The US Department of Justice and the attorneys general of 16 states and the District of Columbia sued Apple for antitrust this morning in federal court. The lawsuit alleges that the company has a monopoly in the premium smartphone market and uses a variety of illegal tactics to perpetuate that monopoly.
Leaving aside the details of those tactics and their legality (if you're interested, You can read the full lawsuit here) The case has many parallels to the Justice Department's antitrust lawsuit against Microsoft in the 1990s, which I covered in Instructions on Microsoft from 2000 to 2010. Even Attorney General Merrick Garland pointed out those parallels, saying: “The landmark Microsoft case held a monopolist liable under antitrust laws for taking advantage of its market position to undermine technologies that would have made it easier for users to choose different systems.” computer operations. systems. “Today’s complaint alleges that Apple has used many of the same tactics that Microsoft used.”
But there is a fundamental difference between the cases: Microsoft had a clear monopoly on the relevant market for operating systems for personal computers. Apple's monopoly position is not so clear.
It is not illegal to have a monopoly, as Garland also pointed out in his press conference. However, it is illegal to use certain tactics to perpetuate or maintain that monopoly, but to prove this you must show that the defendant has enough market power to exclude competitors.
Microsoft Windows had a market share of more than 90% in the benchmark personal computer operating system market. In fact, it was so dominant in the pre-smartphone era that one Goldman Sachs Estimate In 2000, 97% of all computing devices reportedly had Microsoft operating systems.
Although the actual outcome of the Microsoft antitrust case could be described as a mixed victory for the Justice Department, as many of the sanctions (including the breakup of Microsoft into two companies) were thrown out on appeal, the factual findings in that case They clearly established Microsoft had monopoly power. This paved the way for a series of subsequent private lawsuits that Microsoft mostly settled.
In purely numerical terms, Apple's market share is much smaller.
In its lawsuit, the Justice Department maintains that Apple has more than 70% of the smartphone market share in the United States when measured by revenue. That's different from measuring by units shipped: There, Apple's share is closer to 64% in the last quarter of 2023, according to statistics from counterpoint research, well ahead of number two, Samsung, with 18%. The Justice Department maintains, however, that there are other metrics that prove the dominance of the iPhone, such as the fact that most young users choose iPhones over Samsung phones that run Google's Android operating system, for example. . Households with larger demographics also tend to choose the iPhone.
The government also argues that the United States is a relevant market because most consumers buy smartphones through carriers and because potential new entrants must comply with U.S. telecommunications laws, among other things. This argument is important because Apple's market share is much smaller globally (only 23%, while Samsung is in second place with 16%). The number one spot is listed as “Other,” which mostly consists of low-cost Android phones. It is clear that this is still a fragmented global market, which does change the competitive dynamic: developers have significant incentives to create applications for Android, for example. Compare this to Microsoft's market dominance, which was global: there was almost no viable alternative at the time.
The key section in the Justice Department's case begins on page 66, titled “Apple has monopoly power in the smartphone and high-performance smartphone markets.” The argument boils down to barriers to entry.
First, the Department of Justice says that most people already have a smartphone and upgrade when they buy a new one, and since most of those users already have an iPhone, they are more likely to choose another iPhone. The Justice Department claims that Apple has put up many artificial barriers that make the change difficult, such as the difference between blue and green bubbles for sending messages to iPhone and Android phone users, and allegedly restricting third-party cross-platform video functionality. apps, instead of directing people to FaceTime, which only works on Apple products. If users change, they face costs and frictions such as learning a new interface, purchasing new applications, transferring data, etc.
Second, the Justice Department cites a long list of technical barriers to entry, such as acquiring expensive components, designing sophisticated hardware and software, obtaining distribution agreements, etc. There is also a host of circumstantial evidence, such as Apple's huge and long-lasting profit margins on the iPhone. sales.
These arguments may be convincing to the judge in the case. But in terms of barriers to entry, Apple could argue that product differentiation and integration is not the same as excluding competition. A fully integrated platform with built-in apps for particular functions like web browsing and video conferencing is easy and convenient and customers choose it, and continue to choose it, because they prefer it, not because they want to switch to Android and are locked out. by artificial barriers.
In the second case, Apple could point to the enormous investments it has made over the last 15 years in building these supply chains and relationships with carriers and developers and rightly ask why it should be punished now for doing the work necessary to build an advantage.
That's often the case with antitrust cases in the tech world. An innovator rises to the top through a combination of hard work, luck, and tough business tactics. They build uncontested advantage largely through network effects. Competitors complain. Governments intervene. The dominant player is stagnant long enough for new competitors to find a way in, much like Apple and Google did against Microsoft in the 2000s, when their smartphone operating systems made desktop PCs and Windows were much less relevant.
And then the cycle begins again.
