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  • Apple Confronts the Consequences of Success

    May 26th, 2010

    When the U.S. Department of Justice went after Microsoft, I’m sure lots of people cheered, particularly Mac users. Maybe it’s a sign of the times, or the vindication of the “turn around is fair play” concept, but now Apple is confronting its own potential antitrust issues.

    The New York Times is reporting that Apple faces potential U.S. Department of Justice wrath because of possible anti-competitive behavior involving iTunes. Lest we forget, iTunes is the largest music retailer in the U.S., and holds an extremely dominant share of the online music space. So whatever Apple does when it comes to dealing with the competition can attract unwanted attention from the authorities.

    The story goes that Amazon recently tried to get a one-day exclusive window of opportunity for new music releases, but Apple blocked the attempt by threatening to withhold iTunes promotion for the music companies who participated. Certainly being hard-nosed when it comes with dealing with one’s rivals is said to be the mark of good business, except when the alleged offender holds a position of dominance. Suddenly the rules change.

    Now I don’t pretend to know the ins and outs of that specific deal, or how Apple had its way, assuming that’s what happened. You shouldn’t forget that the real problem in the music industry isn’t the vendors, but the entertainment companies that do the best they can to put restrictions on the sale of their product.

    At one time, you couldn’t even download music tracks legally. You had to go to a pirate site and retrieve a digital recording made by ripping the data from a CD. Faced with a huge loss of sales, the music companies reluctantly agreed to allow their songs to appear in iTunes, originally with stringent DRM requirements. Similar deals were made with other online music vendors, while the industry worked hard to stop illegal downloads, even going so far as to sue their customers.

    Over time, Steve Jobs was able to persuade the recording industry to remove DRM from their tracks, while at the same time providing higher bit rate content with audio quality noticeably closer to that of the original CD. Again, the industry was brought, kicking and screaming, to the bargaining table to sign new contracts.

    So now Apple has become the villain, evidently a victim of their own success. This doesn’t mean that they are guilty as charged, though. It’s just an investigation. In the end, Apple could also sign a “sorry about that, we won’t do it again” sort of agreement, pay a small bribe to the DOJ — which they will label a fine — and get on with their business.

    The potential for a negative ruling against Apple is less certain when it comes to that notorious change in the iPhone 4.0 software license that blocks the use of third-party development tools, with the main victim being Adobe Flash. For Apple to be guilty of wrongdoing, you’d have to expect identical treatment for game console makers, because they impose even more stringent requirements on building apps for their platforms. You can’t just pay an annual fee either, because you’re forced to pay through the nose for a special debugging version of a game console. At least with the iPhone, you can do your development work on a regular Mac, even if it’s a Mac mini.

    Of course, it would be foolish to expect Apple to be treated in the same fashion as other tech companies. They are clearly in a different category, at least when it comes to public perceptions.

    You see, when a company is struggling and trying to carve out a place in the marketplace, they will do pretty much whatever it takes, legally at any rate, to claw their way to the mountaintop. But if they use those same tactics after reaching the pinnacle of success, it suddenly becomes anticompetitive behavior and government antitrust regulators might try to shut them down. Certainly Microsoft, after paying hundreds of millions of dollars in fines to the EU, knows this full well.

    But being targeted by antitrust regulators is something new for Apple, since they struggled for so many years as an also-ran. Suddenly pretty much any move they make will be subject to intense scrutiny by people in positions of authority. The same is true, of course, for Google

    What’s more, if Apple is truly guilty of wrongdoing, and not just being penalized for success, they should pay the appropriate penalties. As I suggested before, this may mean fines and consent orders, but so be it. I have no problem with Amazon getting musical exclusives, and if Apple still offers a better shopping experience, iTunes will remain number one and would deserve that position.

    When it comes to developer tools and Flash, that’s a distraction. Customers aren’t forced to buy Apple’s gadgets, nor are developers forced to build product for the Apps Store. There are alternatives, and nobody should expect or even want to have the government step in to enforce some sort of misguided vision of equality.



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