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Apple not yet dominant enough for anti-trust action

Safe to act like a spoiled child for now?

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Opinion Apple is rapidly becoming an anti-trust target and right now it is behaving like a badly spoiled child with respect to what it will allow and not allow on any of its platforms. This is reflected in decisions to keep Adobe and any other development environment off its devices, and more recently in its proposed new developer terms which will stop developers from working with Google and AdMob on advertising.

Apple has brought in new App Store rules which prohibit third-party agencies collecting usage data from iPhone Apps, and this is clearly aimed at stopping advertising networks reporting back to ad buyers.

As a result Apple is likely to face an antitrust probe into the terms and conditions of its new iAd mobile advertising network, based on technology it acquired with Quattro Wireless earlier this year. The US Federal Trade Commission will lead the investigation to determine if iAd unfairly restricts competitors from targeting the iPhone/iPad. It is the nature of any company which has recently become dominant, that it appears to make deliberate moves, which would previously have been legally perfectly okay, which are now illegal. It always appears to outsiders that such companies are deliberately provoking the authorities so that they are forced to act. It’s as if the company is asking the authorities to tell it just how far it can go. Apple is asking the question: “How far can we go, what can we get away with?”

We have written at great length about anti-trust over the years, from the changes wrought in IBM’s behavior in the first half of the 80s, to the European-imposed fines placed on Microsoft, and now Intel, in the current decade, as well as abortive attempts against Qualcomm. Usually the companies involved continue to infringe long after they are aware of just how far it is reasonable to go and Microsoft became a serial infringer, repeatedly placing conditions on its distributors and OEMs around the world which shut out rivals such as RealNetworks and Sun.

There are three costs to look out for. The first is minimal - the fines from some competition authority or other, usually the Competition Commission in Europe. It’s usually down to Europe, because in the US, where it has almost identical anti-trust provisions (indeed we understand that European Law on this subject was formed from the US laws) it rarely acts. That’s because the collective US corporate mind applauds monopoly and its lovely investor benefits of continued and consistent dividends. But even Europe rarely breaks the $1bn barrier when imposing a fine. It’s more important that the second cost is imposed, and that’s behavioral change.

Any anti-trust authority gets most benefit for its consumers by making sure that companies like Apple, with any element of dominance, cannot dictate market pricing, cannot impose inappropriate technical standards, and cannot force the various routes to market, to ignore rivals.

Once that’s changed, and the behavior usually involves exclusivity clauses in contracts, or in Apple’s case prohibitive closed DRM (no matter what Apple says about DRM-free content, it still operates a closed DRM), or open and stable terms, then competitors at least have an even chance, and regulators get out of the way. These changed behaviors usually slow the juggernaut, but not to a standstill.

It is the third cost that slows monopolies to a standstill, and that’s the self-imposed “do no more anti-trust” edicts that often run throughout a company after getting stung with a major fine. At IBM the imposition of a group called “Business Practices,” came to have a reputation something akin to the German SS, but perhaps behaved more like the DIA in the US police force. It ate its own. The theory was that nothing could be more beneficial to the company than avoiding another anti-trust suit, so internal business proposals were crushed out of hand, if they ignored any element of business practices.

It is the collective consciousness among management of such a company, having been through the wringer in court, and the harm it does to strategy throughout legal proceedings. It takes senior management’s eye off the ball.

It is this which has made Microsoft appear tame in recent years, and which has seen Apple’s market capitalization overtake Microsoft’s. But we think anti-trust accusations at Apple are rather less likely to result in any of these. First a case must be proved.

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