Apple seems to be very worried about the Justice Department’s new antitrust lawsuit, which arrived Thursday with the support of 16 state attorneys general and the District of Columbia—and you know what? There should be. Last month, according to Bloomberg, representatives of the company met with the DOJ in an attempt to prevent this whole thing from happening. But that didn’t work, and now the United States government has targeted Apple’s key money maker: the iPhone itself.
It’s a fascinating suit for many reasons, not least because it reads like an almost emotional complaint from an Android owner who’s been relegated to the place of a green bubble in too many iMessage group chats, as my colleague Alex Kirshner notes. But iMessage’s squeeze on the text messaging ecosystem forms just one plate of the government’s case, which also targets four other areas: multi-service “super apps” that can launch their own internal markets and programs outside of App Store fees and surcharges (e.g., China’s WeChat and Alipay) , cloud streaming apps that reduce energy dependence on Apple’s built-in high-end hardware, non-Apple smartwatches that could be cheaper than the Apple Watch, and non-Apple digital wallets that could be more secure , and more directly connected to your bank than Apple Wallet (eg PayPal or Fitbit). The problem, the feds say, is that Apple maintains such tight control over its own branded features in those sectors that it prevents consumers from seeking cheaper or more interoperable alternatives outside of Apple’s “walled garden.” And this is an antitrust issue because it forces consumers to cover extra fees for all of Apple’s accessories and features even when they aren’t needed. Basically: you should be able to buy another brand of smartwatch and sync it to your iPhone if you want. Or, you should be able to connect your iPhone to a virtual system in your electric car that is not limited to Apple CarPlay. Or you should be able to store your payment information (credit cards, etc.) on an encrypted wallet that isn’t directly connected to Apple, which isn’t quite the privacy champion it makes itself out to be.
The US government is not alone in this fight either. Opening up Apple’s products to the wider tech sphere has long been a key initiative for lawmakers around the world. Just last year, Apple finally agreed to integrate USB-C charging ports into the iPhone 15, next-generation AirPods Pro, and EarPods, freeing them from relying on the infamous Lightning port for charging. Before the EU finalized regulations mandating a common standard for chargers for everyday tech products, Apple bristled at any notion that it would have to comply, wanting to keep a lucrative, customized system that imposes forced costs on charging accessories and makes it very inconvenient for users switching between phone brands.
The basic concept there is “switching costs”—i.e. how many choices the consumer has to easily evaluate different products and make the most economical choice for himself. That also lies at the heart of the DOJ’s lawsuit. “iPhone users perceive competing smartphones as inferior because the experience of messaging friends and family who don’t have iPhones is inferior—even though Apple is responsible for cross-platform messaging,” Attorney General Merrick Garland said at a press conference announcing the lawsuit. “And he does it on purpose. For example, in 2013, a senior executive at Apple explained that cross-platform messaging support in Apple Messages would ‘simply remove the barrier for iPhone families to give their kids Android phones.’ “
The rest of the lawsuit is similarly peppered with juicy confirmations from Apple’s internal messaging. The complaint begins with the CEO emailing Steve Jobs in 2010, complaining that Amazon’s ad for Kindle smartphone apps showed “it’s easy to switch from iPhone to Android. It’s not fun to watch.” The lawsuit continues: “Jobs was clear in his response: Apple would ‘force’ developers to use its payment system to lock both developers and users into its platform.” All this blocking has another negative effect on consumers, the lawsuit continues: “Apple itself has less incentive to innovate because it has isolated itself from the competition,” so it’s “not surprising that Apple spent more than twice as much on stock buybacks and dividends as what he did in research and development.” Another: “In a 2019 email, the VP of product marketing for the Apple Watch acknowledged that the Apple Watch could prevent iPhone users from switching. Surveys have come to similar conclusions: Many users say other devices are connected to their iPhone the reason why they don’t switch to Android.”
As some analysts have noted, many people really like Apple products; heck, I’m typing this right now on a slick MacBook Air. But the federal government makes a compelling case that much of that love, especially within the borders of the United States, is forced — that consumers trapped in the fold stay there largely because they don’t want to deal with the barriers to change. And, as such, they are forced to rely on the iPhone even as it becomes more exclusive, badder, and more expensive.
There’s no reason, for example, that Apple should charge a huge premium on iPhones when an app maker can build a cloud computing infrastructure that reduces power consumption and performs better, but is locked onto that expensive iPhone. But such gatekeeping bodes well for Apple’s bottom line at a time when it has scorned every innovation by Jobs: “iPhone sales have accounted for the majority of Apple’s annual revenue every year since 2012,” with “some of the biggest drivers” being the Apple Watch and the App Store. With limited options in the “performance smartphone” market in particular—as opposed to the broader market for less fancy, entry-level phones—it’s no wonder that more than half of US smartphone users are sticking with the iPhone, rather than the potentially cheaper, less sophisticated, more technically interoperable, and more practical options. (A possible reason why Apple accounts for barely a quarter of the global smartphone market, compared to its 70 percent share of the US market? Other countries are already demanding more flexibility around super apps and banking.)
“People buy an iPhone and then buy another iPhone and then stay in the Apple family with Apple watches,” California Attorney General Rob Bonta, a rival, said in an interview. “It’s all according to plan. The exclusive, anti-competitive behavior that Apple engages in is like a moat around a kingdom: it keeps customers inside the kingdom so they can’t go anywhere.” Apple, of course, disagrees, as it wrote in a statement: “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets. If successful, it would hinder our ability to create the kind of technology people expect from Apple.”
We have yet to see which thesis will win – the litigation will last for years. But Apple is already retreating globally when it comes to foes like right-to-repair laws (allowing users to repair phones at home, with readily available components, rather than taking them to experts), and requirements that not they charge app makers unlimited taxes for every monetary transaction made through an iPhone app. (They face another lawsuit to that effect from big tech rivals like Meta and Microsoft.) Still, the government’s antitrust action is an admission that what makes the iPhone special is less than it is. by itself a great device and more than that it is a money generator meant to make profit from every single way available. Perhaps, after years of goodwill and avoiding government scrutiny, Apple will find itself in a place it hasn’t been in a long time: creating products that can compete on their own merits.