On July 27th, the CEOs of Apple, Facebook, Amazon and Google — the “GAFA” companies — will testify in front of the House Judiciary Antitrust Subcommittee. Getting those four people into the same room — even virtually — on the same day is something of a feat and it speaks to how seriously these companies are taking the committee’s long-standing investigation into their practices.
In June last year, the House Judiciary Committee launched a bipartisan investigation into competition in “digital markets.” It said that a “small number of dominant, unregulated platforms,” hold “extraordinary power” over e-commerce, online communication and digital information. It added that this power has a stifling effect on competition and entrepreneurship in both the US and the wider world.
Each CEO will need to explain how their monolithic platforms, like Facebook’s social network, Google’s advertising business and Apple’s App Store, do not violate antitrust law. “Antitrust” is shorthand for the rules around businesses stifling competition in a free and fair market. That includes blocking powerful companies from buying up, copying or pricing out their rivals to the detriment of competition. Regulators are now turning their beady eye toward what ‘big tech’ has been up to for all of these years.
“Both Democrats and Republicans do seem to believe that there’s something wrong with how these big tech companies are operating.” Joel Mitnick is an antitrust lawyer at Cadwalader in New York who began his career as a trial lawyer at the Federal Trade Commission. He says that lawmakers suspect that there’s “something abusive going on terms of their market power.” He added that there’s a belief that these companies are blocking, or excluding, competitors.
As well as these hearings, it’s likely that Google is going to face a separate antitrust lawsuit that’ll be filed towards the end of 2020. The Wall Street Journal said a cadre of attorneys general want to scrutinize Google’s online advertising business. Apple looks like it’ll be next on the block, with a Politico report from last month saying that Apple’s “easy ride” from lawmakers is coming to an end. It contends that Apple’s control of the app store, and how it treats competing apps from rival developers within its ecosystem, is under quiet scrutiny.
News of a potential US probe into Apple came roughly a week after the European Union began its own investigation. EU officials are investigating whether Apple’s control of the app store “violate EU competition rules,” because you can only buy system apps from the App Store. The fact that apps that offer in-app purchases can only do so through Apple’s system, earning the latter 30 percent commission, is also under scrutiny.
The ultimate goal of any antitrust investigation is to promote competition that will, it’s hoped, benefit the consumer. Critics believe that Apple’s control of the App Store stifles competition and, by extension, is ultimately harmful to consumers. They believe that Apple is essentially creating a market that forces people to use Apple’s own products and services.
The obvious example is the App Store, which is the only way for developers to get their software onto people’s iOS, iPad OS and Watch OS devices. But look at HomePod, the Apple speaker that can only directly access Apple Music. If you want to play from Spotify or other services, you’ll have to use your phone to cast to the speaker. In late June, however, Apple said that it would open HomePod up to third-party services in the coming months as it opens up its products.
Mitnick explained that rather than simply examining companies through the lens of being a “monopolist,” you need to look at “market power.” Apple has historically eschewed being the biggest player in town in favor of catering to a smaller, premium segment of the market. And in consumer technology, there is a wide variety of cheaper products available from its bigger, albeit potentially less profitable, rivals.
But that’s not the case with the iOS ecosystem. In the US, StatCounter says that iOS has around 58 percent of the market compared to Android’s 41 percent. iPad OS, the tablet-friendly version of iOS, is even more dominant in the US, with StatCounter reporting close to 65 percent of the market. It’s not a monopoly, but Apple appears to be the dominant player in the US.
And, says Mitnick, when a company gets that big “they lose the right to be so exclusionary,” essentially that with great power comes an obligation to be even more scrupulous. After all, if officials can demonstrate in a court that the App Store rules are boxing out developers and stifling competition, they could insist on radical changes. Or, they could decide that buying an Android phone offers enough of an alternative, and that Apple isn’t doing anything wrong.
Apple’s counter-argument to this is that it has done plenty to create a level playing field for its rivals. It charges just a $99 flat fee to any app developer and only asks for a 30-percent cut of any qualifying transaction. (That includes digital goods within the app or subscriptions, although that fee falls to 15 percent in subsequent years.) So long as apps don’t contravene Apple’s own rules, or break the law then developers have carte blanche to do whatever they want. And, right now, the arrangement benefits iPhone/iPad/Watch users who can count on secure apps that have been vetted by Apple.
Let’s be clear – a 30% cut AND a flat fee is a mafia type ripoff only monopolies and the taxman can pull off.
I spoke about this in Zagreb in 2019 and it’s fun to see it all happening.