, the confluence of several factors made it a smash success. Apple’s iTunes application allowed iPod users to organize their song library and update their iPod. A path clearing antitrust enforcement case, brought by the United States and state attorneys general against Microsoft opened the market and constrained Microsoft’s ability to prohibit companies like Apple from offering iTunes on Windows PCs.

This is clearly abject nonsense. First, Microsoft had never done anything to block third-party apps like iTunes, so the antitrust case against the software giant had no impact on Apple. Second, while the iPod did indeed set Apple on a path which would transform itself from a niche computer company to one of the biggest companies in the world, the most significant thing about it in the bigger financial picture was that it paved the way for the iPhone.

Apple is hitting back as expected

Apple is taking exactly the same tack in the US as it did in Europe: Denying all the claims, and promising to fight every step of the way.

This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets. If successful, it would hinder our ability to create the kind of technology people expect from Apple—where hardware, software, and services intersect. It would also set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology. We believe this lawsuit is wrong on the facts and the law, and we will vigorously defend against it.

It’s clear that in both Europe and the US, Apple will treat the reasonable claims against it with the same disdain as the sillier ones. Any concessions it makes in the US will be as convoluted and unhelpful as the ones it has made in Europe. On both continents, it’s going to end up in court for many years to come.

Two elements to Apple’s financial success

When we look at the success story that is Apple, there are two elements at play.

The first is one absolutely nobody can deny: Apple makes great products, which consumers freely choose to buy. It has also created a fantastic ecosystem which means that choosing to buy more Apple products rather than competitor ones offers a better customer experience.

The second is one which most would acknowledge plays some role in the company’s financial success, but there’s huge scope for debating the scale of it. Namely, Apple employs some tactics which are deliberately designed to lock in customers, and give its own products and services an advantage over competing ones.

Anyone completely denying the latter has their head firmly embedded in … well, let’s say the sand. For example, a previous antitrust lawsuit surfaced an email in which an Apple employee said that keeping iMessage exclusive to iPhone “amounts to serious lock-in” and Phil Schiller referenced it, stating that it showed why “moving iMessage to Android will hurt us more than help us.” Craig Federighi said that making it available on Android would “remove [an] obstacle to iPhone families giving their kids Android phones.” [Updated to correct the Schiller quote.]

Apple’s primary motivation has undoubtedly been to build the best possible integration of hardware, software, and services – but at the same time, it wasn’t naive enough to ignore the financial implications of certain decisions.

Apple can fight all the way – but it doesn’t need to

Let me make two things clear.

First, Apple is a for-profit business which is entitled to take every lawful step to maximize the scale of those profits.

Second, the company is entitled to resist every single charge legal charge levelled against it, and to fight every single element of each lawsuit, and each piece of legislation, which might result in it making less money.

But I’d add two riders.

First, to emphasize the “lawful” part of that first sentence. At least some of the things Apple has done have already turned out to be illegal in Europe, and the same is likely to be true in the US. Apple would be better off getting ahead of those, rather than awaiting further fines.

Second, “just because you can doesn’t mean you should.” Apple already adopts this attitude with things like accessibility and the environment. It chooses to do things which don’t maximize profitability – at least in the immediate term – either because it believes they are the right thing to do, or (for the more cynical) because it believes the PR value pays off in the long run.

I think the same is true of some of the antitrust issues. Setting those things right would do the company a lot of favors in terms of its long-term popularity.

Apple’s customers are its best defence

Whatever role some of Apple’s sketchier decisions may have played in its financial success, it’s very clear to me that it doesn’t need any of those artificial advantages.

Take all of those away, and we would all still buy Apple products because they are great products. We love the individual devices, and we love the way they all work together.

Even if there were a completely even playing field between Apple and its competitors, Apple would still dominate because people want Apple devices, and people like the combination of convenience and security they get from the ecosystem.

Let me give a couple of examples, from the European experience – starting with Apple Wallet.

Apple did something which was found to be anti-competitive: It said that only its own Wallet app could be used to make contactless payments. Any bank wanting to have its own app offer the same functionality cannot do so, because Apple blocks access to the NFC chip.

The company has been forced to change this policy in Europe. Now, any bank which wants to allow contactless payments through its own app can do so.

Will this change anything? Nope! Having all my cards, and tickets, and boarding passes in one place inside one app is massively more convenient than having to use a bunch of separate apps. I’m going to continue to use Apple Wallet, and the vast, vast majority of European* iPhone users are going to do the same. I doubt whether a tenth of one percent of users will choose to use individual bank and card apps instead.

*For simplicity, I’m ignoring the fact that I live in the UK – the more complicated reality is that EU law protects EU citizens rather than residents, and I have dual nationality, so can in theory take advantage of these changes.

Now let’s move to the biggest example: the App Store. In theory, third-party app stores and direct website sales can offer lower prices to consumers. Certainly that’s the primary rationale behind Apple being obliged to allow them in Europe. In practice, I suspect most developers – even if freed from the Core Technology Fee and Apple’s 27% cut – will simply charge the same amount and pocket the difference. The change will benefit developers (which is no bad thing), but likely won’t benefit consumers.

But either way, I like buying all my apps from one place. I like the fact that if an app fails to deliver, I can submit a refund request to Apple and know that it will be painlessly and promptly made. I like the fact that I can go to one place on my iPhone, see all of my app subscriptions, and cancel any of them from there with 100% certainty that it will be honored. I’m not going to mess around with third-party app stores, and the same will again be true of the vast, vast majority of European iPhone users.

Apple could make all of this bad publicity go away by standing firm against the nonsensical claims, but simply shrugging and saying ok to the rest. It would still retain 99%+ of the same profit, and in the long term might very well gain from the goodwill won by doing so.

Apple doesn’t need lawyers to defend it; it has its customers.

Photo: Apple

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Ben Lovejoy