Commentary: How the Apple world is quietly changing

Commentary: How the Apple world is quietly changing

Developers and rivals may be feeling nervous as Apple's push into services gathers pace, says the Financial Times' Richard Waters.

FILE PHOTO: Members of the media film the new iPhone 7 at an Apple store in Beijing
FILE PHOTO: Members of the media film the new iPhone 7 at an Apple store in Beijing, China, September 16, 2016. REUTERS/Thomas Peter/File Photo

NEW YORK: When Tim Cook takes the stage next week for Apple’s annual developer conference, it will look from the outside very much like business as usual. 

At the end of last year, there were 900 million iPhones in use around the world and running its iOS operating system. 

Apple has created a huge new marketplace for digital services over the past decade or so, making the yearly love-in with developers in San Jose one of the highlights of the tech calendar.

Left unsaid, however, will be how much the Apple world is changing — and what that means in the longer term both for developers, and for the company’s own bottom line.

FILE PHOTO: Customers walk past an Apple logo inside of an Apple store at Grand Central Station in
Customers walk past an Apple logo inside of an Apple store at Grand Central Station in New York, U.S., August 1, 2018. (Photo: REUTERS/Lucas Jackson)

DEVELOPERS FEE

It was only three weeks ago, after all, that the US Supreme Court, in a majority decision, cleared the way for consumers to sue Apple over the 30 per cent commission it takes from payments in its App Store. 

The ruling did not touch on the merits of the case, and Apple may be justified in arguing that it earns the fee — charged to developers — as it did in a new defence of the App Store that it published last week.

But it still opens the door to a spate of challenges to pervasive digital platforms such as iOS. Writing the opinion for the majority, new justice Brett Kavanaugh went further. App developers might also be legally entitled to challenge Apple over the App Store commission, he suggested.

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That is a message that should resonate with the assembled throng at the Worldwide Developer Conference. Apple paid out US$36 billion to developers last year — implying it kept US$15 billion or so for itself (though the 30 per cent cut is reduced for subscription services after their first year).

For third-party developers, this isn’t just a question of lost profits. Companies that compete directly with Apple’s own services, such as the music app Spotify, grumble that the 30 per cent fee puts them at a disadvantage to homegrown services that don’t have to pay the carriage costs.

A smartphone is seen in front of a screen projection of Spotify logo, in this picture illustration
A smartphone is seen in front of a screen projection of Spotify logo, in this picture illustration taken April 1, 2018. (Photo: REUTERS/Dado Ruvic/Illustration/File photo)

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This points to the elephant in the room at this week’s event. It takes place in the shadow of Apple’s biggest-ever push into services. 

Unveiled at a flashy event this spring, this involves new subscription businesses that compete directly in some of the biggest categories in the App Store, such as news, games and video.

THE RETURN OF APPLE SERVICES

These subscription businesses are likely to take a back seat this week. Instead, the conference is expected to bring updates to Apple services such as maps and messaging. These are not things that the company charges for separately, though they still compete for attention with third-party apps on the iPhone and iPad.

In its defence of its App Store policies last week, Apple listed a wide range of competing services available through its online store, from cloud storage and calendars to messaging and video chat.

But as it moves closer to launching its new Arcade games service and Apple TV+ this autumn, many developers will be feeling distinctly nervous. From now on they will be competing with Apple for both attention and revenue.

CONCERNS WITH APPLE'S TACTICS

Two questions loom large. The first concerns how Apple promotes its own services. If it gives them preferential placement in the App Store, for instance, it would draw much bigger audiences. It already pre-installs music, TV and news apps, guaranteeing its services wide distribution.

FILE PHOTO: Apple TV is pictured at an Apple Store in Los Angeles, California
FILE PHOTO: Apple TV is pictured at an Apple Store in Los Angeles, California October 30, 2015. (Photo: REUTERS/Jonathan Alcorn)

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Antitrust regulators have challenged tactics such as this before, for instance taking on Microsoft over the way it used Windows as a distribution channel to break into new markets. 

But one difference stands out: The PC operating system had an undisputed monopoly, whereas Apple’s market share in smartphone software is dwarfed by Google’s Android. The EU competition chief Margrethe Vestager has already suggested that this puts Apple beyond the reach of competition enforcement.

The second question is the extent to which Apple’s services benefit from preferential ties to the company’s software platform.

Apple Music, for instance, can already be launched by voice command, using Siri — a feature not available to rival music apps. Apple’s own payment system is the only one that can be used simply by waving an iPhone over a payment terminal.

The developer conference is a chance to show off the latest capabilities built into Apple’s software platform. 

The extent to which these are reserved for Apple’s own services, as opposed to third party apps, is not something that the company will want to draw attention to. But that will be a key consideration as Apple’s interests, and those of developers, increasingly diverge.

Source: Financial Times/nr(sl)

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