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When Will Apple Have to Break Apart?

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    SAN FRANCISCO, CA - JANUARY 18: A pedestrian stops to look at an advertisement for the Apple iPad on January 18, 2011 in San Francisco, California. Apple will release first quarter earnings one day after CEO Steve Jobs announced that he will be taking an medical leave of absence. Apple stock fell less than 3 percent after the announcement was made of his leave. (Photo by Justin Sullivan/Getty Images)

    Apple is "the number one danger" to internet freedom, says Tim Wu.  And Wu's credentials? He's both a respected authority on technology - he coined the phrase "net neutrality" - and he also just joined the Federal Trade Commission.

    Apple is under growing criticism, and not just from Wu. The Wall Street Journal pointed out Wu's FTC and the Department of Justice have launched informal investigations into Apple's behavior.  The interest from the Feds comes after Apple's announcment that it would take 30 percent of all subscription revenue gathered in its App Store.

    Apple has two very different public images. The first, an adorable little startup that dares us to "Think Different." A company that once used Ghandi as a pitch man. A company that made computers in colors like blueberry.

    Apple is also the second most valuable company in America, ahead of General Electric, Walmart and most notably Microsoft. It owns a fair chunk of new cell phones sales - about 20 percent - and controls what software can go on that cell phone. It famously blocked editorial cartoonist Mark Fiore from the app store, until Fiore won a Pulitzer Prize. It has banned "adult" apps but made exceptions for Playboy and Sports Illustrated's swimsuit issue.

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    Apple rarely comments on such policies, but would no doubt argue (correctly) that such Draconian policies assure quality and functionality. However, the fact that Apple controls both sides of the equation - the phone and the app - may also be its undoing.

    One of the critical questions is whether Apple dominates a certain market, in an anti-trust way. It certainly does in tablets, but has yet to do so in phones. Further, that market is very loosely defined.

    A spokesman for the European Union, which is also looking into Apple's behavior, told the Financial Times "the boundaries of such relevant market(s) are not clear, as the sector is relatively new and evolving."  While Apple nearly dominates tablet sales, few legal experts would agree that tablets are by themselves a specific market. 

    Further irritating content providers, Apple is showing favoritism. Business Insider points out Apple will not require Netflix to pay 30% of its users' subscriptions to watch Netflix "Watch it Now" on iPad or iPhone.

    The company does offer a way out: app providers can keep 100% of their revenue if the users deals with the subscription outside the Apple universe. So, for instance, buy a magazine app inside the app store using your iPad. Sync your iPad to your computer, then use your computer to buy the subscription.

    Nobody will do that. Primarily because once you start using an iPad, you practically forget you own a computer. And remember, for the user, the subscription will be the same price whether he makes the payment through Apple or through the content provider. 

    It's just how much the content provider keeps that is in question. And the content provider is prohibited from discouraging the customer from using the app store, say through a lower price online.

    Gizmodo points out "Apple is eating the people that provide the things that make the iPad special".

    Will the time come for the government - already informally investigating Apple - to break the company into separate pieces? 

    While Apple does not have a monopoly by any measurement, companies like Alcoa Aluminum didn't either. Alcoa was broken up.

    Certainly the move would be years off, but separating the app store from the device maker and allowing the purchase of apps from outside the Apple ecosphere would solve many of the problems that Apple itself created.