Apple: When is Enough Enough?

I’m a big admirer of Apple.  They design incredible products.  They innovate and, beyond innovation, they create new categories and approaches.  They have been richly rewarded for that and are now the second highest valued company in the world, behind ExxonMobil.  You know there’s a “but” coming.  And it’s a big one.  Is it good for anyone (other than Apple) — even you — when they put their hand so deep in everyone’s pocket and when they tell you and me how to do business?  (Full disclaimer:  I don’t own any Apple products.  I have a Sansa MP3 player, because I like the Rhapsody subscription music model.  I actually like the Microsoft Zune subscription model even better, because then I get to rent and own music, but that’s maybe my next device consideration.  I have an Android-based Motorola Droid, largely because I’m on Verizon and won’t buy any electronic device without a replaceable battery, so no, I’m not getting on line for a Verizon iPhone.  I do, however, own some really old Macs and an original, and still working Newton.  And my introduction to the technology industry in 1979 was on an Apple II+.  But I digress…)

The latest flap is over Sony’s e-reader application where Sony wants to enable users to buy books without paying Apple its 30% “tax.”  Apple, however, is insisting that all purchases must be made “in-app”…and as such, Apple wants to take its share of the transaction.

So, let’s get this straight.  Apple owns complete control over whether your application makes it into the app store and if they say no, there’s basically no “legitimate” way for you to get an application on to your phone.  With Android, while the default is to only allow apps to come in through the Android market, a simple uncheck in settings allows you to install applications from any source.  Apple will tell you that’s to protect the user experience.  That’s the same argument the telcos used to exclude devices from their network until, paradoxically, the iPhone came along and led to a new OS-centric model of wireless carriers here in the States and opened up the market to innovation that had been stalled for a decade.  In other words, bullsh**, Apple.

But that’s not enough for Apple.  Once the app has been approved, they want their full share of any revenue generated and won’t allow solutions that circumvent their taxing mechanism, regardless of how consumer-friendly and/or app provider-friendly those solutions are.  If you want to make money on the iPhone, pay us our 30%.  (This one will get really interesting the first time Oracle and SAP get serious about mobile apps.  Clash of the Titans anyone?  But it probably won’t get to that.  Read on.)

If this were any vendor other than Apple, the hue and cry would be so incredibly loud that it would drown out conversation about American Idol.  But Apple, our little darling, gets away scot-free.  Imagine if Microsoft said “any transaction that occurs on a Windows machine will henceforth and forever more involve a payment to Microsoft.”  The antitrust lawyers would move so fast that time would actually go backwards.  But Apple?

Actually, I think this time Apple made a mistake.  A big mistake.  This one is so outrageously wrong that it’s sure to draw scrutiny from all corners.  This could be the proverbial straw that broke the camel’s back.  Apple probably thought “well, it’s only Sony.  Who cares about them any more.”  The real target, of course, is Amazon whose Kindle software is available on all platforms (imagine that, not just iPhone and iPad) and whose sales enrich Amazon’s coffers.  Amazon is a threat to Apple’s control of the ecosystem.  If Kindle is the standard for some forms of digital content, how can Apple own the whole process they way they do with music and, increasingly, video?  If someone is able to stand up to Apple and not pay their ransom, what does that mean for all the others who feel they are being held captive?

So Apple started with Sony.  A trial balloon if you will.  This, however, could instead become Apple’s trial by fire.  What Apple’s trying to do here makes Google’s and Facebook’s privacy intrusions seem like a walk in the park.  Quite simply, Apple is trying to put a meter on the flow of digital content over the Internet.  I’m loathe to draw comparisons to what’s going on in Egypt this week.  Clearly, that’s a real-life saga that dwarves anything we’re talking about here.  However, it’s hard to ignore the parallels.  Enough is enough.  Whether it’s a military dictatorship or a technological one, at some point the citizenry/customers say this has gone on too long and we need to push back.

While I’m not of course predicting such a dire outcome, this could some day be remembered as Apple’s Waterloo.  They’re inviting legislative scrutiny in the United States and around the world.  They’re forcing their “partners” to stand up and revolt.  And most dangerous of all, they’re risking the love and support of their fan base.  If there’s a coordinated effort on the part of content creators across all media types (books, music, video and, with today’s announcement of The Daily, news and information) — heck, even without a coordinated effort — the risk to Apple’s reputation, position (and market cap) is considerable.

Apple is restricting choice, controlling innovation and enriching its coffers.  And it’s not benefiting you.  Enough is finally enough.

I do believe that this week may well have been the Zenith of Apple’s power.  And that’s pretty remarkable to contemplate.  Pride goeth before the fall.

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6 Responses

  1. Focusing the Crosshairs, the outlook Oracle buys RIM, Microsoft buys Nokia. Google buys Salesforce. All vendors end up dabbling with incentives to boost their eco system. Apple’s Waterloo fades away faster than Sony’s latest hit device.

  2. I think you can build ecosystems that are win/win or at least distribute wealth more equitably. Do you really believe that 30% of everything through the platform is remotely justified?

    Some have been better to their ecosystem partners than others. Most have certainly played favorites or picked their battles. None has been this rapacious.

    (BTW, I agree that Google buys Salesforce. Sooner or later they need a real enterprise play.)

  3. I’m happy to make 70%. I build it. Apple publishes handles billing. Compare to most business ‘ecosystems’ like dealership, franchise or even consulting…

  4. Horseshit!

  5. You keep trying to call a top in Apples growing earnings and Ill keep profiting from them instead.

  6. I’m not actually trying to call a top in Apple’s earnings. I’m not a Wall Street analyst and long ago learned that there are huge differences between us industry analysts and Wall Street ones. Often my observations take many quarters to manifest themselves in Apple earnings.

    Moreover, I would agree with any assertion that says Apple is smartly playing a high margin profitability game and over time is happy to cede the high margin, low volume markets to the likes of Microsoft, Google and even Amazon. Apple’s in a great position right now, leading in volumes *and* margins. The share will contract and depending on how things play out, so too will the margins.

    And if they remain so heavy-handed, they’ll end up dealing with regulators the same way IBM, Microsoft and now Google have had to. And it’s never to your benefit.

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