Apr 2

Does Apple have a monopoly in the mobile phone ecosystem?

Category: Uncategorized

I was recently browing the MacRumors forum thread on the ProtonVPN app update. Inside it was a question on if Apple has a monopoly in the app market that needs to be unlocked. The question is the balance and at which point is a company like Apple compelled to do something for the greater interest of consumers.

Apple doesn’t have a monopoly over the mobile phone device space as there are plenty of competitors such as Samsung, Google, ZTE, OnePlus, Motorola and many more. Apple has roughly half of the market in the US which it has slowly built up over time though in the rest of the world non-Apple devices are dominant where Apple’s marketshare sits around the 20% range. For the consumer there is a choice of a device from Apple or other competitors.

Apple doesn’t have a monopoly over the mobile phone operating system market as it doesn’t sell it’s operating system. These days really only Google does that with Android and it’s Google Mobile Services that adds many of the features people associate with Android (e.g. Play Store, Chrome, YouTube, GMail, etc). Google has a monopoly over the mobile phone operating system market, edging out competitor Microsoft’s previous Windows Mobile and Windows Phone operating systems from the market. This does mean that consumers are limited to choice but this wasn’t Apple’s doing: this is Google’s work. Google’s approach of giving away their operating system for free undercut the market for mobile phone operating systems and has basically handed Google almost 100% of that market. Other operating systems such Prior to Microsoft’s acquisition Nokia’s Symbian platform was looking to be replaced by Android and “Blackberry” devices these days are now powered by Android replacing the RIM developed operating system. Out of the Epic Games litigation we’ve seen Google act like how Microsoft acted with their OEMs threatening to remove access to the Google Mobile Services if they shipped the Fortnite launcher with their phones. For the consumer, Apple’s iOS is the only alternative on the market to Android.

When one considers it this way, Apple is the only alternative if a consumer doesn’t want Android. It wasn’t this way when they launched when you could get a Windows Mobile device (“I like our strategy, I like it a lot” – Ballmer), Nokia and Blackberry’s operating systems (Symbian, Maemo, BlackberyOS) as well as other open source platforms like Openmoko. This isn’t great for the consumer.

Apple has a monopoly on what they permit to run on the devices they sell. This is somewhat of a natural monopoly in the sense that without Apple’s work, folk would be limited to the web apps that were the only source of third party “apps” on the device at launch. Apple invested in developing an SDK for their platform and Apple have set the terms for licensing their intellectual property that uses of their property are required to enter into an exclusivity agreement that requires Apple be the sole distributor of their products (outside of Enterprise or Education environments) and that Apple’s payment systems are the only acceptable mechanism for accepting payment. The manufacturer of a hardware device having the option to control what runs on the device is not a new concept however, if anything it’s an old concept in how originally computer operating systems were closely coupled to their hardware. It does mean that consumers in the Apple ecosystem are mostly limited to only Apple approved software.

This one is arguable hard for the consumer. Many consumers like myself quite like the fact that there is only one store and that Epic Games, Microsoft, Steam, EA and many more can’t launch their own app stores like as what happens on the desktop. I dislike Epic Games for example who make games exclusive to their platform without any sort of time limit on it being made available to other stores for example. I don’t think I’d personally push to legislate that to change for the same reasons I don’t believe compelling Apple to change the way it operates is appropriate. There are other consumers who would like an App Store but for them the dominant mobile phone operating system platform provides this capability, there is competition in the market to provide this and I’m not sure I agree that compelling Apple to become like it’s competition is inherently a positive move for consumers because fundamentally it removes the choice and potentially limits future options in this space.

That then brings us down to if the revenue sharing arrangement is appropriate. The Epic Games side cases this mostly as the store charges, downplaying the aspect that this is a license for use of Apple’s intellectual property. In one sense it removes the upfront costs to development and defers it later. It means free apps don’t generate revenue for Apple and in a sense the larger more profitable companies are subsidising this. As Apple is the only alternative to Android and is generally tied to higher spending users, it skews the profit motive because we’ve seen time after time the Apple App Store has much more spending than the Google Play Store. This means if you’re building a new service for example, you really want to have an iOS application to capture that lucrative market.

At that point it’s not much of a choice for the app developer or service provider. You can build an Android app but that’s less lucrative a market and depending on what you’re developing (e.g. a game like Fortnite), the app store providers will still want a 30% cut anyway (see again Epic Games’ suit against Google). The question then becomes should an app store like Apple’s be compelled to split apart the 30% and apportion it to the various costs (e.g. payment processing fees differentiated from the cost Apple wishes to charge for licensing their intellectual property). As we’ve seen with Epic Games’ Store, whilst Tim Sweeney might think a distribution platform should be able to be run profitably for 8%, when he’s force to put his money where his mouth is that number became 12%. However it’s not really that simple because some markets have higher payment processing costs (I’ve seen 25% quoted frequently) and the customer will be additionally charged a payment processing fee on top of the purchase cost to make up for this, something that Apple’s App Store doesn’t feature. Reportedly the EGS doesn’t handle taxes in the same way Apple does though I’ve never found anything particularly substantial to back that up So splitting up that 30% becomes complicated as it expands around the world. What further complicates this is that I can launch an app on the EGS that leverages none of Epic’s intellectual property and they take a 12% cut for the privilege of having it on their store and their payment methods. This isn’t comparable to Apple where to build an iOS application requires the use of some amount of Apple’s intellectual property to be functional.

This is part of challenge that Epic Games has against Apple to detangle the store part of the 30% from the IP license aspect. We can see that in some of Apple’s submissions saying the app store payment system is an integral part whilst Epic are obviously trying to separate it from the rest of the platform. Epic doesn’t really bring any value proposition to Apple, it’s basically granting Epic use of Apple IP without compensation which one can be assured Apple will vigorously fight against.

The attempt by Epic Games to simplify the situation on iOS I suspect will be their downfall and is the counterargument to the question: should Apple be forced to license it’s IP to others and permit app stores leveraging their IP? Probably not.

No comments

No Comments

Leave a comment

%d bloggers like this: