Ben Volach, co-founder of the email-app company Blix, was making the rounds of
annual developer conference in June when he happened upon a presentation of Apple Mail’s newest feature. The motto for the San Jose, Calif., conference was “Write code. Blow minds.” But Volach found that it was his own mind being blown.
“We were shocked to see Apple copying our technology and announcing it onstage,” he says. “A couple of days later, there was the shock that our Mac application was kicked out of the App Store.”
The feature allowed users to access websites anonymously using email, similar to a function that Blix’s flagship BlueMail app had released 10 months earlier. Blix sued for patent infringement and claimed that Apple was using control of its App Store to bully competitors. In filings and statements, Apple (ticker: AAPL) scoffed at the idea that it’s a monopoly and said gate-keeping is carried out strictly in the interests of security and reliability. In February, after eight months, Apple returned BlueMail to its Mac App Store, saying the product now complied with Apple guidelines.
Apple told Barron’s that Blix declined its offers to help the company comply with App Store guidelines, and that Blix’s products posed security risks for customers. Once those issues were fixed, the app was allowed back in the store, Apple says.
But Blix—which has 40 employees worldwide, spread across Israel, New Jersey, and the United Kingdom—plans to fight on, seeking to lead a backlash against the App Store from a growing list of disgruntled App Store developers. Its patent-infringement claim against Apple is pending in federal court in Delaware.
Government officials in Europe, the U.K., and the U.S. have also taken notice. While
(FB), Amazon.com (AMZN), and
unit (GOOGL) Google have dominated much of the regulatory attention, officials worldwide have made it clear that Apple is in their sights, as well.
The pressure hasn’t abated, even as the world deals with the coronavirus pandemic. On Monday, France fined Apple $1.2 billion, the largest ever penalty from France’s competition authority, which cited anticompetitive behavior in the distribution of iPads and other Apple products.
But Apple’s App Store is likely to come under increased regulatory scrutiny of its own, particularly as developers like Volach push back on the platform.
Disgruntled customers and developers say Apple adds to its advantage by weighing the scales in favor of its own products, charging outsize fees, restricting how and when developers may distribute phone apps, and collecting and hoarding valuable business information about the developers’ own customers. Apple takes a 30% cut for in-app purchases and first-time subscriptions.
Developers in Europe and the U.S. are filing lawsuits, testifying before legislators, lobbying the European Commission, and urging regulators to look at Apple as a de facto monopolist whose moves warrant scrutiny.
Critics describe Apple’s control over its App Store as more anticompetitive than Google’s rival offering, known as Google Play. A study by researchers affiliated with the University of Amsterdam concluded that Apple changes its rules when it releases its own products, whereas there appeared to be no such correlation with Google’s Android software. Android users can obtain apps from various marketplaces, including from Amazon and Samsung Electronics, while iPhone users are restricted to the Apple App Store. Google also makes it easier to set up outside products as the default apps on Android phones, according to Blix’s legal complaint.
In statements to Barron’s and regulators, Apple refuted the idea that its policies and practices are intended to suppress competition. The company says its platforms are managed to promote developers’ products, even in cases when Apple sells competing versions. Rules denounced by officials and merchants as anticompetitive actually protect consumers from fraud, eavesdropping, and other dangers, the company says.
“Giving developers a fair and level playing field has been key to our success—and we will stay on that course,” the company said in a statement to Barron’s.
As for the French fine, the company said the ruling went against precedent and harms French consumers. Apple says it’s planning to appeal.
Apple’s App Store generated roughly $15 billion in sales in the last fiscal year, up 20% from a year earlier, according to data from Visible Alpha, making it one of Apple’s fastest-growing units. iPhone sales were down 14% over the same period.
Gene Munster, a partner at Loup Ventures, a tech-focused venture-capital firm with offices in Minneapolis and New York, estimates that the App Store alone is worth somewhere from $150 billion to $200 billion. Apple’s total market value is roughly $1.1 trillion, accounting for the stock’s recent coronavirus selloff.
The App Store’s importance to Apple goes beyond revenue; the platform drives loyalty from users across Apple’s entire hardware and software ecosystem. “If there’s much more scrutiny of the App Store, there would be clear business-model implications and some revenue headwinds, and it’s something that investors are keeping a close eye on as the Beltway takes a closer look at tech stalwarts,” says Wedbush analyst Daniel Ives.
Munster, however, believes that Apple might come out better than its peers. “I think Apple is in the safest camp, even though this is a topic that will gain momentum, because I think the company will navigate this and succeed in maintaining its pricing structure,” he says.
But Apple is a large target across the globe.
(SPOT), the Swedish streaming-music pioneer, has a complaint working its way through the European Commission claiming that Apple sets an unfairly high, 30% commission rate on subscriptions bought through the App Store. Last May, the U.S. Supreme Court, against Apple’s wishes, allowed a class-action suit alleging unfair App Store pricing. The case is scheduled to reach federal court in March 2022, but action could happen well before then.
“We’re confident we will prevail when the facts are presented, and that the App Store is not a monopoly by any metric,” Apple said in a statement released following the Supreme Court decision.
Tile, a maker of Bluetooth location-tracking devices, says it has come up against Apple’s power in recent months. In January, the company learned that its products would no longer be sold in Apple’s physical stores. The timing coincided with reports that Apple was releasing a similar product of its own, in the form of an enhanced Find My iPhone app, says Tile’s general counsel Kirsten Daru. She adds that Tile began facing technical roadblocks with Apple starting last fall. “All this came at the same time,” Daru says. Apple also hired one of Tile’s key engineers shortly before the company released its new iOS 13 iPhone software in September, which, Daru says, gave Apple a “material competitive advantage over us.”
Daru made similar comments to Congress in January. At the time, Apple told congressional members, “Stronger privacy protections may not be in everyone’s business interest, but they are in the interest of every person with a smartphone.”
More than a dozen parental-control apps, including Kidslox and Qustodio, fought a two-year battle to be reinstated to the App Store after they were booted when Apple introduced a rival app. They were allowed to return in September only after European Commission antimonopoly officials intervened on their behalf, says Viktor Yevpak, CEO and co-founder of Kidslox.
“Apple enjoys a dominant position, and it abuses its position,” Yevpak said in an interview from his office in Ukraine.
Apple said in a statement that it had acted to protect consumers: “We do not think it is okay for any apps to help data companies track or optimize advertising of kids.”
Yevpak, like Volach, has stumbled into a role as resistance leader, as disgruntled app developers from all over the world contact him to discuss strategies to protest what they see as monopolistic behavior from Apple.
“Companies started coming up to me and saying, ‘Me too. Me too,’ ” says Yevpak. “Everybody in this field, the Nortons, the Kasperskys, the big players and the small players, are approaching me to complain.”
David Heinemeier Hansson, chief technology officer and co-founder of Basecamp, a project-management software offering, cites Apple’s App Store fees as evidence that Apple enjoys a duopoly alongside Google. He told a congressional antitrust panel in January that Apple’s onerous 30% commission is clear evidence that it has market power. Basecamp now avoids the fee by providing its apps free in Apple’s store, while attempting to sell services on the internet, even though the process makes its product less customer-friendly.
“Most mobsters would not be so brazen as to ask for such an exorbitant cut,” Hansson says.
Apple told the same panel that its fee was commensurate with the App Store’s role as a “channel for the distribution of developers’ apps and the cost of many services—including app review, app-development tools, and marketing services.”
The rhetoric from app developers echoes U.S. anti-railroad rebellions in the late 19th century, when protests against that era’s dominant commercial platform led to the creation of anti-cartel political parties and a national progressive movement with a trust-busting theme. Today’s app-developing rebels haven’t produced their version of the 1890 Sherman Antitrust Act. Not yet, at least.
“I would expect Europe to be much more aggressive in the near future in terms of enforcement related to Apple,” says Gene Kimmelman, former chief counsel for the U.S. Department of Justice’s antitrust division.
“We keep hearing concerns about the power of platforms, about the way they control our access as businesses as well as us as individuals,” European Union antitrust czar Margrethe Vestager said in a Brussels speech a year ago. “By controlling the terms of access, they expand their power across the digital world.”
Last month, the EU released a “European Strategy for Data,” which calls out “imbalances in market power” and highlights Vestager’s past comments.
Asked during a recent antitrust event in San Francisco whether the European Commission’s strategy might soon include a crackdown on Apple, Kris DeKeyser, the EC’s deputy director general for antitrust, said, “The commission will be a bit more granular in upcoming events.”
Separately, the European Commission has levied a 4.34 billion euro fine against Google for allegedly breaching EU antitrust rules on its Android apps platform. In that case, now on appeal, the commission said that Google and Apple’s app stores operate as two separate markets, setting up Apple to be characterized as having market “dominance” on its own platform. Such a designation could enable European regulators to respond more aggressively to claims that Apple has abused its position.
The U.K. has also been assertive on this issue, with a major report last March urging the U.K. to enforce a “clear set of rules” to fight monopolistic digital platforms.
In the U.S., the House Judiciary Committee’s antitrust panel has sent a document-request letter drawn specifically from developers’ complaints.
Meanwhile, the Department of Justice and the Federal Trade Commission are both conducting reviews into the tech industry. Spokespeople for the FTC and DOJ declined to comment about Apple.
Elsewhere, state attorneys general are sharpening their pencils and studying up on internet technology following announcements that eight states will confront concerns that internet platforms use their dominance to squelch competition.
“If you’re leveraging it to prevent or foreclose others from competing in your app store, preferencing yourself, or you have sweetheart deals, that can trigger a harm to competition that you could challenge under the antitrust laws,” says Kimmelman, the former Department of Justice antitrust official.
All About Apps
Apple’s App Store is one of the company’s fastest growing units.
Estimated App Store revenue
in fiscal 2019,
Estimated growth for App Store revenue in fiscal 2019
Apple’s overall revenue growth
in fiscal 2019