Solving the Apple Problem

Source: https://www.matthewball.vc/all/applemetaverse

Apple will likely make significant concessions over the next few years due to a combination of growing legal pressure and policy contradictions. Every single opening will result in new products, new companies, and possibly even a new main platform.

We must also acknowledge that the design principles that underpin iOS/App store platform are almost twenty years old. They were developed from a store selling songs and later simple apps. Despite the vast changes in the digital landscape over the past 20 years, including billions of Internet users, millions more digital-only businesses, and scores of new technologies and innovations, Apple’s principles have not been completely rewritten. The company’s concessions will be too complex, burdensome, and inadequate. We shouldn’t rely on voluntary concessions or slow-to-cook pressures, given the influence and importance of the iOS economy.

Apple is free to manage its own stores, set its standards and create services exclusive to its hardware. Apple’s forced bundling hardware, an operating system and distribution system, as well as payment solutions and services, creates problems. Apple’s forced bundling of hardware, an operating system, distribution system, payment solution and services is the problem. There is a simple remedy: Apple must compete in app distribution and payments. Specifically, regulators should demand that Apple:

  1. Allow iOS users to download apps directly from the software maker, as well from any other source.
  2. Third-party apps can be downloaded to iOS devices by iOS users
  3. Developers can use other payment options than those offered by Apple’s App Store whenever they wish and when it is available via Apple’s App Store

Even those who downloaded their apps only from Apple would still benefit from this partial unbundling. They could also continue to pay via Apple’s billing system for the apps whenever they were available. The App Store would have to compete directly for every app developer and user, and not win this business via iOS devices. It could also control the app store via iOS policies.

 

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Apple could charge more to consumers or get higher fees from developers, but this doesn’t make it impossible. The Apple App Store, like all retailers, would have to earn their customers through their brand, curation and ease-of-use. They also need to be able earn suppliers (i.e. Developers) by the ability to increase their net sales net of store fees.

Apple would retain its near-hegemonic advantage, including its pre-installation of iOS devices, 13+ year headstart, world-class catalogue and, most importantly, unrivalled user loyalty. The company will likely follow the same software installation policy that it uses on its Macs, i.e. Users would be informed that it has not signed up for apps downloaded from the Mac App Store. This would allow it to maintain market share, and discourage a large portion of its users by suggesting alternatives.

If given the opportunity, developers could distribute and monetize their apps directly and/or through third-party stores. This would allow consumers to pay lower prices and maintain net revenues for developers, which could lead to higher unit sales. It would also allow developers to increase their gross profits at existing prices. Apple would be under pressure to reduce and standardize its store prices to retain developers and app users.

The ability to opt out of Apple’s App store would, in general, mean that Apple’s control of industry technology and standards would decrease. This would encourage Apple to show which of its limitations are really for “security”. Spotify, Prime Video and Game Pass will also be able match the gross margins for Apple Music, Apple TV+ and Apple Arcade. This doesn’t seem to be a bad thing.

Although it may seem unfair, Apple must relax the controls that have allowed it to achieve unprecedented adoption and success. But the company’s unparalleled strength and problems caused by its controls are growing every day. Digital and virtual are the future of the global economy. Platforms that create value for users and developers, and give rise to new platforms, are the key to broad prosperity. Apple is not meeting these needs at the moment. Its defenses for the controls it requires are weak. They do not show that the policies it uses primarily benefit customers or that they outweigh any anti-competitive side effects.

 

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