Apple could soon be the target of an antitrust investigation by either the Federal Trade Commission or the Department of Justice, according to numerous press reports, with the feds focusing on its new policy requiring developers to write iPhone OS apps using only Apple-approved programming languages.
The rule would effectively prohibit developers from using third-party code to create iPhone, iPad and iPod Touch apps that can easily be converted into apps for competing platforms including Android, Windows Mobile and Palm’s Web OS. Apple’s new policy also prohibits third-party analytics tools from being inserted into apps, which could make it impossible for competing ad networks to serve advertisements on the iPhone OS. Incidentally, Apple just introduced its own in-app ad platform iAd. This is another point of concern for antitrust authorities, according to The Wall Street Journal.
Not a single source cited in these reports has spoken on the record about the matter, and the FTC and Justice Department declined to comment to us about the state of any such investigation. Both agencies have dealt with technology antitrust issues in the past, and according to the New York Post, which broke the story, they plan to announce an investigation in a matter of days (even though the FTC never announces that it is investigating).
Microsoft famously faced a long antitrust case starting in the ’90s. That case centered on the company’s monopoly over the desktop. It started the FTC and later shifted to the Justice Department, which successfully pursued Microsoft in court.
Apple has long considered itself a computing rebel — the anti-Microsoft — famously, the destroyer of Big Brother in a Superbowl commercial. Now, Apple faces the threat of action from regulators, who see it as “The Man” using its market power to quash competition.
As in the Microsoft case, the feds’ potential investigation against Apple would look at two key issues: whether Apple’s developer policy has an anti-competitive effect on the market, and whether the company has justifiable business reasons for imposing those restrictions, according to Washington-based antitrust expert and Howard University law professor Andrew I. Gavil.
Basically, Apple can enforce whatever rules it wants on its own devices until it begins to dominate a market. Being the dominant player and even a monopolist isn’t illegal, but at that point, a company must provide the feds with a compelling enough argument that its restrictive policies does more good than harm.
Presumably Apple will argue — as Jobs did in an open letter regarding Adobe Flash last week — that banning third-party software development tools prevents buggy apps and in some cases, allows developers to make use of new features faster, because they don’t have to wait for third-party developers such as Adobe to make them available in the programming tool. That, Apple thinks, outweighs any collateral damage the policy causes to its competition and, by extension, consumers.
With over 85 million iPhone OS devices in circulation, Apple dominates the MP3 player market, some of the smartphone market and a small — but growing — percentage of mobile computing (because the million unit-selling iPad competes with netbooks, laptops and so on). When it comes to the burgeoning mobile OS market as a whole, Apple finds itself in a situation similar to that of Microsoft, when its domination of the desktop — and in particular, interweaving its browser so closely into the OS that users couldn’t uninstall it — drew antitrust concern.
It may not be immediately clear how Apple forcing developers to use only its SDK to develop apps for its platform hurts competing mobile platforms, but our conversations with countless iPhone app developers indicate that most write their code first for the iPhone, then for Android, and after that, for Blackberry, Palm, Windows Mobile, Symbian and the rest — assuming they even get around to those platforms at all. Partially due to that phenomenon, Apple counts over 200,000 apps in its App Store while the others lag behind.
If developers were to write their apps in an open standard such as HTML5, which is capable of rendering simpler apps on multiple mobile operating systems — or in other programming languages that could be automatically converted to the iPhone OS format, a practice currently banned by Apple — competing mobile platforms would become more attractive simply due to offering a similar panoply of apps.
By requiring its developers to spend time coding natively for iPhone OS devices that they could be spending writing code that works across multiple platforms, Apple leverages its dominance and wrings a competitive advantage, something even Apple supporters acknowledge.
Although the iPad is the current belle of the web and people think of the iPhone as the core device of Apple’s aptly named iPhone OS, Gavil says the iPod Touch represents Apple’s biggest current vulnerability to such an antitrust suit. That’s because it dominates the MP3 player market and competes with all other players, unlike the iPhone, which is tied to AT&T, and the iPad, which is new, and probably won’t gain much overall market share in its vaguely defined space, where it “competes with everything from laptops to Kindles.”
Then, there’s iTunes: a crucial link of the iPhone OS ecosystem that could spread anti-competitive advantages, since it’s the only way you can add music or applications to Apple’s mobile devices (without voiding the warranty). If you own an iPod Touch, you’re more likely to choose an iPhone or iPad, because you don’t have to pay for the apps again or learn new software. And it was a similar bundling approach (Internet Explorer with Windows) that got Microsoft in so much hot water in the ’90s.
It remains unclear whether the feds are actually investigating or whether the series of leaks are simply a way for the feds to signal to Apple that they are watching and don’t like what they see. The FCC used a similar approach last summer when Apple rejected the Google Voice app for the iPhone. That scrutiny pushed Apple and AT&T to allow apps using VoIP onto the iPhone, without the feds actually having to do much more than send a few letters.
In other words, the current noises about antitrust might just be bureaucrat-ese for what the comedian John Stewart said about Apple’s tactics in pursuing its lost iPhone 4G prototype.
“Apple — you guys were the rebels, man, the underdogs. People believed in you. But now, are you becoming The Man? Remember back in 1984, you had those awesome ads about overthrowing Big Brother? Look in the mirror, man! … It wasn’t supposed to be this way — Microsoft was supposed to be the evil one!”