Apple, fined 4 billion?

Apple, which has just been reduced by Warren Buffett, is going to be in the EU again.

According to the Financial Times, citing sources, the European Commission is expected to announce a fine of about 500 million euros, or about 3.88 billion yuan, in early March for Apple's alleged ban on music apps from offering cheaper subscriptions to iPhone users, violating relevant EU laws in the streaming music market.

Once landed, this will be Apple's first antitrust fine in the EU. While the fine is just a sprinkling of water compared to Apple's revenue, an analyst at a consulting firm told China Newsweek, "This may be just the beginning." ”

This is not Apple's first confrontation with the EU.

Back when the iPhone 15 was released, Apple compromised with a USB-C charging port. Not long ago, Apple announced that it would break the lockdown of the iOS system in the European Union, including allowing third-party app stores to settle in, third-party payment methods, and iPhone users to modify the default browser permissions.

But it is unclear how satisfied the EU will be with its latest adjustment plan.

Thierry Breton, the European Commission's internal market commissioner, has told Reuters that when the EU's Digital Market Act (DMA) comes into force on March 7, they will evaluate the new solutions proposed by companies, and "if they are not good enough, we will not hesitate to take strong action."

And outside the European Union, Apple's antitrust risks are also accumulating. In its home base of the United States, Apple is constantly in lawsuits.

This seems to have become the sword of Damocles hanging over Apple's head. A number of industry insiders told China News Weekly that it is inevitable that Apple will have to gradually move from closure to opening.

But will Apple's foundations be shaken as a result?

Apple CEO Tim Cook. Photo/Visual China

01 The first ticket may be just the beginning

Behind the news of the EU's proposed huge fine is a long dispute between the Swedish music streaming company Spotify and Apple.

Back in July 2015, Spotify sent a mass email encouraging iOS users to bypass the App Store and pay for a subscription on its website. At the end of the day, the 30% "Apple tax" – Apple's commission on revenue from third-party apps in its App Store – is overburdened for Spotify, which is struggling to make a profit, and setting higher subscription fees for iOS than other channels is both competitive and unfair to iOS users.

Spotify wants to bypass the mountain of "Apple tax", but this will obviously move Apple's cake and may trigger imitation. Soon, Apple began to refuse to update through Spotify's app, which also had a long-term difficulty in landing on other Apple terminal products such as Apple Watch and HomePod.

A few months later, Spotify also launched a counterattack, first joining several other companies in accusing Apple of abusing its "privileged position" in the high-end market, and then repeatedly sending letters to the EU to continue complaining. Apple has repeatedly publicly accused Spotify of being "misleading" and said that "Spotify would not have been able to achieve today's success without the App Store ecosystem".

The long war of words between the two finally escalated in March 2019. At that time, Spotify filed an antitrust lawsuit against Apple in the European Union, accusing it of unfair competition in the streaming music market.

The EU reacted, and the reaction was not small. "The EU has continued to tighten its regulation of big tech companies in recent years, especially in key areas such as data privacy, antitrust and digital taxation," Zhang Guobin, CEO of Electronic Innovation Network, told China Newsweek.

In June 2020, the European Commission announced that it would open an antitrust investigation into Apple. By May 2021, the European Union officially launched its first antitrust lawsuit against Apple over the restrictive terms it set on its app store. The most important is the DMA spawned by the EU antitrust investigation, which aims to build a fair and open market environment for the digital economy.

According to public information, the DMA classifies large enterprises that provide core platform services such as social networks and search engines as "gatekeepers", and puts forward a series of normative requirements for these enterprises, including not abusing their dominant market position to suppress or merge with competitors, not preventing consumers from connecting to enterprises outside the platform, not forcibly pushing advertisements or installing software without users' permission, and not transferring the collected user data for other purposes. Violators will be fined up to 10% of the company's annual global turnover.

Apple's previous series of opening up actions in the EU region, including the reduction of the "Apple tax" ratio from 30% to 17%, are also in preparation for compliance with the DMA. However, according to foreign media reports, many opponents still believe that Apple's plan cannot actually change its monopoly status.

In the opinion of the aforementioned analysts, the 500 million euro fine in the news is only for the streaming music market, and is related to Spotify's accusations over the years. As the EU's antitrust investigation into Apple continues to advance, Apple may face more penalties under the DMA, which will come into effect in March.

02 Anti-monopoly, constantly

Apple's antitrust dilemma is not limited to EU countries.

In January last year, Apple was fined 1.2 billion rubles (about 94 million yuan) by the Russian Federal Antimonopoly Service for forcing Russian iOS app developers to use their own payment tools in their apps, and prohibiting developers from in-app in-app notification that users can make payments outside the App Store or use other payment methods.

India has also pointed the finger at the US tech giant. Previously, according to the Wall Street Journal Chinese website, on December 31, 2021, India's antitrust watchdog ordered an investigation into how Apple operates its App Store, saying that it initially believes that the company violated some of India's antitrust laws.

In the United States, Apple is constantly involved in antitrust cases.

Back in 2011, four iPhone users in the United States filed their first lawsuit, accusing Apple of using the App Store's monopoly to force users to pay more for the app, and Apple has always claimed that the app's purchaser has no right to initiate such a lawsuit as an "indirect" buyer. Finally, in 2019, the U.S. Supreme Court ruled against Apple, and users can still sue Apple for its monopolistic behavior in the App Store. At that time, the verdict directly evaporated Apple's market value by more than 300 billion yuan overnight.

In 2012, Apple was prosecuted by the U.S. Department of Justice for allegedly conspiring with five publishers to raise the price of e-books and violate antitrust laws. Four years later, the case was heard and Apple was ordered to pay a $450 million fine.

In 2020, Epic, an American game company that tried to bypass the "Apple tax" like Spotify, and was later removed from the App Store, also filed an antitrust lawsuit against Apple. Although Epic lost the lawsuit because Apple did not have a monopoly in the video game trading market, Apple was also asked by the court to open restrictions on third-party payments, so it was seen as a victory or a defeat.

And in the near future, there are even bigger lawsuits waiting for Apple.

In recent years, the U.S. Department of Justice has been conducting an antitrust investigation against Apple. According to foreign media reports, the U.S. Department of Justice is concerned about how Apple uses its control over hardware and software to make it more difficult for consumers to abandon the company's devices and make it more difficult for competitors to compete.

According to a previous report by the New York Times, the investigation is nearing completion, and the U.S. Department of Justice may file an antitrust lawsuit in the first half of this year, involving Apple's business and business model with a wider range of challenges than it has faced before. This may also mean that Apple will usher in higher penalties and stricter bans.

According to Pan Helin, co-director and researcher of the Digital Economy and Financial Innovation Research Center of Zhejiang University International Business School, Apple is facing prosecution in Europe and the United States, indicating that Apple itself has a real monopoly problem.

Internet analyst Zhang Shule also pointed out that Apple's own closed system has brought a huge "Apple tax" dividend, and it has also technically formed a de facto barrier to various competing products (competing or related hardware and applications) in terms of revenue and scenario application.

It can be seen that the anti-monopoly related investigations and rulings all point to the closure of Apple's control of the core system, and the resulting absolute control of Apple in its own ecology and the "Apple tax".

In the eyes of many developers and users, this is the story of a dragon slaying boy who eventually becomes a dragon.

In 2008, when Steve Jobs first announced the App Store, it won the cheers of developers and users, and at that time, the 30% commission ratio was lower than that of competitors, providing developers with the opportunity to make money, and also bringing users a safe, concise, and efficient new experience.

Today, the App Store has become a direct manifestation of Apple's monopoly position, and Apple's "Apple tax" and Apple's "power" behaviors such as "taking apps off the shelves when they say they want to remove them", acting as both a referee and an athlete in favor of their own products in the competition, have made more and more developers dissatisfied and indirectly raised the price of iOS users' in-app purchases.

In this regard, Pan and Lin believe that "the apple in Cook's hand lacks innovation and makes a fortune by relying on apple taxes and ecological monopoly." This profit model hinders others from innovating and has the potential to become the target of public criticism. ”

03 Losing the "Apple Tax"?

Today, the adverse impact of antitrust risks on Apple has gradually emerged.

The most direct is the impact of fines on a company's financial data. Although the amount of fines handed over by Apple in the existing rulings is negligible compared to its revenue and net profit, and the antitrust-related investigation and litigation cycle is quite long, as the antitrust wave intensifies in more countries and regions, the snowball will not hurt the bones, but it will also have a greater impact on its profitability.

At the same time, Jiang Han, a senior researcher at Pangu Think Tank, pointed out that the ongoing legal dispute could affect consumers' and investors' perception of Apple's brand, damaging its reputation and market position. Amazon, Meta, and Google's bad reviews are a lesson from the past, which may also lead to user loss.

But that's not the most important thing. For Apple, antitrust is trying to pry open its various "walls", which will hit its now important cash cow, namely the service business, including the App Store, streaming subscriptions, etc.

This is Apple's second largest source of revenue today, and with a gross profit margin of more than 70% for the past eight consecutive quarters, it is Apple's most promising business in the eyes of investors. According to its latest quarterly financial report, Apple's service business revenue increased by 11.32% year-on-year to $23.117 billion, significantly ahead of hardware products.

"Apple will face antitrust risks in more regions in the future, which may cause it to be forced to change its closed ecosystem strategy," Jiang analyzed, "for example, it may open up more interfaces to allow third-party services to integrate more closely with Apple devices, or reduce the commission rate of app stores to adapt to the regulatory environment in different countries and regions." ”

Zhang Shule also believes that Apple's unblocking is the trend of the times, and it is inevitable to make products and applications universal, and let go of more permissions on the premise of ensuring the security and stability of the system.

Whether it is the opening of third-party payments in the United States or the opening of third-party applications in EU countries, Apple has made such compromises in order to avoid risks.

Because of this, in Pan and Lin's view, the outbreak of anti-monopoly risks is bound to shake Apple's foundation. "Apple makes a profit by imposing an 'apple tax' through an ecological closed loop. Breaking the closure will affect the collection of its 'Apple Tax', and Apple may also give discounts to different regions in the future. ”

Of course, in this regard, "Apple will continue to play games with local regulators," Pan and Lin said.

But Zhang Shule does not agree with this judgment. "Apple's foundation is innovation, and the 'Apple Tax' is a kind of revenue carrier under this innovation. Moreover, the Apple 'wall' involving monopoly has basically been exposed and will gradually disintegrate, and the Apple 'wall', which relies more on technology than monopoly, is still strong and creates time and money for Apple to win the next round of disruptive innovation. ”

"Apple is one of the most powerful technology companies in the world, and it will inevitably crush competitors and dominate the market in certain regions and fields," Zhang Guobin also believes, "These antitrust measures will not change Apple's position among technology companies." ”

However, Apple, once the absolute benchmark innovator, has not had a disruptive innovation that has amazed the market for many years.

In the past few years, each iteration of the flagship iPhone, which has been perceived by consumers as squeezing toothpaste, has been seen as mere for Macs and iPads. Although this year's blockbuster new Apple Vision Pro has once again made a big splash of presence in terms of technology and topics, as the first generation of water-testing products, coupled with the high price, the product has not yet been tested by the larger consumer market, and it is difficult to make much contribution to Apple's overall revenue growth. As for the Apple Car, which has been rumored to be built for 10 years, the launch time has been constantly delayed by rumors.

As the regulatory stick continues to be hammered, the time left for Apple to find new growth points will become more urgent.

Author: Shi Hanxu

Editor: Yu Yuan