This is a difference in business principles that not everyone could have noticed before. But the court's decision is of certain benefit, since from it one can draw the following conclusion: in order to run a successful business, you need to be out of competition. At the same time, it is not necessary to use differentiation, a better cost structure, high margins, thanks to which the company squeezes out competitors from the market. In fact, you need to adhere to the differentiation and cost structure that makes the business anti-competitive. However, the court's decision plays an important role, especially for those who interpret the term “anti-competitive” as “illegal”. In fact, companies should compete with each other, but not violate applicable laws.
The terminology makes it difficult to understand what is anti-competitive and what is just good business processes that drive a company's growth. Small businesses can be as anti-competitive as they want them to be. But large companies face certain limitations in this matter. Taking Apple and their iPhone product as an example, a reasonable question arises: what role does market demand play in this context?
Vertical integration into Apple
Apple's business model, which uses software to differentiate its non-software products, is designed to stay ahead of the competition. For many years, the company has been making a profit from the sale of its devices running proprietary operating systems of its own design. At the same time, Apple's competitors are forced to implement operating systems into their devices, for the use of which it is necessary to obtain a license: first of all, these are Windows for PCs and Android for mobile devices. They do not have the rights to use iOS and macOS.
The irony of the term "anticompetitive" is that relatively recently, many experts argued that Apple, in its quest to be out of competition, literally buries itself in the ground. In 2013, many media outlets predicted the imminent death of the iPhone due to Android devices. There have been too many manufacturers offering smartphones in different price points. In theory, Apple couldn't keep up with the race, developers had to ditch iOS, and the company would have to struggle to survive. The mistake in these predictions was that experts clearly underestimated the experience of using integrated Apple products.
Typically, business customers don't care much about the user experience. As non-users, they do not focus on small details that affect the perception of the product, and therefore do not include these aspects in the decision-making process. Nonetheless, Christensen has done research aimed at business customers, namely the personal computer market. The results show that throughout the long history of purchasing, the main consumers of PCs have been businesses that have chosen products based on factors such as speed, power consumption and price.Apple managed to get rid of most of the minor problems thanks to its vertical integration, which has long gone out of fashion.
- . Apple , . , . UX, , . - , – . , , , .For a while, Apple only integrated part of the value chain, especially after moving production to China. For example, MacBook and MacOS are associated with Apple, while apps and components are associated with third-party vendors.
Thus, Apple is integrating macOS into standard hardware, creating a platform that keeps software developers busy. Of course, this vision of the Mac will soon become obsolete as the company plans to ship products with its own chips on board in the future. This means that reverse integration will be carried out. This looks promising as Apple has demonstrated its ability to build powerful chips and make them compatible with its own OS. Bad days have come for Intel, as the company has been a near monopoly in supplying chipsets to Apple for over a decade.
App Store Integration
iPhones have been using chips made by Apple for over 10 years. In this regard, they have always been different from the Mac. Mac integration into the Apple ecosystem, on the other hand, was partial and fragile.
App Store Part One - Installation
To use the applications, you need to install them. Since Apple controls the operating system, it is the company that determines which applications can and cannot be installed on the device. iOS allows the installation of only those applications that have official Apple approval (this is implemented at the hardware level), provided through the App Store. In the context of the value chain, Apple uses a hardware and software integration mechanism to manage the application installation process.
It is worth noting that this direct integration model provides certain benefits for all participants. Despite the fact that Apple turns a blind eye to the Internet as a data distribution channel, in fact, the World Wide Web has always been such a channel, but not everyone liked it. People were always afraid to install programs from unknown sources, as they were convinced that a software product could damage the computer, lead to data leakage, or carry a virus.
The App Store has encouraged Apple to use the trust it has earned over the years to share it with App Store app developers. Each user who installs an application from the App Store is confident that the application will not damage his smartphone, will not cause personal data leakage and will not infect him with viruses.
This has contributed to a significant increase in the number of developers, and in general, this market has surpassed the PC market, even though the smartphone market was quite small at first. And all of this ultimately provided benefits for Apple. It is the benchmark for integration and modularity: Apple has tightened control over the distribution of software solutions, creating a better market that ultimately benefits everyone.
App Store part two - paying the purchase price
Given the fact that Apple controls the app installation process, it makes sense that the company also handles payment processing. This is facilitated by the fact that the App Store uses the same infrastructure as iTunes.
As with this platform, payment processing in the App Store is limited to prepayment. For example, you need to buy a $ 9 game to start installing.
It should be noted that there were no trials or in-app purchases in the App Store. Apple initially set a commission of 30% of the purchase price. The same deductions were credited to the company's account from every purchase made in iTunes. And given the cost of most products, that fee barely covered the cost of processing credit card payments, which is 99 cents per transaction. To be precise, the credit card transaction fee is $ 0.25-0.30 (flat) plus 1.5-3% of the payment amount. Of course, Apple had a discount due to the sheer volume of transactions.
This is another reason why the App Store has been beneficial to everyone involved. Most of the users had already entrusted the details of their bank cards to Apple, and this trust extended to all the developers who worked with the company. Thus, the latter were confident that they would profit from their software products without the need to attract users on their own. And in the end, all of this was beneficial to Apple: in terms of ecosystem, App Store scale and bottom line.
App Store part three - customer management
As it is already obvious, Apple has concentrated control over the installation of applications and the payment process in its hands from the beginning. The downside is that Apple has tightened its control over the payment processing process, which is based on control over the application installation process, which in turn is based on control over the operating system, which ultimately led to total control over the process of building customer relationships.
Users have never paid developers. They donated money to Apple, and the company was already paying developers. Users never received receipts for payment of the cost of a software product from developers, since they received these receipts from Apple, which saved their details. This gave some advantages to users in the form of a guarantee that their data did not fall into the hands of third parties. However, the developers received much less benefit. For example, they could not use the refund mechanism. Additionally, over the years, developers have not had access to comments in the App Store to respond to user reviews.
But what frustrated the developers the most was the lack of a feedback channel with customers in accordance with the functionality to ensure pricing. All of this has been an obstacle to building a sustainable software development business due to the lack of the customer service element itself, which requires a subscription and in-app purchases. The App Store was purely for sales, not customer relationship building, and Apple was fine with that. These are all three different integration models, each of which builds on the previous one.
The principles of the App Store were originally based on them, and Steve Jobs had a good understanding of the "inner kitchen". Back then, the iPhone was not seen as a product to capture the markets. Therefore, from a developer's point of view, the App Store looked pretty good overall at that time. However, it was the users who insisted that the App Store be what it is.
App Store problems
It is a joke in the tech industry that many media outlets believe that any tech company is highly overvalued. And it will receive its real value only when it turns into a technology giant. As for Apple, the company's strategy was doomed to failure right up to the point when it was illegal. At least it looks like this in the case of the App Store. In truth, many of the problems with the App Store are more serious than those faced by Apple in 2008, as the company has only expanded control over its products for more than a decade, from basic integration, and this concept is at the core of it. business.
For example, last year the company required developers that their applications that use third-party services for authorization also have the functionality of logging in through Apple services (and this item should be first in the list). From this it followed that cross-platform software solutions had to integrate the functionality of logging through Apple services even into their Android and web applications. Presumably, in this way the company aims to expand its influence beyond the iPhone.
A company's control over the relationship with its users can also provide control over payment processing. After learning that Amazon had made Kindle books available for all platforms, Apple banned them from being sold through its app store. What's more, Amazon has lost the ability to advise users to visit its official website, let alone post a link, as Android does with its built-in web browser.
The concern is that this "aggressive" integration from Apple is not doing any good. This only confuses the end users who don't understand why such large developers are losing their customers, and this is against the background of the fact that the user experience that the latest versions of iPhones provide is gradually deteriorating. But the biggest blow comes to small developers, who won't survive if Apple loses 30% of its customers. However, they cannot tell potential customers about themselves to invite them to visit their own website. In this way, Apple is actually helping to strengthen the position of companies that are already perfectly afloat, such as Facebook.
While Basecamp has been able to save its face by ditching aggressive in-app purchases in favor of subscribing to Hey, Apple is keen to make this an exception to the rule and prevent this from happening again. According to many developers, the App Store began rejecting apps that had been successfully in the store for many years simply because they contained functionality to subscribe to the developer's site.
Apple admitted that it was delaying the App Review patching process due to the fact that many applications offered their own payment processing service. This looks like the inverse of the win-win model described above. Everything that the company does and the resulting consequences can be characterized as follows: users are at risk of errors for which the developers were responsible due to Apple's desire to increase its own revenues from the services provided.
Worst of all, the functionality of the App Store, in particular the payment service, was not available to companies like Stripe, Square, Shopify, and even PayPal. The listed companies have significantly simplified the processes of accepting payments for developers, subscribing, obtaining loans and managing finances in general. As for Apple's payment service, it took years for it to finally support the subscription functionality. And the implementation of this functionality turned out to be so complex that the startup received $ 15 million for the tracking function alone. In-app purchases still do not support trial versions and app updates.
And then disappointment came. Many believed that the worldwide web would completely change all aspects of everyday life, having a significant impact on the economy and small business. The App Store contributed to all of this, at least at the very beginning of its existence. According to Steve Jobs, even the smallest developer can reach any iPhone. Unfortunately, even in the absence of competition, the App Store does not provide any benefit to small developers who, instead of relying on end-to-end functionality (which Stripe provides, for example), must support at least two payment instruments, the aggregate functionality of which is limited by the lowest common denominator. , that is, the App Store.
The only thing that does not lose its value to this day is control over the installation process. Probably every scammer or hacker dreams of getting into an iPhone. And, although history knows of cases when fraudsters managed to find vulnerabilities in the system, in fact, iOS users feel much more secure than the owners of devices on other operating systems.
Litigation with Epic
Epic's lawsuit against Apple is the reason for writing this article. The reason for going to court was Apple's reaction to the updated version of Fortnite, which offered an alternative payment system. After being verified, Fortnite was instantly banned from the App Store.
Epic attacks the iPhone at every level. The company doesn't just want to establish direct customer relationships or use its own payment processing service. Epic wants to be eligible to launch its own app store. On the PC side, the company has created an alternative to Steam that offers many benefits for end users. But PCs have always been open systems, which is both good and bad.
It seems to us that there is nothing wrong with Apple retaining control over the installation of applications. The openness of PCs and Macs is definitely a good thing. But users are used to the reliability of the iPhone, especially those who aren't technically literate. It would be much better if Apple didn't forget that its users should always be in the spotlight. For example, a company should add WebView shopping functionality, especially for products that have spent a lot of money developing. Of course, this approach will lead to a decrease in revenue generated through the App Store. But, on the other hand, Apple can focus on improving the quality and increasing the number of software products, attracting more and more developers. In any case, a decrease in the number of companiesable to stay afloat with Apple's appetites is a far more unfortunate strategy than making the App Store accessible to any developer, even the smallest.
This lawsuit also reminds us that Apple has a lot to lose. Although most likely the victory will be for Apple. The Supreme Court ruled that companies are not required to interact with each other. Any decision that the company makes to achieve its own goals, rather than the public at large, can be viewed as an invitation to participate in an experiment called "see how important the iPhone is in everyday life."
The most embarrassing aspect of the controversy that has arisen is that Apple acts like it is angry about allegedly lost profits on its products, ignoring the fact that the company's value has almost reached $ 2 trillion, because the iPhone is most important ... This is not a gaming console for entertainment and not a PC for work - it's a device for everyday life. And frustratingly, Apple only cares about its own profit, not the developers and end users who previously benefited from the integration model. And if Apple does not change its course, at some point its behavior will surpass what is called hypercompetitive.