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  • Of Sensational News and Outlandish Theories

    May 5th, 2010

    The dust just won’t settle on whether or not Apple might be investigated by the U.S. Department of Justice and/or the Federal Trade Commission because of that controversial change to the iPhone developer agreement. A New York Times story on the matter seems to fall back to the original piece in the New York Post, rather than cover new ground. But later published reports appear to indicate the information has been independently confirmed by unnamed government sources.

    If true, a whole lot of decisions would have to be made, starting with whether there actually will be an inquiry, after which the authorities would have to determine if an investigation is warranted, and, as the result of that investigation, actually file legal action. Since governments do not spin on a dime, such an action, should it happen, might take many months or years to commence. By the time anything really occurs, we might be on iPhone 5.0, and there’d be a whole new developer agreement to complain about.

    This hasn’t stopped some of the online fear merchants from trying to compare what Apple is doing today with that original Department of Justice antitrust lawsuit against Microsoft in the 1990s. One commentator, who shall remain unnamed, even went so far as to suggest that Apple’s dominance of its own iPhone ecosystem is equivalent to Microsoft’s stranglehold of the PC industry. Talk about stretching logic way behind the breaking point and journeying into an alternate universe.

    In this universe, Apple doesn’t control the entire smartphone market. Overall, they are third behind Nokia and RIM, and few dare to suggest that Apple can control the industry in the way Microsoft attained a market share of over 90% of the PC marketplace.

    More to the point, would the government really care so long as there is viable competition? I mean, even when you go to your AT&T store for a smartphone, you can choose from loads of models built by the likes of HTC, RIM and other manufacturers. Nobody forces you to buy an iPhone. More to the point, Apple doesn’t stop its developers from creating apps for Android or other platforms. They only state that if you want to make an iPhone app, it has to be done in a way that fulfills Apple’s requirements.

    Indeed, if one wants to blame Apple for unfairly controlling its developers, consider the plight of software publishers who build games for, say, Nintendo or Microsoft’s Xbox, where they are required to use the company’s proprietary systems to debug their apps and then get final approval from the company to sell those games.

    Or is it a case that it’s all right for those game console makers to place stiff restrictions on their developers, but the big bad Apple is in a different league, because the company’s market cap is third behind Microsoft, and ahead of even Wal-Mart. They have to be stopped before they match Exxon. The world will come to a halt because of the sale of all those iPhones and iPads with their horrible proprietary operating systems and restrictive developer contracts.

    Of course, governments do not have to rely on logic and reason before deciding whether to investigate a company or file a complaint. It may just be the politically correct thing to do, and sometimes the threat of possible action will be sufficient to force a company to mend its evil ways.

    In the end, it may well be, despite the fact that it doesn’t seem terribly rational, that Apple will be compelled by a potential threat of antitrust action to alter the language of its developer contract. Perhaps their legal team can flesh it out in a way that fulfills the desire to have apps meet certain standards, but doesn’t restrict the developer tools in which to build those apps. So if a third-party environment lets someone embed support for all or most of the key iPhone features, does it really matter?

    But if the authorities are going to attempt to force Apple to comply, what about Microsoft’s gaming platform? After all, Microsoft remains the largest software developer on the planet. Why not comb through the legalities of their pacts with gaming companies and see if something isn’t kosher?

    But isn’t this all a waste of time? Or is that alleged inquiry the result of Adobe crying crocodile tears to the government and claiming irreparable harm to their business? I suppose if such complaints are couched in the appropriate legalese, the authorities would be honor bound to at waste taxpayer’s money to begin a probe, even if nothing comes of it.

    At the same time, maybe Adobe should be using the occasion to provide evidence, if there is any, that Steve Jobs was wrong in objecting to Flash and its performance on the Mac and on a smartphone. What about a public demonstration of Flash running on a test iPhone of recent vintage, showing that it performs well, doesn’t crash, and isn’t making undue demands on battery life? Can Adobe do that — or would they rather just whine and hope nobody notices they aren’t producing any evidence for their claims?



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    15 Responses to “Of Sensational News and Outlandish Theories”

    1. If Adobe’s main complaint is that Apple is “..barring developers from using Adobe’s products to create applications..” then they are a bunch of monkeys and typewriters in San Jose. Here’s why: http://is.gd/bVnus

      The long and short of it? Photoshop and Illustrator are the primary tools to create iPhone & iPad UI. I would venture to say that EVERY App in the AppStore has somehow been touched by those two Adobe products in their creation.

      Flash is a bit player for the web. Too bad Adobe bet the farm on a (to Mac users, crappy) browser plugin.

      -Drunken Economist
      http://mindtaker.blogspot.com/
      http://twitter.com/drunk_economist

    2. Tom B says:

      If Adobe is the culprit, shame on them. Instead of either fixing Flash, or retiring it as hopeless, they are truning to legal challenges? From the looks of things, the MARKET will eliminate Flash in a few years. Already, people have become aware or its limitations (thanks to Apple’s Open Letter) and developers are dumping it as fast as they can to get into the mobile space.

    3. Al says:

      The feds have to look into it because they received a or some complaints. It would be straining the limits of antitrust regulation if they decide there is something actionable there. It would be the first time they accuse a company that is not a monopoly of wielding monopoly powers.

    4. mysterian1729 says:

      There are no anti-trust or restraint of trade claims that would stand up in court for the reasons you cited, among others, so, if there be government interest in Apple, it would probably be on the possibility of iAds locking out other online (inline) ad providers. There might be a cause for action if the contents of iAds are controlled by Apple and iAds constituted a monopoly of only ads.

    5. Viswakarma says:

      Apple is more like Boeing!!!

      Just as Boeing specifies and controls its products (aircraft hardware, software, user interfaces etc.), Apple does the same with its products (Macs, iPods, iPhones, iPads etc.).

      The end user (Airlines in case of Boeing and Consumers in case of Apple) that care about the whole product experience, rather than who makes the individual pieces (both hardware and software) that go into the product.

    6. Peter says:

      Here’s the analogy. Entertainingly enough, this relates back to cars, because what’s an analogy on the Internet without cars?

      Back in the early 1970s, American automakers cracked down on third-party parts. The vehicle warrantees were written such that any use of non-manufacturer parts would lead to your warrantee being voided. Thus, if you had a Ford, you could only use a Ford Oil Filter. If the transmission fell out of your Chevy and you had a third-party oil filter, GM could say that your warrantee was void and they didn’t have to fix the transmission problem.

      The automakers rationale for this was much the same as you hear from Apple: “How can we be expected to support a complex product like a car if the user can modify it however they please?” Of course, their examples were people doing engine modifications–not using less expensive oil filters.

      Now, there was no automaker back in the 1970s who had a “monopoly” position. Yet it was shown that the automakers held a monopoly on their own products. If you bought a Pontiac, the warrantee forced you to buy parts from GM–if you used any non-GM part your entire warrantee could be voided.

      1975’s Magnuson-Moss Act–while mostly aimed at the auto manufacturers–applies to any consumer product. Apple’s argument that jailbreaking the phone voids the warrantee, for example, is probably not valid under Magnuson-Moss.

      So there is precedent to say that Apple is creating a monopoly within it’s own products, just like the automakers tried to do.

      • Tom B says:

        @Peter,

        The wiki on that interesting law suggests that it relates to WARRANTIES. Moreover, GM was trying to gouge consumers by requiring expensive GM parts. Apple is trying to HELP consumers by excluding code that would diminish the consumer experience.

        Anyway, I doubt we’ll see a new amendment to that or any law for the benefit of a not-very-well-liked, not particularly influential company like Adobe.

        • @Tom B, Exactly, this isn’t a warranty issue. Besides, when it comes to consumer electronics, all companies expect you to use their own approved parts in warranty claims. If the product is damaged as the result of installation of non-approved parts, the customer bears the burden.

          Peace,
          Gene

          • Peter says:

            @Gene Steinberg, nope. It is actually up to the company to prove that the non-approved part caused the damage. That’s one of the things that Magnuson-Moss protects.

            For example, I have a non-Audi ECU chip in my car (Go APR!). If my clutch has problems, Audi would have to prove that my ECU caused the problem with the clutch. They can’t just say, “Oh! Non-Audi part in the car! We’re not going to fix it!”

            By the way, Magnuson-Moss applies to “consumer products”, of which “consumer electronics” is certainly a subset.

            How does this relate? Well, again, Apple’s arguments for their “walled garden” spring from a similar basis–that they have to keep the consumer from installing things that could conceivably damage the phone. Much like the automakers’ claim that they have to keep the consumer from installing things that could damage the car. Apple uses various techniques to keep customers from installing non-Apple approved software and implies that if you “jailbreak” your phone and something happens, Apple will not support you.

            You see, the goal is not necessarily to change what Apple will or will not allow. I have no problem with Apple saying that they will not allow applications built with Adobe Flash to be sold in their store–just like I have no problem with a store saying that they will only sell organically-grown vegetables. It’s their store and they can use whatever criteria they want.

            The goal is to make Apple’s requirements moot by forcing Apple to create a way for you to access non-Apple approved applications. This creates a market for other developer tools for those people who don’t necessarily care about being in the App Store. If that becomes big enough, it will force Apple to reconsider it’s policies.

            • @Peter, Yes, I realize that Apple has to prove your modification damaged the device. But it’s also a warning for people to at least be careful when installing third-party stuff. We don’t worry about RAM or perhaps a hard drive on a Mac, but when it comes to a mobile product, it gets murky real fast.

              Peace,
              Gene

        • Peter says:

          @Tom B, No, GM was trying to make their cars more reliable by requiring customers to use parts that GM knew would be acceptable. Apple is trying to make money from developers by only allowing one way of distributing applications and then taking 30% off the top of every purchase.

          It all depends on who’s Kool-Aide you’re drinking.

          • @Peter, That 30% covers the cost of running the App Store. Apple says it does a little better than break even, but that’s it. It’s the developer who benefits.

            Peace,
            Gene

            • Peter says:

              @Gene Steinberg, Apple does “little better than break even” on each sale. The iTunes Store is a great example of “making it up in volume.”

              Let’s say Apple makes one penny selling a song on the iTunes Store. That a little better than breaking even, wouldn’t you say? Apple has sold 10,000,000,000 songs in seven years. That’s $100,000,000 in revenue. Do you really believe that Apple has spent One Hundred Million Dollars developing and running the iTunes Store over the last seven years?

              And that’s just the music! We won’t talk about the movies, TV shows, music videos, and Apps. Apple tunnels everything through the same infrastructure. Whether you’re selling a song for 69 cents or an App for $900, the development cost is the same on Apple’s side. So once that infrastructure is paid for–and Apple has plenty of cash to do that without incurring debt–it’s all about making that penny (or more) as many times as possible.

              See, I have my doubts about the 30% covering the cost of “running the App Store.” If that was the case, why are there free apps? Don’t they cost as much to Apple as a paid App? Is there a bandwidth limitation to free Apps? If nothing else, the 30% cost is for things like paying people to check out your App and say no. Boy, I’m sure developers are glad those people are there.

              (As an aside, this is where iAds come in. You have these people giving away Apps and making money on the ads and Apple doesn’t get a cent. If you’re going to be making money on the iPhone, you have to pay Apple their tax. Kind of like the Government…)

              Yes, you’re right that Apple makes next to nothing on each sale from the App Store. That’s for the Kool-Aide drinkers. “Gosh, poor little Apple makes almost no money from their store. They’re just doing it out of the kindness of their hearts.” But there’s a difference between making next to nothing from each sale and next to nothing from the store. When you sum up 10,000,000,000 songs, 3,000,000,000 Apps, 200,000,000 TV shows, 2,000,000 movies, and over 1,000,000 HD movies at 1 cent profit for each (which is highly doubtful for some of these things), you start to figure that Apple probably isn’t hurting too badly.

              • @Peter, I accept that when Apple makes a statement during a quarterly session with financial analysts, it had better be accurate.

                Peace,
                Gene

              • Tom B says:

                @Peter,

                I’ve got no problem with Apple making money on the app store or anything else. I’m a stock holder as well as a user. In a sense, I get my Macs for free because I had the foresight to also buy stock.

                I also have no problem with apps having one distribution channel. How many channels do you get with a Wii or a Xbox? Maybe several– I don’t know– I don’t own either one. But, I bet there was a time when the only channel was physical game cartridges (or CD’s).

                I’ll worry about Apple being a monopoly on the happy day they either control 90% of the computer market, like MSFT does now, or a majority of smartphones. Correction: I’ll acknowledge the Feds should be watching them at that point. I will personally only be concerned if they got so big they let the quality slip.

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