iPad in the Age

I wrote an opinion piece about competition and antitrust issues associated with the iPad and Apple in general. I didn’t have a chance to get into Flash but may do so later on. The piece is over the fold.Apple’s media core

by Joshua Gans

The Age, 13th April, 2010

THE iPad has proven polarising in the media and opinion pages but is clearly a hit in the market. Like its older and smaller siblings, the iPhone and iPod Touch, the detractors are predominantly from the IT community.

Compared with other computers, Apple’s mobile offerings leave the hand of Apple in the business of third-party software developers.

This happens because every application, or app for short, that can be used on the iPad can get there only with the approval of Apple. And a similar concern is raised regarding eBooks and Apple’s potential control there.

The sensitivity to control and access harkens back to earlier competition issues with regard to Microsoft. The concern was that Microsoft, which held the monopoly in micro-computing operating systems, would build applications and functions into that operating system that would make redundant potentially superior ones delivered by independent developers.

This included media players, photo-editing software, anti-virus programs and, of course, the web browser. If you were an independent developer, the ability for Microsoft to tie in a competing product left you very vulnerable.

To consumers, the end result was a computer with programs that were pretty much what Microsoft would dictate. With their monopoly over operating systems, there would be nowhere else for developers to go.

So when software developers look at Apple and the fact that its App Store requires approval and also seems to deny approval for apps that duplicate functions that Apple has built in to the iPad, alarm bells ring. Nonetheless, there is a big difference between Apple and Microsoft in the 1990s, and right now.

Apple does not have a monopoly in any market. To be sure, if you just look at internet use on smartphones, Apple has the lion’s share. But for smartphone sales, Apple’s share (less than 20 per cent) is far from monopoly levels. Even for the iPad, which has generated such discussion, it is competing in the fairly new netbook market. Apple may generate a few million of the 40 million sales expected this year. Software developers have other places to go.

Of course, given its commercial success, the concern could be about an impending future Apple monopoly. In theory, that could stifle incentives to develop software today.

The interesting thing is that, to a large extent, despite all these restrictions and worry, they haven’t gone elsewhere.

There are 185,000 apps that have been developed over about two years, well ahead of rivals Android (with 10,000) and BlackBerry, which has been around the longest. This is despite those platforms not having the restrictions Apple has put in place.

Thus Apple is doing something right. I would suggest that 85 million users is one thing; but there is also a software development kit that dramatically reduces the cost of programming, so much so that it didn’t cost me much to develop my own app. Add to that a clear means of distributing software as well as a fixed revenue-sharing formula, with developers getting a 70 per cent cut and choosing their own price (including zero), it is hard to argue that Apple is treating software developers badly.

That said, the incentives to develop software that improves on things that Apple is providing looks to be diminished by Apple’s own policies. My guess is that those policies are more about making the iPhone work smoothly than about restricting competition, but it does not look good. Competing email programs, browsers and, significantly, phone applications (including Google Voice and Skype) are restricted. Of course, that latter set might be the hand of mobile phone companies rather than Apple.

However, users know that there might be better options out there and I suspect Apple is losing sales as a result of this.

Nonetheless, the iPad launch also indicates that there is some hope for developers. In relation to eBooks, Apple allows these to be sold and viewed on the iPad without Apple taking any cut. Even its main competitor, Amazon’s Kindle, is freely available, meaning that consumers do not have to make hard choices between a dedicated eReader and an iPad.

Moreover, Apple did not install its competing iBooks application on the iPad, thereby denying itself first-mover priority on the home screen. Contrast that with Microsoft’s strategies. It looks like Apple is creating a more level playing field. Perhaps more interesting with regard to competition policy will be Apple’s move into mobile advertising.

Last week it previewed its iAd system that allows app developers to place ads in the programs and advertisers to create innovative ads to match them. The developer gets 60 per cent of ad revenue generated. This system has the potential to move beyond the iPad and iPhone.

For starters, if you are a newspaper or magazine provider, you can integrate iAd into your electronic content rather than other ad resellers. What is more, if Apple does it right, it can track when ads are seen or clicked on by users. The critical thing is that it can potentially ensure that a consumer who views a Nike ad in a game doesn’t get presented with that same ad when reading the newspaper. That frees up real estate for other advertisers but also gives all content providers a reason to agglomerate on Apple’s ad platform rather than some other.

The network economies and just general consumer success of Apple in the mobile computing space make it likely that it will achieve market shares that generate competition scrutiny. The issue is whether its practices end up being driven by a desire to restrict competitors and hold on to that share, or by a desire to continue to provide products consumers want to buy and developers want to support. For the moment, the main issue is whether its monopoly of media attention will continue. I suspect the answer is yes.

Joshua Gans is an economics professor at Melbourne Business School and visiting scholar at Harvard University. His iPhone app (CoreEcon) is available free from the App Store.

4 thoughts on “iPad in the Age”

  1. The big player is clearly going to be Android, with many big device makers coming in, and a 73% growth rate in the three months to February.   http://www.comscore.com/Press_Events/Press_Releases/2010/4/comScore_Reports_February_2010_U.S._Mobile_Subscriber_Market_Share
    I don’t know what sort of quality they are, but Android is said to have over 30,000 apps available (not 10,000), with over 9000 entering in March alone:  http://phandroid.com/2010/04/08/its-over-9000-android-market-sees-huge-growth-in-march/
    The other factor is that the telecoms don’t want to be locked in to Apple, so they will certainly promote a range of devices (and maybe operating systems) to reduce the bargaining power of these suppliers.  The lack of an equivalent power in the music player value chain may explain the iPod’s ability to maintain such a large share in that business (the music industry could have taken this position, but chose to stick its head in the sand.)
    So I think Apple gaining a monopoly share is very unlikely, though they may be able to hang on to their 25% share.
    I personally object to being locked in to the Apple universe, and am very disappointed with my Windows Mobile phone, so I’ll be waiting until viable Android devices come available in Australia.

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  2. “Dramatically reduces the cost of programming” – compared to what?
    Java programming for other mobile phones is completely free, and there are high-quality development tools like Eclipse and NetBeans that are free and run on all operating systems, so you don’t have to use a Mac, as I believe is the case for the Apple development tools.
    Mobile phone apps have been around for years, without having much impact. Apple has done a great job of popularising the idea, and they have made things easier for the consumer. However, they haven’t made it easier for the developer – they seem to have made it more difficult and expensive.

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  3. Apple, make development easy? Historically Microsoft has always been far ahead in this field. Visual Studio is a world class development tool that has been far ahead of anything that Apple has to offer and the C# programming language is millions of miles ahead of Objective C. But I digress.
    As for monopoly claims: developers have always been able to develop for Windows Mobile phones completely without cost and with no approval process. The Microsoft ecosystem has always been much more encouraging to third party development.
    In fact with Windows, Microsoft shot themselves in the foot. By being so open to third party development, an irony considering the anti-trust cases that have been alleged against the in the EU and other places, the applications that were available for Windows were given too much leeway. Although it’s getting better now, applications developed for Windows have historically been given an enormous level of access to the internals of the operating system, causing problems and leading to the image of Windows as a buggy mess (just look at the amount of non-Microsoft software that comes with just about any laptop you buy these days, and most of it sub par and responsible for (I’d be willing to guess) 99% of system crashes and usability problems).
    No, of the two companies Microsoft is definitely the less evil, although in naïve way that has offered nothing but assistance to Apple’s reputation for quality and perfection.

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  4. A few points:

    The Android market has 30,000 apps, not 10,000.
    For most (all?) other platforms the software developer can sell off their own web site and get a 100% cut.
    No other platform requires explicit approval from the hardware vendor.
    Your “guess” that Apple’s restrictive policies are more about making the iPhone work smoothly is laughable.  If Apple wants to control the quality of software they could sift out the crap on the App$tore (there’s a lot of shovelware in those 185,000 apps!) and give only the best apps Apple’s stamp of approval, then allow un-approved apps to be distributed freely on the web.
    Apple’s decision last week to dictate which development tools can be used to create apps is clearly designed to block Adobe’s Flash-to-iPhone compiler.  Jobs himself has admitted as much.  He wants to prevent a “meta platform” such as Flash being established on the iPhone, thus diminishing the product differentiation between the iPhone and the coming avalanche of Android phones.  If you can run the same Flash apps on any phone, why buy an overpriced iPhone?
    I have a friend who develops games for iPhones.  He recently invested $3000 and many hours in Unity3D, a game development platform that is now banned under Apple’s new rules.

    I completey understand why Jobs has done what he’s done.  If it was anyone else I’d give them zero chance of pulling it off, but because its Jobs he might just do it.  Look what he did with MP3 players.  Try getting a teenager to use a non-iPod MP3 player.
    What really annoys me is Apple fanboys defending Job’s policies on the basis that they are designed to protect iPhone users from “shovelware”.  That’s total nonsense.  Apple is defending Apple with policies that would be definitely be labelled anti-competitive in the desktop world.

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