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.