US senator and 2020 presidential candidate Elizabeth Warren made waves on Friday when she announced proposals to break up big tech – including Apple’s App Store.
Her initial focus was on Amazon, Facebook and Google, but Warren later clarified that one of her proposals would apply to Apple too …
The proposal in question relates to what she labels ‘platform utilities.’
Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as “platform utilities.”
These companies would be prohibited from owning both the platform utility and any participants on that platform. Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties.
Amazon is the poster child for this concept. The company offers third-party companies the ability to sell through the Amazon Marketplace platform, but Amazon has all the data on how well those products sell. When the company spots a product line that proves particularly popular, it swoops in and creates its own-brand version – usually undercutting on price – and of course promotes its own version in search.
It’s true that Apple has done much the same thing to third-party apps in the past. Indeed, a whole new term was coined based on what Apple did with its Sherlock search in Mac OS 8. Apple replicated many of the features of the third-party search utility, Watson. The process of Apple copying features from an independent app, and thus putting the developer’s revenue stream at risk, subsequently became known as sherlocking.
When Apple did this in free apps, it was understandably upsetting for the developers concerned. However, the law is that you cannot copyright or patent an idea – only the specific expression or method employed. And Apple wasn’t seeking to profit from copying such ideas: it was simply aiming to deliver a better experience to consumers. Consumers benefited by getting for free features which previously would have cost them money.
So sherlocking wasn’t initially something the law should try to prevent.
Warren does have a point
But Warren does have a point now that the situation has changed somewhat. Apple is making a big move into subscription services, and that means that in some cases it will be making money from features it has copied from existing apps.
And even when it doesn’t do this, owning both the platform and the app does, as Warren argues, give Apple a massive advantage.
Take Apple Music, for example. The app is pre-installed on all iPhones, meaning most iPhone owners will open it – and be offered a free trial. If you choose to subscribe, Apple keeps 100% of the gross revenue (before it subsequently hands most of it over to the labels, of course).
Other streaming music services, in contrast, have to work hard and spend money on promotion to persuade you to download the app. And if you subscribe via an in-app subscription, Apple takes a cut of the revenue.
Streaming music isn’t the only area where Apple will enjoy this same benefit. The same will be true once Apple launches Apple News subscriptions, and once it (finally!) offers its own streaming video service. It’s absolutely undeniable that owning both the platform and subscription-based apps gives Apple a massive advantage over competitors.
Apple News raises another tricky issue
The free version of Apple News is curated. That is, human beings employed by Apple make a decision about which stories get included and featured, and which don’t make the cut.
Now, you can argue that’s a useful service in an age of fake news. You can also argue that Apple isn’t doing anything different to a newspaper’s editorial team in deciding what should and shouldn’t be covered. But it is now a platform making those decisions – a platform which will, shortly, be selling news subscriptions.
Even if you think that’s fair enough, what happens when a big Apple story breaks, especially one unfavorable to the company? Should an editorial team paid by Apple decide whether a story about Apple makes the cut?
But this is no different to own-brand labels
Several 9to5Mac readers pointed out that you could make the exact same argument to ban the sale of own-brand products by supermarkets.
Krogers sells their own groceries right next to competitors. Target and Walmart also have their own brands. So if you do this to the tech companies you better do it to every company that sells their own stuff along with others.
Chain stores offer their own-brand labels right alongside third-party ones, and consumers make their choice. Far from harming consumers, the fact that the store is both a ‘platform’ and a product maker gives shoppers more choice and lower prices.
Consumer benefit must be the acid test
While Warren does have a point, her proposal fails the most important test: consumer impact.
Apple’s App Store is a money-making enterprise, yes, but it also offers an absolutely critical consumer benefit. By ensuring that apps are all vetted by Apple, most malware can be kept out of the store in the first place, and any sketchy apps discovered can be quickly removed by Apple.
The whole point of legislation of the type Warren proposes is to protect consumers. Forcing Apple to lose control of its App Store would have the polar opposite effect: it would leave them at the mercy of the policies of one or more third-party companies. iOS would be transformed from a secure environment to the wild west.
Yes, the integrated nature of Apple’s operations does give the company significant advantages in those areas where it competes with other businesses. But that very integration – the security and Apple ecosystem – is precisely why many of people buy Apple products in the first place.
Warren’s proposal fails at the starting gate: it’s a supposed consumer-protection policy which would actively harm consumers.