Wednesday, May 05, 2010

The Multiple Facets of Apple & Antitrust Regulation

image:: iPhone 3G-black, mobilegazette

There's a lot of buzz about the US Department of Justice and the Federal Trade Commission determining the merits of an antitrust probe. While some experts may argue that this may not hold water given prevailing antitrust logic in software, I think more rigorous analysis is in order. Hillard Sterling, an antitrust attorney stated::
"The government has to show that Apple's conduct is adversely affecting competition for consumers, and that requires that it show the absence of choice...The government isn't barred from bringing an antitrust action...It could patch together something to make it float for a while. But in the end, I think it would sink. The government isn't going to win by just showing that some competitors have been harmed."
The problem with Sterling's take is that it does not appear to be taking into consideration the problem of multi-sided markets, which are characteristic of platforms with more than one distinct set of clients/consumers. Before we get into this, let's go over what started all of this in the first place. Apple announced that it was going to limit which compilers developers can use in the next SDK for the next iPhone::
“3.3.1 — Applications may only use Documented APIs in the manner prescribed by Apple and must not use or call any private APIs. Applications must be originally written in Objective-C, C, C++, or JavaScript as executed by the iPhone OS WebKit engine, and only code written in C, C++, and Objective-C may compile and directly link against the Documented APIs (e.g., Applications that link to Documented APIs through an intermediary translation or compatibility layer or tool are prohibited).”
Then, on an Apple blog, Steve Jobs posted his anti-Flash manifesto, stating why Adobe's Flash middleware was an inferior technology necessitating a parting of the ways. Adobe's CEO Shantanu Narayen responded by stating that Apple is concerned with Adobe's ability to deliver value, that the criticisms of Flash are a smokescreen, and that developers will have to create multiple workflows for differing platforms.

My take is that the iPhone/iPad/Flash saga needs to be examined in light of interrelated multi-sided markets.
  1. iPhone hardware {smartphone}/iPad hardware {tablet} sold to consumers
  2. Apps and digital content sold to consumers on the web/mobile web
  3. Platform for smartphone/tablet apps for developers
These are intertwined, as more content means more value, driving positive externalities, and ostensibly more hardware sales. Examining Apple's "market power" in terms of smartphone market share, which is far from being a monopoly, is woefully misguided. My previous blog on this issue stated that the issue is complex and full of uncertainty, as the product life cycles develops. Let's assess Apple's market power in the above three areas::
  1. 15% of the smartphone market, 33% of touchscreen smartphone market [1]; tablet share-??? developing {Apple has relatively low market power in hardware}
  2. 99.4% of mobile apps {$4.2B market-2009} [2]; 25% of all music, 69% of digital [3] {other content types ???} {Apple has moderate to strong market power in software}
  3. See #2 {Apple is a monopolist in apps, but the dynamics of the market are very fluid}
The unknowns {???} are evolving stories or issues I haven't researched yet. Additionally, iPhone and Google's Android are evenly matched with both making up about 80% of mobile usage traffic

In light of Flash, the most damning market share figure is not the sales of hardware, but the share of apps that's over 99%, which includes free apps. Apple dominates in this category and by thwarting the middleware of Flash, its market power forces developers to prioritize Apple and obliterates the possibility of a single build that can be used across platforms and devices. The app market is rapidly growing::

but the question remains is whether Apple's app dominance is indeed anti-competitive, given the uncertainty of what the future holds because of software market dynamics and the interactions with its the other sides of its markets. While I can't answer this with any certainty at this moment, I believe that the platform needs to be examined in its entirety, not just the market share of hardware, and that care should be taken to determine the effects of Apple's conduct.

While Adobe may be worse off due to the fact that developers are likely to channel development towards the dominant platform, the acid test will be if developers are worse off. 

Song:: Feist-'We Can Work It Out'

Twitterversion:: Will #Apple  antitrust probe factor in complexity of "multi-sided" markets of hardware & software/apps? @Prof_K

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