It is estimated that 1.65 billion active technological devices in the world are produced by Apple: iPhones account for more than a billion, the others are iPad, Mac, Apple TV, Apple Watch and iPod. Apple is the largest technology company in the world by revenue, according to the Fortune Global 500 index, and one of the largest publicly traded companies with market capitalizations. No other company has so extensively influenced, directly or indirectly, the evolution not only of the software but also of the hardware produced in the last twenty years, and consequently the entire Internet experience for millions of people.
The centrality of Apple in the market, its corporate policies and its anticompetitive business practices have long been the subject of widespread criticism, fines from the authorities and worried reflections on the part of professionals. And the foreseeable gradual increase in the use of technological devices around the world, a trend recently heightened by the effects of the COVID-19 epidemic, raises a number of questions about whether and perhaps the need to limit the dominance of large Internet companies. in general, and even more so that of a company that – unlike Facebook and Google – not only inevitably affects the application market, but is also in a position to determine, upstream, the very characteristics of the devices we use.
Matthew Ball is a respected and authoritative US analyst, who is also a managing partner of Epyllion Industries, a business consultancy firm that also manages investment capital. His reflections on the media industry have in the past been taken up by, among others, the New York Times, the Economist, the Financial Times and Atlantic. Previously, he was also head of business strategy for Amazon Studios, the division of Amazon that deals with the production of films and TV series. In a long and detailed analysis, Ball reflected on how corporate policies influence and above all will influence the Internet, and on how they are in profound contrast to the logic and dynamics that characterized the origins of the web and personal computers, the context in which Steve Jobs founded the most important technology company in the world today.
The non-profit origin of the Internet
As is well known, the World Wide Web system, available at CERN since the early 1990s, was at least initially a tool for managing and sharing large volumes of information related to scientific experiments. It was born at the end of thirty years of efforts largely made by people from public universities, government laboratories and autonomous technological research groups. WWW technology would become freely usable by all, CERN declared in 1993, and without the need to pay any taxes.
What we generally call today the best aspects of the Internet, according to Ball, are in one way or another connected to that original non-profit context and to the choices made then. Anyone with access to the Internet today can create content and can reach content created by others, and can do so without having to change devices or browsers. And this feature is not “established by decree,” Ball points out: “it's a by-product of the open standards of the Internet.” It could have gone very differently, if large multinational companies with economic profit interests had created the Internet: using a browser, reading certain programming languages or displaying an image in a certain format, for example, perhaps today would have a cost. But in that case it is possible that the Internet would not have had the level of penetration it has achieved.
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Today companies that profit on the Internet benefit from this extraordinary growth and diffusion. It is precisely that historical premise – the general framework of gratuitousness and sharing in which the Internet was born – that contributes to making the technologies used today by large companies possible, acceptable for users and profitable for those companies. Except that in the digital market the dominant companies have for a long time operated without most of the tools and laws that regulate the real market, favoring competition. Engaged in a radically nonprofit and extraordinarily expansive environment like the Internet, Ball explains, companies have made huge profits at low costs. And they have succeeded in rejecting those “open” standards and pushing consumers and content creators to use them as “universal intermediaries”.
Regardless of how you think about the future of the Internet and how many and which tools will make it possible to improve it, Ball believes that 2021 is the beginning of a “new” period. An increasing portion of our time will be spent in virtual spaces and with virtual goods – be it for education, work, health, politics or leisure. And an increasing portion of our income will be spent on virtual resources, goods and experiences. With the difference, compared to the early nineties, that today it is no longer universities and public research institutes that have the talent, the technical resources and the ambitions to “model” the Internet, but rather large private technology companies. And the biggest obstacle to future Internet developments, according to Ball, is Apple.
While no company has done more than Apple in promoting the Internet in the past 15 years, its current policies can produce the best ecosystem overall and lay a solid foundation for the “Internet that will be”. Indeed, Apple is inhibiting that future. And it does so through claims, controls and technologies that not only deny what made and still make the open web so powerful, but prevent competition and prioritize Apple's profits.
The “closed” system
One of the main strengths of Apple's business has always been to integrate into its products what it believes to be choices better both in terms of hardware and software, based on evaluations that in part avoids the end user. It is somehow tied, according to Ball, to Apple's claim to know better than customers, the developer community and the market in general, both in terms of technologies to use and in terms of security, privacy and data protection.
This has led to a severe restriction of the market available on its devices, declined according to limitations of three types. There is a limitation in the distribution of applications: they cannot be downloaded outside the Apple store (App Store). There is also a limitation in the approval of applications, subject to compliance with a long list of requirements established by the company. And finally there is a limitation in the possibilities of economic gain, which must fall within the billing system inside the App Store: and for each purchase or subscription made on the app, Apple retains a commission of up to 30 percent.
There is no “technical” reason that makes these three limitations inseparable, explains Ball. The possibility for a developer to use a certain driver of an operating system (iOS is that of Apple for mobile devices) has nothing to do with his possibility of being able to distribute an application or with that of being able to charge costs. In the case of Apple, there is no alternative: each condition implies the other two. This integration is also one of the reasons for the success of the company, because it has made it possible, among other things, to offer a smoother, better and more engaging mobile device user experience even for the less experienced. But it's an unprecedented economic success and, by its very size, problematic: iPhone occupies a market share of 66 percent in the United States and around 25 percent worldwide.
There is no proprietary “closed” system that affects millions of people's daily Internet experience more than iOS. Apple is to be considered in this sense an exceptional case of a private company that acts as a “de facto regulator”, according to Ball, exercising – even incidentally – an enormous decision-making power both on existing models and on those still to be developed. No large company that invests in creating an application can ignore the market share of Apple devices today. All or almost all therefore end up operating within the imposed limitations, starting with the technical ones, since developing one version of an app for iOS and another non-iOS is financially and operationally disadvantageous. And, above all, all or almost all companies end up complying with Apple's policies.
Ball cites the example of Uber, who used for a long time to try to prevent fraud within the service time an identification data linked to the users' fingerprints. The identifier remained available even after the app was deleted, but this violated Apple's rules. The New York Times then wrote that Uber CEO and co-founder Travis Kalanick ordered that practice be terminated after being contacted directly by Apple CEO Tim Cook. For Ball, regardless of the reason and outcome of the dispute between the two parties, it is a good example of how Apple's policies affect those of any other company, even the largest.
Something similar is happening lately also between Apple on the one hand and Facebook and Google on the other, regarding an announced and discussed upcoming iOS update that will give the user the possibility to prevent applications from tracking activities for personalized advertisements. Any app installed on iOS will need to obtain explicit permission from the user to use an identifier (ID for Advertisers, IDFA). It is expected that between 70 and 80 percent of users, faced with the possibility of choosing, will deny consent. Forbes' estimated losses in annual tax revenue would be € 14 billion for Google and € 6.5 billion for Facebook.
Again: it doesn't matter whether you agree or disagree on the choice. of Apple, reiterates Ball. The company's efforts to limit the collection of users' personal data are to be appreciated. But what matters here is the fact that a choice attributable solely to the discretion of a company – not a legislator – can have such disruptive effects on such a vast scale. It is also relevant to point out, Ball continues, Apple's dislike of the custom advertising format and the suspicious relationship this aversion might have with Apple not getting any revenue from distributing free apps on the App Store entirely based. on advertising.
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Apple almost always retains a commission on purchases made by users through the App Store. The most cited percentage is that of 30 percent, which applies to most of the content and also to purchases within the content itself (bonuses or additional chapters in video games, for example). With some exceptions, the percentage withheld on the sale of monthly passes up to the thirteenth month (then drops to 15) is also 30 percent, with some exceptions. It is possible for developers to propose subscription plans external to iOS at the same time but it is not possible for them to make this possibility known within the application on the App Store.
The history of the “I Am Rich” app
In his analysis Ball presents a series of historical cases useful for understanding how Apple's corporate policies have often been influential and sometimes decisive for the very existence of certain technologies or certain business models, and not of others. And there are also cases in which it is easy to glimpse a discretion quite unrelated to the simple application of the established rules.
In 2008 a German developer, Armin Heinrich, published a “legal” application without any function, called “I Am Rich”, and set a cost purchase amount equal to the maximum allowed on the App Store: $ 999. Heinrich described it as “a work of art,” whose sole function was to allow the user to demonstrate to others that they could afford that app. Apple removed the app after a day without giving any explanation to Heinrich, who the following year released the same app but with the name “I Am Rich LE” and a calculator as the only function. It cost $ 10 and is still available today. However extreme and exceptional, according to Ball, it is an example of how the approval of applications is also subject to an evaluation of what Apple considers to be an acceptable or unacceptable market value.
“What if Damien Hirst wanting to publish an app in a single thousand-dollar edition? ”asks Ball provocatively. Would Apple allow it? And with or without the commission it takes on the sale of any other app? It seems like an unimportant hypothesis, but Ball makes it a matter of principle. And on a less symbolic and more literal level, he recalls that there is already a category of so-called “Veblen goods” (named after the economist Thorstein Veblen), goods that have a cost much higher than their intrinsic value and linked to the desire to buy them. from consumers.
The power of Apple's policies
Another example of Apple's influence on entire sectors is the one exercised on the streaming video game market. Cloud gaming is the system that allows users to play without the need to install the game file “locally” on their PC or other device. A substantial portion of the market in both the audio and video industry is today represented by subscription streaming services such as Spotify and Netflix. This is not the case for video games, and Apple's policies against Google and Microsoft systems are, according to Ball, one of the factors to be taken into consideration in explaining the difficulties of the entire sector.
Stadia and xCloud, the cloud gaming apps from Google and Microsoft, are available on iOS but on the condition that they are other than what they were born to be. On iPhone and iPad, Google Stadia is basically a showcase for games: you can't play it unless you use non-iOS devices. In theory, since these are streaming streams, it is technically possible to play on iOS via the Safari browser as well, but with heavy limitations and a high risk of unexpected interruptions in the gaming experience. It is the same reason that most users use the Netflix app to view content, rather than visiting the Netflix site and doing everything via browser. In 2020, a partial review of the policies by Apple made possible but more cumbersome and inconvenient for users, as well as disadvantageous for Google and Microsoft, a possible procedure to distribute the games in streaming (each individually) through the App Store .
Apple's main reason for rejecting third-party cloud gaming applications – whether they are complete and functional – is to protect users from inappropriate content. In other words, it would not be possible for Apple to verify every single content in the app. But according to Ball it's a weak argument, easy to dismantle if you look at Apple's different behavior in the case of video content streaming applications (Netflix includes content that is not individually approved by Apple and which may therefore be inappropriate).
The most likely hypothesis is obviously that Apple first of all protects its economic interests. About three-quarters of App Store sales revenue comes from games. The mere existence of a subscription video game market, potentially very flourishing, would currently represent a risk of reduced revenues for Apple. In a way it has happened with music before, remembers Ball. In 2012, Apple's platform for selling songs, iTunes, had a 70 percent share of the US digital music market, with a gross profit margin for Apple close to 30 percent. Today it is estimated that the Apple Music streaming service represents less than a third of the market and that Apple is operating at a loss.
There is also a technical aspect to consider: cloud gaming could have an impact. negative on Apple's hardware-related revenues. One of the potentially disruptive aspects of the streaming video game market is the partial devaluation it could trigger in that of technological devices with very high performance. Cloud gaming is “like receiving a video stream similar to that of Netflix from a remote and very powerful server”. A very fast Internet connection and a monitor with low response times can theoretically suffice to run even the heaviest and most demanding games for computers on any device. “It means a 2007 iPhone could stream a better version of Fortnite than a 2020 iPhone 12 would locally, and without taking up a single byte of its local storage,” sums up Ball.
The effect of Apple's current policies on cloud gaming is that they prevent large rival technology companies – Google with Stadia, Amazon with Luna, Facebook with Gaming and Microsoft with xCloud – from operating in iOS and also in that environment (and not just outside) as direct intermediaries with game developers.
The role of Apple in the end of Adobe Flash
It is shared by many observers and analysts, writes Ball, the belief that Steve Jobs' choice to discontinue iPhone and iPad support for the Adobe Flash graphics program in 2010 has accelerated its disuse and determined its progressive decline. Jobs, Apple's CEO and cofounder, argued that Flash was a system fraught with security-related vulnerabilities and poorly optimized for device battery consumption. And he certainly wasn't wrong, Ball points out.
At the time, although advanced languages such as HTML5 already made it possible to create alternative graphics content, Flash was still very popular and readily available to programmers and for users. But with Jobs's decision, Apple barred that program from an essential growth opportunity by directing developers to other formats and applications. Communities like Mozilla or competing companies like Google couldn't have continued to fully support Flash even if they wanted to, as it didn't work on their Firefox and Chrome browsers installed on iOS devices.
Apple's discontinuation of support a Flash is a good example, according to Ball, of Apple's general approach to third-party systems. Jobs wrote in 2010:
We know from painful experience that interposing a level of third-party software between the platform and the developer ultimately leads to the production of substandard quality apps and hinders improvement and progress of the platform. If developers depend on development, third party libraries and tools can only benefit if and when the third party decides to adopt new features. And we can't depend on when and if third parties decide to make our improvements available to our developers. Even worse if the third party provides cross-platform development tools.
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The lawsuit with Epic Games
In August 2020, openly violating the rules of Apple, the development company Epic Games released a controversial update of the application of Fortnite, his most famous video game. That update introduced a payment system in-game and external to the App Store, and more convenient for users since the prices offered outside the App Store no longer included any fees due to Apple. Within hours, Apple removed Fortnite from the store for violating the rules and Epic sued Apple accusing it of exploiting a monopoly position by withholding off-market percentages on payments within apps (“in-app” purchases).
Apple then announced the suspension of Epic's access to iOS development tools. Epic is also known for developing the popular Unreal Engine, which is used in many video games today and could no longer be updated due to that suspension. Apple's decision alarmed thousands of developers of large video game companies who rely on Apple's full support for the Unreal Engine and the constant updating of that graphics engine. An interim order issued by a California district court forced Apple to lift the suspension of the Epic Games developer account, still judging Apple's decision to remove Fortnite from the App Store to be legitimate. The order, Ball points out, was not motivated by the intention to protect the developers but by the belief that the suspension of the Epic account was essentially a punitive measure not properly related to the Fortnite affair.
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The legal battle still underway between Apple and Epic Games is cited for several months as an example of an interesting comparison because it is relatively balanced (a rather rare case, being Apple one of the two parties). Unlike other large internet tech companies, most of Epic's revenues don't go through iOS systems, although giving them up altogether still entails a big loss. Epic is a highly profitable private company and largely run by a single person, its founder and CEO Tim Sweeney. And it's not a good thing, according to Ball, that such a company is the only one capable of suing Apple.
A world where only companies like Epic can sue or even criticizing Apple is not a healthy world. This problem comes from Apple's one-sided control over all apps on iOS. There's nothing to force Apple to keep apps it doesn't like in its store. And if he doesn't like it, that app can't exist. While Apple benefits from maintaining developer trust, it has also shown it can break that trust – and even that with its own partners – to protect its overall power and undermine its competitors. And there is no recourse for those who suffer collateral damage.
Apple's defense arguments
Generally Apple uses a number of recurring arguments in defending itself against allegations of anti-competitive and monopoly practices. According to Ball, given Apple's size and the power of control it wields, these arguments should be much more solid. One of these is that developers can still use open web standards to build sites that can be visited by any user, including those using iOS systems. For Ball it is a misleading argument. Comparing a site to an app – which uses the native drivers of that specific device and therefore generally produces a much smoother and more efficient experience – is not a peer comparison.
I Customers can always buy other smartphones, and developers work on code for other devices, is another frequent argument of Apple's defense. However, according to Ball, this observation seems to ignore Apple's fifteen years of previous success in the mobile device market and consequently the fact that iOS is destined to become – if only in the United States – the main gateway to the Internet. Any competing operating system manufacturer could, for example, try to attract developers by offering them far cheaper policies and rates than Apple's. But in the United States, very few companies would be in a position to quit iOS entirely and forgo the revenues they get through that operating system.
Apple owns the iOS operating system and as such, according to another typical defensive argument, can decide what are the best conditions to allow the function ioneering. However, this claim can become problematic with respect to the idea that a purchased iPhone is the physical and personal property of its buyer. There are no laws regulating this balance – and it is a large part of the problem – but it is possible to give examples to try to understand how it works and what has happened in other sectors.
A car manufacturer could for example, to establish which types and which brand of tires are best suited to the characteristics of your car model for sale. It could also ask a tire company to produce a specific set for that car model, and then place checks and tolls on the roads that car model can travel, and then impose a specific payment system for all purchases related to that car. use of the car, including fuel. “Nobody would accept such limitations today, made available only by recent technology,” says Ball. “But if this model had been available at the beginning of the 20th century,” he continues, “Ford and everyone else after him would certainly have tried it. And this would certainly have implied an increase in consumer prices, even if this integration had made it possible to produce better cars and prevented users from engaging in reckless behavior “.
Today, Continuing Ball's example, a specific law valid in 50 US states – Motor Vehicle Owners' Right to Repair Act – obliges automotive companies to provide the same information necessary for repairing cars to both independent workshops and authorized dealerships. Other laws also prevent the machine warranty from being void if the customer goes to a repair shop and not a dealership for repairs. Ball writes:
As a society we recognize the importance of questioning how our economies operate, what they prioritize and how they benefit consumers, support competition and drive innovation. It is clear that the importance of the digital / virtual economy will only grow. Consequently we must observe the predefined results and direct them towards those we aspire to.
The possible solution of the problem
To give more people the chance to emerge in a new digital economy, according to Ball, one must not be tied to what one company wants. And this consideration is independent of the intentions of that company, whether those desires are motivated by commercial interests or by noble and appreciable ambitions aimed at the good of the community. The environment currently generated by Apple's exceptional historical success represents an obstacle “to the organic evolution of the Internet as a whole.”
The rules of Apple – which Ball defines as “Byzantine” – are based on a model that dates back a decade and included existing businesses (which Apple leveraged financially), fledgling businesses (where Apple was an essential growth partner), and yet to start businesses (for which Apple proposed as gatekeeper, i.e. as an initial filter). Today there is no company that can imagine not having a digital presence, but those rules continue to exert an influence and in the Western market there are very few large businesses that do not go through an iPhone.
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The policies and philosophy of Apple, substantially contrary to the multi-platform uses of the software , not only prevent competition on the Internet today but block a different development of the Internet tomorrow. By preserving what it believes to be the best quality standard for its devices, Apple hinders “a digital world built and innovated on inter-operable standards and end-device independence.”
According to Ball The worst part of the “Apple problem” is that everyone knows how much the company's policies are in the way of creating new businesses, products and business models, but nevertheless the dominant response is to wait for those policies to change. It happened for example with cloud gaming but without those partial changes providing a concrete advantage for the competitors, who then returned to await further policy changes that Apple has never completely revised. And this situation of constant waiting for “concessions” from one of the parties – the dominant one – is not an appropriate basis for the digital future.
Apple has every right to manage its App Store , offer its quality standards and develop exclusive services for its devices. The problems arise from forcibly keeping everything together: hardware, operating system, distribution system, payment solutions and services. The solution, according to Ball, is to force Apple to compete fairly with everyone else in the distribution and app payments market. Specifically, the authorities in charge of regulating the market should:
1 – Allow iOS users to download apps from any source (as they do on Windows and Mac), also directly from the software manufacturer
2 – Allow iOS users to use third-party digital stores also on iOS devices
3 – Allow developers to use payment solutions other than those within the App Store, whenever they wish and even if distribution of their apps through the App Store
These conditions would place Apple in a position to compete directly to attract every app user and app developer to the App Store, rather than withholding their activities within iOS devices and control them through company policies. However, this would not prevent Apple, which has a competitive advantage that began thirteen years ago, from charging high costs to consumers and demanding high commissions from developers. The difference is that – like any retailer with its merchandise and like Apple itself with its devices – Apple should allow users to choose, convincing them to use the App Store for the best quality (attention to detail, reliability , security and any other added values) compared to other digital stores.
In one of the possible scenarios, Ball continues, developers would begin to distribute and monetize their apps directly or through retail stores. third parts. It would benefit consumers, who would sustain lower net prices, as well as developers themselves, who could increase net revenues. This scenario would likely lead to more device sales as well. In all likelihood, Apple would end up lowering and standardizing the App Store rates to keep as many users and developers as possible. have made it possible to reach its current market position, the problem in question is precisely those policies and that market position today. The future of the global economy is digital and virtual, Ball recalls, and widespread prosperity depends on competition between platforms that create value for users and developers, who in turn can create other platforms. And Apple is hindering this future, concludes Ball.
