Feds Interested in Apple Antitrust


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The US Justice Department and Federal Trade Commission (FTC) are discussing whether to launch an antitrust inquiry at Apple, according to the Wall Street Journal. Apple’s recent changes to its developer licensing agreement piqued regulators’ interest. The WSJ has more:

Apple recently revised the terms to forbid developers from using software tools other than Apple’s tools to build their programs. It also banned apps from transmitting certain technical iPhone data to third parties.

Apple’s new language forbidding apps from transmitting analytical data could prevent ad networks from being able to effectively target ads, potentially giving Apple’s new iAd mobile-advertising service an edge, executives at ad networks say.

The FTC has also taken an interest in iAd in the context of the agency’s investigation of Google Inc.’s $750 million purchase of mobile-ad company AdMob Inc. Several developers said they have been contacted by the FTC about the Google-AdMob probe, with two saying they were told that the agency was also looking into the iAd service.

Apple’s business model has remained closed, with owners only able to download apps from its iTunes App Store. Some critics contend Apple is now engaging in the kind of tactics that got Microsoft Corp. in trouble with antitrust enforcers in the 1990s. “Apple is playing right out of Microsoft’s playbook—and it’s one they complained about a lot,” said David Balto, a former FTC official now at the Center for American Progress, a left-leaning think tank.

The European Committee for Interoperable Systems has a good summary of Microsoft’s monopoly playbook.

(Microsoft created an) “applications barrier to entry”(that) stems from two characteristics of the software market: (1) most consumers prefer operating systems for which a large number of applications have already been written; and (2) most developers prefer to write for operating systems that already have a substantial consumer base. This “chicken-and-egg” situation ensures that applications will continue to be written for the already dominant Windows, which in turn ensures that consumers will continue to prefer it over other operating systems.

(Also,) Microsoft saw a serious potential threat in the form of so-called “middleware” products. Middleware products are software products that, like Windows, expose application programming interfaces (“APIs”) that software developers can use in writing other applications. Microsoft recognized that, if any middleware product gained widespread popularity, “developers might begin to rely upon APIs exposed by the middleware for basic routines rather than relying upon the API set included in Windows.” Microsoft has therefore crushed middleware threats.

Microsoft’s “embrace, extend, and extinguish” strategy has three phases: First, Microsoft “embraces” a competing product by developing software or implementing standards that are compatible with the competing product.19 Microsoft then “extends” its own offering by creating features or standards that are interoperable only with Microsoft’s proprietary technologies. Finally, when Microsoft’s proprietary software or standards have achieved widespread adoption, Microsoft “extinguishes” its competitors by dropping any remaining pretense of compatibility.

Some of these practices sound familiar. Only allowing developers to use Apple tools is only one symptom. Apple recently nixed Flash; before that, it disabled Google Voice and prevented iTunes from syncing with certain non-Apple mobile devices.

Apple is now the third-largest smartphone vendor in the world. The company is big enough, and has enough questionable practices (though still not nearly as many as Microsoft) to spur regulator interest.

My hunch is that regulators won’t find enough to launch a serious investigation. Their probes so far have been mostly informal. They’ll stay that way until Apple gives them enough evidence to get serious.