The FTC is looking at Apple for possible antitrust violations. Twenty years ago, who could have imagined it?
In 1996, Apple was, quite literally, months from bankruptcy. Among other things, it took a $150 million investment from Microsoft as part of a larger deal to keep antitrust regulators off Redmond's back.
That investment, along with some other quickly enacted changes (and a new board of directors and CEO) bought Steve Jobs and company enough time to come up with the iMac, then the iPod, the iPhone, and all the rest. Now, Apple is the biggest company in the world—capturing 92% of smartphone profits, according to one estimate.
However, in what should be a lesson on the dangers of hubris for Apple's executives, the company finds itself yet again in the antitrust crosshairs.
According to a report from Reuters, the US Federal Trade Commission is examining Apple's treatment of third-party music streaming services like Spotify and others. When a customer downloads the app of one of those services through the App Store and then subscribes, Apple takes a 30% cut—the same cut that it takes if a customer buys an app through the store.
The FTC is looking to see if this cut violates any antitrust laws because of Apple's dominant position in the market.
Two years ago, a US District Court ruled that Apple had conspired with five major book publishers to artificially raise the prices of ebooks, a violation of the Sherman Antitrust Act, and the company was slapped with a $450 million fine. Apple has appealed the decision several times, lost several times, and is currently considering its last step—the US Supreme Court.
Streaming services' main beef is with the 30% cut that Apple takes, which, they argue, makes it difficult for the companies to compete on price. Apple charges $10 per month for its Apple Music streaming service, keeping all of that revenue (though splitting much of it with record labels). If Spotify were to charge the same price through the App Store, it would only take home $7 per month in revenue after Apple takes its cut.
As a result, Spotify charges subscribers $13 when they purchase through the App Store but just $10 if they subscribe through its website.
It's difficult to predict what the FTC might do. The Commission conducts many inquiries of companies under its purview, with only a small number of those graduating to full-fledged "investigations." But many observers thought Apple would win its ebooks antitrust case, and the company has lost that case and its appeals, illustrating the dangers of trying to predict the outcome of complicated legal cases.
Regardless, Apple must tread carefully. It finds itself at the top of the tech world, much like Microsoft did 20 years ago—and Apple's executive team needs to remember its priorities. Microsoft ran into trouble by bundling its Internet Explorer web browser (among other things) with Windows, doing something that didn't even contribute that much to its bottom line.
Apple doesn't make a lot of money from the cut it charges to competing music services, making most of its profits off the hardware. It needs to make sure not to let a small chunk of the company affect the rest of it with a nasty antitrust battle.
Do you think Apple is in danger of attracting antitrust attention like Microsoft did two decades ago? Let us know your thoughts in the comments below.
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