Cheaper app subscriptions. Additional payment options. Greater freedom for app developers in the App Store. Greater consumer choice.
Those are some of the possibilities that consumer advocates hope will come true for users of Apple’s iPhones, iPads and other products if the US Justice Department wins its long-awaited antitrust lawsuit against the Cupertino, California-based tech giant.
The lawsuit filed Thursday accuses Apple of stifling competition and using its power and ownership of the popular App Store to raise prices for users. If the DOJ succeeds in its case, the implications for Apple’s business could be significant — potentially changing the ways the company charges app developers and customers for products and services.
“This is a good thing for consumers because the Justice Department is actually scrutinizing Apple’s use of its market power to make sure it’s not an abuse of its market power,” said Jamie Court, president of the LA-based nonprofit Consumer Watchdog.
For years, the Apple App Store took up to 30% of revenue from app subscriptions or in-app purchases from third-party developers. Developers have said that this reduction makes it difficult to keep their business viable, so they are passing the fee on to consumers.
Unlike Google’s Android operating system, which runs on Google phones as well as other devices like Samsung’s, Apple’s products run only through its own software, iOS. The only way third-party developers can get their app on Apple’s App Store is by following the iPhone manufacturer’s rules. If they don’t, they risk losing millions of customers.
“This signals that Apple will have to lower prices for other apps,” Court said. “They will need to open up their payment systems to other service providers and will need to ensure that people using other devices have fundamentally comparable access to benefits and services.”
Some companies, including Swedish audio company Spotify, have directed users to subscribe through their websites, avoiding cuts of up to 30%. In 2020, Epic Games sued Apple after it was kicked out of the App Store because its game “Fortnite” tried to circumvent Apple’s in-app purchase charge. A US District Court judge ruled in the case that Apple did not retain a monopoly on the mobile game market, but ordered the company to allow developers to warn users about different payment options.
While many analysts expect Apple to change its practices somewhat as a result of the government’s measures, they don’t expect any major immediate changes. The most likely outcome is a settlement.
“For now, we don’t expect any changes to the business model, but Apple will obviously have to find a way to eventually settle this case, pay a hefty fine, and ultimately find some compromise with developers about the structure of the App Store going forward,” said Daniel Ives, executive director of Wedbush Securities, in a note to clients.
Apple said in a statement that the Justice Department’s lawsuit “threatens who we are and the principles that set Apple products apart in fiercely competitive markets.” Apple has long argued that its business model of creating a tightly controlled ecosystem of software and hardware benefits its customers.
“If successful, it would impede our ability to create the kind of technology people expect from Apple — where hardware, software and services intersect,” Apple said. “It would also set a dangerous precedent, empowering the government to take a heavy hand in designing human technology.”
The company touted economic success within the App Store developer community. Apple’s App Store ecosystem will generate $1.1 trillion in billings and sales to developers in 2022, according to the Analysis Group. Apple claimed that more than 90% of billings and sales went to developers and companies without any commission given to Apple.
“Like this [Analysis Group] report shows that the App Store is a vibrant, innovative marketplace where opportunities abound, and we’re as committed as ever to investing in the success of developers and the future of the app economy,” Apple CEO Tim Cook said in a statement in May.
But some analysts say Apple’s competitors make smaller profits but still provide a level of security and service that protects consumers — and therefore Apple should be less restrictive. .
“Apple’s margins are much higher than the rest of the industry, and that makes them a target for this,” said Rob Enderle, principal analyst at consulting firm Enderle Group. “When a company has what appears to be an excessive margin, it increases the potential for abuse of monopoly power.”
Critics say Apple is abusing its position as the gatekeeper to the App Store, launching similar Apple products that compete directly with competitors and put them at a disadvantage.
For example, Apple released its own music streaming service, Apple Music, which competes directly with Spotify. Apple’s enemies say the company has a competitive advantage because it not only owns the iPhone, but also controls the software system and the App Store. Apple also controls which apps come pre-installed on its iPhones.
“It finally exposes many of the practices that Apple engages in that those within the industry often have no way to complain about because they’re simply either afraid of Apple or don’t have the resources to stand up to one of the richest companies in the world,” said Adam Wolfson, a lawyer who represented Mountain View, Calif.-based AliveCor when it sued Apple in 2021 over related concerns.
AliveCor’s lawsuit, which accused Apple of maintaining a monopoly through Apple Watch apps, was recently dismissed, but the company said it plans to appeal. Apple said the judge’s ruling “confirms it is not anti-competitive” in a statement released to Reuters.
“Apple is not the best at everything, and there are numerous examples of apps that Apple has pushed or made their own version of that are not as high quality as what third parties have developed,” said Wolfson, a partner at Quinn Emanuel. “By (Apple) constantly putting itself first, it often makes it so that consumers don’t have a choice of the best option.”
Other industry watchers say the Justice Department’s lawsuit could also bring greater usability to various apps or services on Apple. For example, making it less awkward when Apple users text with Android users.
“Green text chains with one non-Apple friend could be coming to an end,” Ives said.
Many analysts see similarities to the Justice Department’s lawsuit and settlement with Microsoft over antitrust practices in 2002, which gave PC makers more freedom to put other non-Microsoft web browsers on their machines.
“It set the tone for the entire Internet age,” Court said. “If Microsoft had been allowed to dominate that market, we would never have had the proliferation of companies that came up with innovative products. If Microsoft could force everyone with Windows to use their browser, then there would be no Google.”
Times writer Hannah Fry contributed to this report.