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Apple not yet dominant enough for anti-trust action

Safe to act like a spoiled child for now?

If we look at music, Apple is probably not dominant. It’s close, but higher prices are charged for music outside of online music sales, and a bulk of music revenue still comes from the physical forms of music. There will conceivably be a time, a long way into the future, when online music will become dominant and Apple may at that time be a suitable target for anti-trust. However it is possible that online music can itself be defined as a separate market, simply because of this future potential.

In which case Apple is clearly dominant. The classic figure given out is that Apple has 70 per cent of the online music market. We think this is probably an overstatement as long as you include all music subscription service revenue, advertising revenue from free streaming music service, total internet radio revenues as well as all forms of handset music revenue including ring tones.

But Microsoft was only proven to have a third of the server market, and yet it was considered dominant by the European Commission. So under that kind of market definition, Apple might have less market share than is popularly believed, but still have enough to be capable of defining market conditions. So it’s dominant in online music. It might argue that it is not dominant in digital music, but online would probably stand up as an acceptable definition.

We know that in IBM’s case in the 1980s, the European Commission actually proved that mainframe computers were a separate market from minicomputers and the freshly launched PC. Making a case that Apple is dominant on a hardware platform, such as mp3 players or computers or phones, would get nowhere. It has a fraction of the market in each of these hardware platforms, although perhaps has some dominance in portable MP3 players (although not if you count every phone with a media player).

As a result its App Store also cannot be considered dominant, because it’s a relatively new idea, so the market has not had time to settle down. Market dominance is impossible to prove in a new market. You could claim that Apple has dominance in the intelligent tablet market with the iPad. But that’s just because no one has had a chance to market anything against it yet.

So having dominance in App Stores just doesn’t cut it legally, and won’t for some time, and without dominance, forcing people out of the store or to write software the way you want them to is fine. And even if Apple was dominant in App Stores – considering the fact that it gives most of its applications away, (or rather enables other organizations to give them away) in return for nothing or for some advertising potential, means that finding it abusive of that dominant position would be complex, and anyway how is free software leading to very much market harm? There have been free software downloads for years, for instance games and print drivers (and browsers), but you can’t imagine someone bringing an anti-trust suit for print drivers.

And market dominance cannot be established by profit either. So if Apple makes more profit than Nokia, Samsung (handsets) and LG (handsets) put together but sells way fewer phones, then no one can invoke anti-trust laws. It should be self defeating – massively high margins in a market open and dominated by others.

Finally, Google is the foil which proves that Apple is not dominant. The iPhone on its own is lined up against Android and Android has spawned 30 odd phones already with more on the way. It comes with its own online App market, and will no doubt come with content, and is backed by a mobile advertising service Admob, which was shown not to be dominant, simply due to Apple’s willingness to also enter this market. Add players like Microsoft, Nokia, RIM, HP (Palm) and Samsung and you have many app markets, some with considerable advertising potential.

The more likely anti-trust problems are with Google. If it ever achieves some level of advertising dominance on the handset, over and above that which is provided by its purchase of Admob, then it will have used its dominance in search advertising and transferred it to mobile advertising – one monopoly will have spawned a second monopoly - and that’s always a real worry with antitrust campaigners.

So for the time being, if Apple does fairly obnoxious things to keep rivals out of its App Store and off its phones, then that will only have the effect of upsetting a number of developers, some of them rivals. It is fair competitiveness and at worst is short sighted.

We don’t think it has much of a case to answer based on existing Anti-trust law, and where Apple has run up against European gripes over its policies, such as independent pricing across Europe on iTunes (it charged more for tracks in the UK than the rest of Europe) it has responded by fixing its behavior rapidly and willingly. And as long as it continues to take that tack, that it is flexible once it is shown to be in breach of an actual law (rather than because it has simply upset someone) then it stands a good chance of avoiding the same anti-trust fate of Microsoft and IBM before it.

Copyright © 2010, Faultline

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