One of the reasons Apple is building customer loyalty is that it has become a largely closed ecosystem. The company claims that its products and services are naturally integrated. The Department of Justice, however, believes that the company built an imposing technological castle and then dug an illegal moat around it. With it, Apple prevents consumers from going to the competition, and subjects developers and competitors who want to enter to a sort of tax. The iPhone abuse of dominance lawsuit filed Thursday by US Attorney Merrick Garland focuses on the castle’s five strongholds: cool apps, cloud streaming services, texting, a digital wallet and smartwatches.
The company disagrees with either the facts of the lawsuit or its legal interpretation, but the pattern drawn is common: Apple prefers to keep its customers imprisoned in its castle, even as it closes the way to innovation that would benefit the company itself. To do this, its main weapon is the App Store, where it dictates the rules and interprets them as it sees fit. Here are the DOJ’s allegations in each section of the complaint:
1. Cool apps
Super apps provide numerous services and utilities. They are apps of apps. They provide access to messages, payment methods, e-commerce and other functions through the same door. They are particularly successful in Asia, through WeChat and Alipay in China, Tata Neu in India and Grab in Southeast Asia. For those who use them, the user experience is almost the same depending on the phone model and its operating system (Apple’s iOS or Google’s Android), so it’s easy to switch from one to the other. Apple saw them as a threat and dropped everything, the lawsuit says.
According to an Apple executive quoted in the lawsuit, “allowing super apps to become the ‘main gateway through which people play games, book a car, make payments, etc.'” would “let the barbarians in the door”.
2. Video games in the cloud
For years, Apple has blocked cloud gaming apps that would have given users access to the apps and content they wanted without having to pay for an expensive Apple iPhone because it would have threatened their monopoly power. If the programs and computing power are in the cloud, there is no need to have such a powerful phone to process or store the programs. The user’s smartphone uses the computing power of a remote server that runs the program and transmits the result to the phone. Cloud streaming enables developers to offer smartphone users premium technologies and services, such as games and interactive services, with lower-performing phones.
In Apple’s own words recorded in the summary, the company feared a world where “all that matters is who has the cheapest hardware” and consumers might “buy [expletive] Android for $25 at a garage sale and there you have it […] a solid cloud computing device” that “works well”.
Apple has used its power over app distribution to prevent third-party developers from offering cloud gaming subscription services as a native iPhone app. The Justice Department claims that Apple’s refusal made its own product worse and gave up significant revenue. It left consumers without apps and content to defend its dominant position. “Importantly, Apple prevented the emergence of technologies that could lower the price consumers pay for the iPhone.”
3. Sending messages
Messaging apps benefit from significant network effects, because the more people who use the app, the more people can interact with it, which increases its value and in turn attracts more users. In many countries, the use of WhatsApp took hold many years ago and is widespread almost everywhere. This is not the case in the United States. People continue to use the default messaging apps on their cell phones, improved successors to the original SMS. Apple saw this as an opportunity to defend its fortress and make users feel that they needed to have an iPhone in order not to be at a disadvantage.
The company intentionally prevented iPhones from communicating better with Android phones or external messaging apps, the lawsuit alleges. In 2013, Apple’s senior vice president of software engineering explained that cross-platform messaging support in Apple’s Messages app would “simply serve to remove [an] barrier to iPhone families giving their kids Android phones.” In March 2016, Apple’s senior vice president of worldwide marketing sent an email to CEO Tim Cook stating the same thing: “[Creating iMessage for Android] it will hurt us more than help us.”
In 2022, Sam Cook was asked if Apple would fix the problems with its messaging service between iPhones and Android phones. “It’s hard, not to make it personal, but I can’t send my mom certain videos,” he was told. “Buy your mom an iPhone,” replied the Apple CEO.
In addition to degrading the quality of third-party messaging apps, Apple is undermining the quality of competing smartphones, according to the DOJ. For example, if an iPhone user sends a message to a non-iPhone user via Messages, the iPhone’s default messaging app, the text appears as a green bubble and includes limited features: the conversation is not encrypted, videos appear pixelated and grainy, and users cannot edit. messages or see typing indicators. “This signals to consumers that competing smartphones are of lower quality because the experience of messaging friends and family who do not have iPhones is worse — even though Apple, not the competing smartphone, is the cause of that degraded user experience,” the lawsuit says.
4. Smart watches
“Apple uses smartwatches, expensive accessories, to prevent iPhone buyers from choosing other phones. After copying the smartwatch idea from third-party developers, Apple is now preventing those developers from innovating and limiting the Apple Watch to the iPhone to prevent a negative ‘impact on iPhone sales,’” the lawsuit says.
In this case, the limitations work both ways: Apple Watch only works with iPhones, not other phones, while iPhones only work well with Apple Watches, causing various problems with other smartphones.
In a 2019 email, Apple Watch’s vice president of product marketing acknowledged that the Apple Watch “could prevent iPhone users from switching.” Surveys have come to similar conclusions: many users claim that other devices connected to their iPhone are the reason they don’t switch to Android. Apple also admits that Apple Watch compatibility with Android would “remove[an] iPhone difference,” the lawsuit says.
5. Digital wallets
“Apple actively encourages banks, merchants and other parties to participate in Apple Wallet. But at the same time, it uses its monopoly power to block those same partners from developing alternative products and payment services for iPhone users,” Attorney General Merrick Garland said in announcing his lawsuit.
Digital wallets or purses are an increasingly relevant way of using smartphones. They are particularly sensitive because they often contain the most private user data. Digital wallets that work across all smartphone platforms allow users to switch from one brand to another with less friction. “Apple denied users access to digital wallets that would provide a wide variety of enhanced features and denied digital wallet developers – often banks – the ability to provide advanced digital payment services to their customers,” the lawsuit said.
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