The Apple Monopoly

The largest company in the world decides to attack a smaller player that is entering on a portion of the market where it is currently dominating. You may have thought of Apple’s continuous legal battle with Samsung but I was thinking of what led Microsoft to be declared a monopoly in 1997. So is it time to start thinking about Apple as a monopoly?

Big target

Since it became the largest corporation in the world, Apple has increased its chances at becoming the target of all kinds of lawsuits and disapproval. The recent issues around treatment of workers at the Foxconn plants are only the beginning and one can expect Apple to fall to more and more scrutiny which begs the question as to how long it will take before the company becomes the target of an antitrust lawsuit and there may be a number of reasons for which the company could be targeted.

With near-control in spaces like digital players (the iPod), tablets (the iPad), online music (iTunes), and ultrabooks (the Macbook Air), Apple’s position as a monopoly based on technological superiority and economies of scale. But majority ownership of a market does not a monopoly make. If it did, many more companies would be investigated for monopoly power at one point or another. What generally leads companies to being accused of being a monopoly is when they act in a way that is hurting their competitors.

… and competitors are starting to make the case for abuse of power.

Gathering clouds

There has long been concerns on the part of the music industry about the power Apple has gained over it. The iTunes store represents the majority of online music sales and has, as a result, been able to essentially get the music industry to agree to pricing terms that have made many artists complain. It is generally assumed that the US$.99 price that has become the standard for online music tracks was something that Steve Jobs kept insisting on and that the music industry had little say in the matter. There is already a case wending its way through the California court system on this.

Then last year, in an attempt to muscle in on the e-books market, Apple leveraged its position of strength in the tablet market to get the the publishing industry to change the way it is handling pricing of e-books, prompting the US Department of Justice and the European Union to start investigating the company on potential monopoly grounds.

Then came the revelation, through his official biographer, that Steve Jobs swore to destroy Android. At the time when those comments were made, the iPhone was the dominant phone in the smartphone segment so this unfortunate statement could end up being the equivalent of Microsoft’s claim that it should be allowed to bundle a ham sandwich with Windows if it felt like it. This was followed by increasing legal battles with many of the companies offering Android-flavored phones, the largest one of which is the on-going country-by-country fight between Apple and Samsung.

The dangers of being called a monopoly

Roll the tape back 15 years and the largest tech player was Microsoft, which also was the largest company in the world in terms of overall market capitalization. When Windows 1995 came out, the first calls regarding monopoly power came along but most people felt that the company was doing a good job. Then Netscape starting failing and decided to complain to the US Department of Justice about the fact that Microsoft was bundling its internet browser with its operating system.

This idea of bundling served as the basis of complaint and the claim that Netscape was failing because of the fact that Microsoft could crush competitors by just adding similar applications to its platform and bundling them in for free. From a logical standpoint, it may not quite be the case: for example, on the consumer end, Microsoft bundled an online service (MSN) but failed to gain traction against America Online; on the server end, Microsoft bundled the IIS web server with their server offering but Apache and Linux continued to thrive.

Similar arguments will be made around Apple’s power and its bundling of the iTunes store and the app market with the iPhone and iPad, as well as its integration of OSX and AppleTV into a complete Apple ecosystem. The claims of this being the reason for their competitor’s failures will hold about as much logical weight as the ones against Microsoft did but the problem is that it will not matter.

Once Apple has been convicted in the public court of opinion, no matter what the verdict on an antitrust case it, it will push the company to be more tentative and more hesitant, losing some of the swagger it currently holds. For Microsoft, what it meant is that the company became a lot more worried about appearing like a monopolist and its bureaucracy became heavier, ensuring that the company would not do anything that would get it into legal hot waters. The net net is that the company’s own hesitation in entering certain markets and its insistence on not playing a very heavy hand when it did enter new markets made it an underdog in most of the areas where it needed to go.

Can it avoid it?

The big question is whether Apple can continue growing and avoid being charged with any form of antitrust or monopoly crimes. As it grows bigger, it might become increasingly difficult to navigate. The company is current doing a good job in terms of managing the Foxconn crisis and it looks like the capable people in the management team may be able to navigate through the minefields of monopoly lawsuits.

Pointing to how most of the money in the app market goes to developers will go part of the way in helping them counter critics but they may have to watch out if the music, TV, movie, or publishing industry  decide they need more power in the relationship. Managing the right balance of power will probably be but one of the greater challenges Apple will have to face in the future.

Today, Apple sits at the top of the technology landscape but tomorrow, after the antitrust and other monopoly related lawsuits start popping up, the company may grow more hesitant and could eventually lose some of its power as a result. I fear that top is getting closer: with no real competitors but itself left, Apple gets to look at the rest of the industry and savor the moment when it is king but the question remains as to how long it still has in this position before the revolutionaries call for its head.


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