Apple’s iPhone is not a monopoly like Windows was a monopoly

The U.S. Department of Justice and attorneys general from 16 states and the District of Columbia sued Apple this morning in federal court for violating antitrust laws. The lawsuit alleged that the corporate has a monopoly within the premium smartphone market and uses a number of illegal tactics to perpetuate this monopoly.

Leaving aside the main points of this tactic and its legality (should you’re interested, you possibly can read all the lawsuit here) the case has many similarities to the Justice Department’s antitrust lawsuit against Microsoft from the Nineteen Nineties, which I wrote about on the web site Microsoft Tips from 2000 to 2010. Even Attorney General Merrick Garland noted these similarities, saying: “The landmark Microsoft case found the monopolist liable under antitrust laws for using its market power to undermine technologies that would make it easier for users to choose a different computer operating system.” Today’s grievance alleges that Apple used lots of the same tactics that Microsoft used.

However, there is one fundamental difference between these cases: Microsoft had a clear monopoly within the relevant marketplace for PC operating systems. Apple’s monopoly position is not so clear.

Having a monopoly is not illegal, Garland noted at her news conference. However, it is illegal to make use of certain tactics to perpetuate or maintain this monopoly – but to prove this, it have to be proven that the defendant has sufficient market power to exclude competitors from the market.

Microsoft Windows had well over 90% of the relevant market share for notebook computer operating systems. In fact, it was so dominant within the pre-smartphone era Goldman Sachs estimates In 2000, Microsoft operating systems were reportedly installed on 97% of all computing devices.

Although the actual end result of the Microsoft antitrust case might be described as a mixed victory for the Justice Department, with lots of the penalties – including dissolving Microsoft into two corporations – being thrown out on appeal, the factual findings on this case clearly established that Microsoft had monopoly power. This paved the way in which for a series of personal lawsuits, which Microsoft has mostly ended.

Looking purely numerically, Apple’s market share is much lower.

In its lawsuit, the Justice Department argues that Apple has greater than 70% of the U.S. smartphone market, if revenue is counted. This is different than measuring by units shipped – based on statistics from the last quarter of 2023, Apple’s share is closer to 64% counterpoint research, well ahead of second-place Samsung with 18%. But the Justice Department argues that there are other indicators that support the iPhone’s dominance, corresponding to the undeniable fact that most young users select iPhones over Samsung phones running Google’s Android operating system. Households with higher demographics are also keen to decide on the iPhone.

The government also argues that the United States is an appropriate market, amongst other things, because most consumers buy smartphones through carriers and since potential latest market entrants must comply with U.S. telecommunications regulations, amongst other things. This argument is essential because Apple’s market share worldwide is much lower (only 23%, with Samsung second with 16%). In first place is the “Other” item, which mainly includes low-cost Android phones. It is clearly still a fragmented global market, which actually changes the competitive dynamics – developers have a significant incentive to create applications for Android, for instance. Contrast this with Microsoft’s market dominance, which was global – there was almost no real alternative on the time.

A key section within the Justice Department case begins on page 66, titled “Apple Has Monopoly Power in the Smartphone and Performance Smartphone Market.” The argument comes all the way down to barriers to entry.

First, the Justice Department argues that the majority people have already got a smartphone and are purchasing a latest one, and since most of those users have already got an iPhone, they usually tend to select one other iPhone. The Justice Department says Apple has introduced many artificial barriers to vary, corresponding to the difference between blue and green messaging bubbles for iPhone and Android phone users and allegedly limiting the functionality of third-party cross-platform video apps, somewhat than directing people to FaceTime. which only works on Apple products. If users change, they’ll incur costs and difficulties corresponding to learning a latest interface, purchasing latest applications, transferring data, etc.

Second, the DOJ cites a whole list of technical barriers to entry, corresponding to ordering expensive components, designing sophisticated hardware and software, securing distribution agreements, etc. There is also a variety of circumstantial evidence, corresponding to Apple’s huge and sustained profit margins on iPhone sales.

These arguments may prove convincing to the judge presiding over the case. However, on the subject of barriers to entry, Apple could argue that product differentiation and integration is not the identical as foreclosing competitors. A totally integrated platform with built-in apps for specific features corresponding to web browsing and video conferencing is easy and convenient, and customers select and proceed to decide on it because they like it, not because they’d like to modify to Android and are blocked by artificial barriers.

In the second case, Apple could point to the big investments it has made during the last 15 years in constructing these supply chains and relationships with carriers and developers, and rightly ask why it ought to be penalized now for doing the mandatory work to construct a lead.

This is often the case in antitrust cases within the tech world. An innovator rises to the highest through a combination of exertions, luck, and difficult business tactics. They construct an undeniable advantage largely because of network effects. Competitors complain. Governments are intervening. A dominant player stays in business long enough that latest competitors find a technique to enter the market – much as Apple and Google did against Microsoft within the 2000s, when their smartphone operating systems made desktop computers and Windows less essential.

And then the cycle starts again.