The DOJ vs Apple

The Department of Justice VS Apple And It’s Walled Garden

The United States Department of Justice has filed a case against Apple for violating antitrust laws. More specifically, the case revolves around the infamous Apple Walled Garden with the iPhone at the centre and how the company has used that to build a monopoly.

The phrase “walled garden” isn’t specific to Apple but in terms of Apple essentials means that the company tightly controls the software, hardware and services that are allowed to operate within its ecosystem or range of products and services that the company offers. To begin with, think for a second about all of the manufacturers of devices that run the Android OS. There are a lot of them, from Samsung to OPPO and Huawei. With Apple, on the other hand, there’s just one: Apple. And that means the company has complete control over development, distribution, and security. At the centre of this walled garden is the iPhone. Everything in the garden is beautiful and attractive and all their products work like magic. Take for example Airdrop which allows people with Apple devices to send files to other Apple devices securely with just a tap it is seamless, or continuity that allows a user to copy a website page, paragraph, or even a photo from one of their Apple devices and paste it on another device that is connected to the same Wifi. The seamlessness and ease is by design, to have the most minimal onboarding process with a new device and a seamless transition between devices. According to Apple, it’s to ensure that the user spends the least amount of time setting up and integrating the product and to maximise the amount of time using the product itself. The truth is to encourage the customer to purchase more Apple products, i.e. if you get an iPhone, you are more likely to buy a set of AirPods, and because they work so well with it, which in turn means that when it comes time to get a new smartphone, you’re less likely to switch to Android. Apple’s products all work better with one another than they do with competing devices… which you’d probably expect, except not to this extent. Nobody else runs a walled garden that traps customers anywhere near as effectively as Apple.

However, this seamlessness by design stops at the use of non-Apple devices, which means any pairing of Apple devices with non-Apple devices would lead to at least a halving of usable features. For example, pairing the Apple Watch with the iPhone involves using the phone’s camera to scan the QR code on the watch’s screen and it’s paired but trying to pair it with an Android phone has been shown to take over 30 minutes just to set it up and pair. The same thing with pairing the iPhone with Airpods and the fact that the setup process takes about 30 seconds or less, in contrast with the fact that the setup process is not only considerably longer but the Android user loses sound quality, the head tracking feature and a bunch of other features just because they are not within the same ecosystem. At the centre of the walled garden is the iPhone and the beautiful fountain in that centre is iMessage, because its stickiness affects other people in a sort of contagious spread. If your friends have iPhones and spend their time talking over iMessage, you’ll want to be able to join in; an Android user can join a group chat with iPhone users but won’t get the full set of features (videos get compressed, for example, while reactions don’t work properly) and, famously, will appear as an out-group-signalling green bubble rather than a blue bubble. iMessage peer pressure is a large part of the reason why, in the US, an astonishing 87% of teenagers own iPhones, way beyond the device’s global market share. The thing about the walled garden that is most concerning is its contagion, that is, if you have an iPhone you are more likely to have another Apple device like Airpods or an Apple Watch which in turn makes you purchase more Apple devices like a MacBook or an Apple TV, furthermore, it then makes you influence/pressure your friends and family members into purchasing an iPhone and other Apple products too. In an infamous interview where Tim Cook, Apple’s CEO in a panel interview at the 2022 Code Conference and was asked by LiQuan Hunt about messaging across platforms and he rebutted “Buy your mom an iPhone” which ironically is included on page 39 of the 88-page claim that the DoJ has brought against Apple.

This is certainly not the first time Apple has been sued for monopolistic practices, in March of this year, the European Commission, the executive branch of the EU, said Apple committed antitrust violations over 10 years in which it prevented music streaming companies that use the App Store from informing customers about better-priced alternatives or linking to the products. The tech giant, which offers its own music streaming service, prevented rival companies from promoting alternative and cheaper products that could be found outside of Apple's App Store. The fine, which amounts to 1.8 billion euros or $1.95 billion, marks the end of a five-year investigation initiated by Spotify, a top music streaming firm based in Sweden.

Apple has also been sued by Epic Games, the creator of Fortnite, accusing the company of acting as an illegal monopoly by requiring consumers to get apps through its App Store and buy digital content inside an app using its own system, especially since Apple charges a 30% commission for all in-app purchases, the company further prevents developers from helping customers circumvent that charge. Although Epic Games mostly lost that case, however, the iPhone maker did lose one claim and had to allow developers to place links inside their apps so users could make purchases outside the App Store, which the Supreme Court did not overturn.

The Justice Department, joined by 16 other state and district attorneys general, filed a civil antitrust lawsuit against Apple for monopolization or attempted monopolization of smartphone markets in violation of Section 2 of the Sherman Act. The Complaint alleges that Apple illegally maintains a monopoly over smartphones by selectively imposing contractual restrictions on, and withholding critical access points from, developers. Apple undermines apps, products, and services that would otherwise make users less reliant on the iPhone, promote interoperability, and lower costs for consumers and developers. Apple exercises its monopoly power to extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others. This anti-competitive behaviour is designed to maintain Apple’s monopoly power while extracting as much revenue as possible. The complaint alleges that Apple’s anticompetitive course of conduct has taken several forms, many of which continue to evolve today, including:

• Blocking Innovative Super Apps. Apple has disrupted the growth of apps with broad functionality that would make it easier for consumers to switch between competing smartphone platforms.

• Suppressing Mobile Cloud Streaming Services. Apple has blocked the development of cloud-streaming apps and services that would allow consumers to enjoy high-quality video games and other cloud-based applications without having to pay for expensive smartphone hardware.

• Excluding Cross-Platform Messaging Apps. Apple has made the quality of cross-platform messaging worse, less innovative, and less secure for users so that its customers have to keep buying iPhones.

• Diminishing the Functionality of Non-Apple Smartwatches. Apple has limited the functionality of third-party smartwatches so that users who purchase the Apple Watch face substantial out-of-pocket costs if they do not keep buying iPhones.

• Limiting Third-Party Digital Wallets. Apple has prevented third-party apps from offering tap-to-pay functionality, inhibiting the creation of cross-platform third-party digital wallets.

What this means for Apple is business will be fundamentally changed by this lawsuit. Because of the detail and depth of the complaint, there may ultimately be many fixes put in place to remedy Apple’s behaviour. Some will likely be more impactful to Apple’s bottom line than others, but ultimately if Apple is as strong a company as its investors believe, it will find other ways to grow and innovate beyond its current structure. After all, Microsoft has successfully rebounded from its own tumultuous years with regulators and has become the most valuable company in the world, ironically by becoming more open and embracing open source rather than shunning it. It also means that there would be a slowdown in the number of its acquisitions, not just for Apple but for Big Tech as a whole, The Wall Street Journal reported that Big Tech has a Big Cash problem which means that they are unable to make big-ticket price acquisitions which are usually integrated into research and development costs (R&D) costs, because they would face extreme regulatory antitrust scrutiny. They, Apple, Amazon, Microsoft, Alphabet and Meta are sitting on a combined $750 Billion in cash which I would proffer should be distributed to employees in terms of bonuses and raises in order to boost morale after an incredibly brutal season of consistent layoffs, but it’s extremely unlikely that would be the case.

You can read the 88-page complaint filed here. [Forbes]