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Apple's app store policies: What will they provoke?

Bracing for consumer backlash, beef with Sony

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Comment There hasn’t actually been a new policy statement, but Apple has clearly made a change in the eReader side of its business - one that immediately affects Sony, which has brought the issue to light.

It is likely that the change will also affect Amazon (it can’t really affect one and not the other) and Barnes and Noble with its Nook eReader application, and it is either going to put Apple into the middle of an anti-trust suit or lose huge market share to Google’s Android.

The issue is about selling ebooks online. Apple says it’s fine as long as the purchase is either made from its iBookstore or more likely made as an in App purchase from the stores of Sony and anyone else, which would mean Apple getting 30 per cent of the transaction price. At present Amazon has a Kindle application which makes the iPad and the iPhone behave like a Kindle and purchase eBooks from the Amazon store, but this must surely change in the coming days and weeks if the policy is to be consistent (which knowing Apple it may not).

This is Apple continuing its policy of wanting to sell you a device and still wanting to be able to tell you what you can do with it after the purchase. This is a Walled Garden approach which cannot work over time. Apple eventually failed to keep Adobe Flash from its devices, and this may only be a holding action, while it develops a lead in eBooks on its own devices. Perhaps Apple could get away with doing this for, say a year, and then capitulate to market or regulator pressure.

In the past on Faultline we have strongly resisted the idea that Apple can be caught up in an anti-trust action over such a move, insisting that its position in smart phones is marginal when considered globally and it would need to ship a whole lot more iPhones before it could be considered any kind of market distortion. But with the iPad and its billions of App downloads, that’s changed.

The iPad can be considered to have a dominant market share in the freshly arrived world of tablet computers, and we would argue (as we demonstrated in our recently published Tablet report), that Apple will continue to hold this type of dominance for some time to come, and will remain the comfortable market leader for the next five years. With the Apple App store now having passed 10 billion downloads since it opened three years ago, it shows Apple to have dominance in App stores as well.

Tablets can’t really be considered a mature enough market to distort quite yet. They would have to be defined and that market would have to be tested, shown to be separate from other device markets, including eReaders themselves, and Apple shown to be dominant, before any kind of successful anti-trust action could be brought.

So that’s a couple of years away. If, during that time, Android market remains open and these applications are allowed to buy direct from Amazon, Sony and Barnes and Noble and other eReader stores, and it comes to take considerable market share (more than half), then perhaps Apple won’t find itself on the end of an anti-trust mishap, but it will still have lost the App Store war. But right now, having seen this market develop for three years, it could be said to be sufficiently stable to bring a suit against Apple right now. That could be done as a commercial anti-trust suit, a public one from the US Justice Department or the European Commission or even a user class action might be brought.

This week there is already one user class action being brought against the iPhone because of overcharging for data that appears to have been proven by an independent consultant, on the AT&T network, when used with iPhones.

The tighter a market stranglehold, the more likely that such things will bring Apple under more serious scrutiny.

Apple may decide that in-app purchases are not necessary for select partners like Amazon, in which case Sony would have a fairly easy time proving that it is being discriminated against by a dominant marketplace entity, for reasons purely of across the board competition. So we don’t think that will happen, and it is only a matter of days before this new policy is clarified across the App Store and a bigger fuss emerges.

Apple allows video programs to be downloaded directly from remote servers for TV Everywhere services and from Broadcaster web sites. While this may not involve a transaction, Apple is not getting any of the Comcast subscription revenue that conveys this privilege nor is it getting any of the TiVo service revenue for TiVo programs that are viewed on an iPad. It would be fairly easy to prove that Apple is both currently dominant and that it is only going after manufacturers of eReader applications, because the iPad competes with their devices.

If the customer backlash doesn’t get Apple here, the anti-trust man will, and fairly soon, at that.

Apple insists that none of this is a new policy but has been misunderstood previously in its existing policy and that the spat with Sony has just “clarified its stance”.

Sony admitted that its current version of the Sony Reader for iPhone will now be pulled from the app store, saying that it had opened a dialog with Apple, but reached an impasse.

This entire fuss comes as a number of recent reports highlighted that the iPad had made little or no dents in the sales of specialist e-ink eReaders, which may be no coincidence.

Copyright © 2011, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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