iPhone apps
Remember as Microsoft
In the 1990s, 9 out of 10 computers ran on Microsoft’s Windows operating system (OS). Microsoft flagship programs like Word and Outlook were a staple in every office. And for most people, the browser, Internet Explorer, was the only ‘gateway’ to the Internet.
There were not many alternatives because Microsoft used its OS monopoly to outbid its competitors. For example, Microsoft killed famous browser pioneer Netscape when it forced computer makers to sell Windows bundled with its copycat Internet Explorer.
That, in 1998, the U.S. Department of Justice ordered a break up of Microsoft’s monopoly. Eventually Microsoft reached a settlement, but it had lost most of its power in computer software.
Gary Reback, one of Netscape’s lawyers, said: “Microsoft could have killed Google
For the next 15 years, Microsoft stock went nowhere, as you can see below:
Microsoft Stock Price
I share this story because Apple
As I will see, Apple used its phone OS monopoly to build one of its most lucrative businesses. But with app giants like Spotify (SPOT) and Epic popping into Apple’s throat, the company may soon have an account.
Like Microsoft, Apple (AAPL) is abusing its near monopoly in phone apps
iPhone is America’s favorite phone. Nearly half of all phones owned by Americans are iPhones. The problem is, unlike all other phones, iPhone runs on what is known as a locked operating system.
What this means is that you can not add apps from your iPhone wherever you want. Yes to have to use Apple’s App Store. And just like Microsoft in the ’90s, Apple used this power to undermine apps that secure horns with Apple’s services.
Take apps for parental control.
After iPhone released its “screen time” feature, Apple quietly unveiled third-party related apps in the App Store. IN New York Times
Apple also recently denied Microsoft’s xCloud gaming app joining the App Store. Apple’s motive here could not be clearer. Last year, it launched its own gaming subscription service, Apple Arcade – which of course competes with xCloud.
And that’s not all.
Unlike Microsoft, Apple bundles the iPhone’s operating system with its own apps, such as Apple Music or Safari – which limits competing apps. For example, you cannot replace or uninstall standard apps like Mail or its Safari browser. (Shades of Internet Explorer and Windows?)
Apple also imposes a so-called “Apple tax” of 15-30% on everything app makers earn from Apple customers. It also costs them an annual fee and sets pricing rules – which successfully outweighs competition.
In a photo it looks like this:
Apple’s monopoly in a nutshell
Just like Microsoft, Apple is stepping into antitrust crosshairs
Apple’s abuse of power is now in the spotlight.
Last year, the world’s largest music streamer, Spotify, filed a lawsuit against Apple for compensation for use with Apple Music. Shortly afterwards, a group of app makers filed a class-action lawsuit against Apple, claiming that Apple “knowingly used its monopoly” to expel app makers from the case.
But last Friday, Apple’s spats with app makers exploded into a heated war. Apple angered gamers and released Fortnite – the most popular game in the world – from the App Store.
It so happens that its maker, Epic Games, immediately started charging its users to waive Apple’s fees. This tax evasion broke the rules of the App Store, and Apple took down the app immediately.
Following the ban, the $ 17 billion gaming company filed a lawsuit against Apple, arguing that its fees were unfair. Epic Games also launched a well-coordinated campaign on social media against Apple’s ‘app tax’ – supported by hundreds of thousands of people.
Apple throws in the towel
It’s hard to tell how Apple’s growing clash with app makers will end. But if history is one indication, Apple is likely to give app makers a try to get lawmakers off their backs. Just like Microsoft did.
You may not have noticed, but Apple is throwing all the canvas in. Last month, Apple said that the next update of iPhone will give its users the ability to replace Apple’s standard apps, such as Safari and Apple Music.
That’s a turning point for Apple’s company. For the first time, Apple is taking control of its closed operating system – which throws up a huge takeaway for investors.
As I wrote last week in Meanwhile in Markets …, Apple no longer makes most of its money from phones. You can see from the map below that today’s apps (services) bring in almost as much profit as the whole line of Apple:
Apple’s gross profit of services vs. the product
So if you are buying Apple stock market, consider the risk that Apple will lose its monopoly in iPhone apps. That does not mean that Apple has been convicted. It’s just that it will have a lot, many harder time growing his service business forward.
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