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Being Popular Is Not a Monopoly

February 19th, 2011

There are severe complaints against Apple regarding its new terms for magazine subscriptions:

The Justice Department and the FTC are both interested in examining whether Apple is running afoul of U.S. antitrust laws by funneling media companies’ customers into the payment system for its iTunes store—and taking a 30% cut, the people familiar with the situation said. The agencies both enforce federal antitrust laws and would have to decide which one of them would take the lead in the matter. …

Under Apple’s terms for the new service, companies that sell digital subscriptions to content on Apple devices would be required to make it available for sale through apps at the company’s iTunes App Store at the best available price.

Buying magazine or other subscriptions through the iTunes store would require just a few clicks and use billing details already on file, giving users an incentive to use Apple’s system. Apple would prohibit media companies’ apps from linking to stores outside its App Store or from offering better terms to subscribers elsewhere, making it difficult for them to attract buyers to their own sites. Legal experts say some of those rules could pose antitrust problems.

Banning apps from linking to external sites “sounds like a pretty aggressive position,” said Eric Goldman, director of Santa Clara University’s High Tech Law Institute. “It seems like that’s purely in the interests of Apple trying to restrict people doing transactions they don’t get a cut from.”

Sorry, but this sounds rather biased against Apple. For example, in that initial paragraph, the reference to a 30% cut is made to sound somewhat insidious: “a 30% cut, the people familiar with the situation said.” The writer is suggesting that the 30% cut is some dark secret, when it’s a very open policy of Apple to take 30% of all sales through its iOS stores.

Later in the article, the 30% commission is referred to as “excessive” and “obviously anticompetitive.” However, Apple is in the position of a retailer here, and retailers often take far more than 30%. It perhaps depends upon the industry–some retailers might mark up items by a few percent, but some do it by far more. Significantly, digital sales are new and so a new standard is being defined. This is really just the publishers whining and trying to strong-arm their way into defining standards to suit them best, using the claims of anti-competitiveness as a tool to accomplish this.

The fact that Apple is a retailer, and that the iOS platform is the equivalent of a store, makes most of the objections seem rather ridiculous. For example, the publishers complain that Apple is demanding the “best available price,” Of course Apple wants to be able to offer an item for sale at the best available price–it would be objectionable only if Apple demanded that they get to sell at a lower price than anywhere else. Asking for the same price as elsewhere is the opposite–Apple is demanding that it not be unfairly undercut by others.

As for Apple’s convenience, requiring just a few clicks, that’s not unfair either–it’s simply Apple’s efficient setup. Is a supermarket violating antitrust by having an express checkout lane, or a bank by using ATMs?

The stronger objection seems to be related to the rules prohibiting apps from linking to stores outside of Apple’s, but frankly, that’s another very understandable policy. Combined with the demand that Apple not be undersold elsewhere, effectively, that’s like a store not wanting to carry a product bearing an announcement that a buyer can get a lower price by walking to the competitor’s shop next door. Would Safeway carry a brand of milk which, on the carton, advertised that a customer could “Go to 7-11 and get a better price” for the exact same product?

One might argue that Safeway does sell magazines at newsstand prices and that the magazines, within the product, offer much lower subscription rates–but, ironically, that’s a different issue. Safeway is not trying to sell subscriptions, but rather the newsstand version–very different products. It’s like Safeway selling a carton of milk advertising a tour of a dairy farm, something Safeway would have no part of.

Apple is offering subscriptions, so the outgoing links are not for a qualitatively different sales method. Now, if Apple only offered one-shot sales and not subscriptions, that would be different, the objections might be valid, especially if the publisher were trying to sell at a lower price but Apple both refused any part of it and denied the publisher from advertising it. But as it is, Apple is not doing so, and is simply saying that it doesn’t want its own product used to steer customers away from its own store.

Many times I have seen similar claims against Apple–that it is monopolistic because it has high market share in some areas. Certainly there are grounds to grumble about how Apple is rather controlling and protective of its playground. However, a monopoly is not just when a company enjoys good sales, it is when a company abuses its market share to cut off the competition.

People point to Apple having huge market shares in music sales, phone sales, tablet sales, app sales, etc. However, when Apple enjoys having the lion’s share of the market in these cases, it is because Apple was the first to come out with a qualitatively new product well before anyone else, and maintained a popular brand image as well as an excellent if not superior design. That’s not being monopolistic. A monopoly is not when you get 99% of the sales, it’s when you get 99% of the sales by using your 85% market share to beat down others.

If Apple threatens music companies to cut off their sales unless those companies agree to unfair practices–like letting Apple have lower prices than anyone else, or prohibiting sales via other retailers–then that’s a fair claim of monopolistic practices. But if Apple simply says, let us have the same price as others and don’t use our store to steer customers away from us, that’s not an unfair demand. Nor does Apple having the biggest slice of the sales pie make it any more monopolistic.

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  1. Drew
    February 27th, 2011 at 09:56 | #1

    I find the iTunes store policies to be a bit on the abusive side, but well within the range of normal business practices. I do miss Apple Japan, though. Apple in Japan was almost completely separate from the US, but about 10 years ago, it went back to US control. That means we don’t get solutions to all the problems unique to Japan, mostly related to text encoding. I do technical support, video work, and a bunch of other stuff, but I specialize in Apple.

    I wasn’t happy when my company decided to change all their mobile phones to iPhone. There’s a big problem when you try to import the address book from a Japanese keitai. iPhone and the address book doesn’t support the half-width katakana used for sorting the kanji names. Some phones also put incompatible stuff in the file, which won’t allow it to be imported. That means every address book in the office is hand edited…by me. It’s an advertising company, so some of these guys have over 500 addresses. Oh well. I’ve already done about 80. There’s only another 30 or so to go.

    You seem to be somewhat of an Apple fan. If you ever have a problem, I’ve probably got a solution. If your Mac goes down, you can’t update the blog, right?

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