Cook has been in China for the past five days. He constantly conveys confidence, expresses friendliness, has a full schedule, and has a sunny smile. However, at the same time as Cook's happy China tour, Apple suffered a heavy blow from the U.S. federal government: the antitrust lawsuit is finally here, and it wants to touch Apple's lifeblood - the iOS platform.
Love China and love Chinese
According to public records, this is Mr. Cook's third trip to China in the past year and his first this year. It was also perhaps the longest time he spent in China. It was an exceptionally efficient trip to China, and perhaps the most rewarding of his visits to China in the past five years.
He met with actor Zheng Kai and director Lu Wei in Shanghai, attended the opening of the Apple store in Jing'an Temple Square, participated in the China Development Forum as a representative of foreign companies, and held discussions with the Chinese Minister of Commerce and the Prime Minister.
In the past few days, Cook has continued to participate in public events and give various interviews, constantly conveying his confidence in China, expressing his love for China, and conveying Apple's importance to China. His smile was professional and bright, and his speech was friendly and sincere.
"China is always full of energy...... There is no more important place for Apple's supply chain than in China...... Apple will continue to grow in China for the long term, and continue to increase investment in China's supply chain, R&D and sales...... I love China and I love the Chinese."
AI is undoubtedly the core selling point of all smartphones this year. At the same time as Cook's visit to China, there was news that Apple was negotiating cooperation with Baidu to introduce Baidu's AI model into the national version of the iPhone. Apple's global AI partner is Google's Gemini, but this can't be implemented in China. This is also Samsung's AI landing strategy: the world joins hands with Google, and China joins hands with Baidu.
Indeed, the significance of Cook's visit to China is crucial. How to boost the declining revenue in the Chinese market has become a major challenge for Apple at present. Building a friendly and friendly brand image, establishing a good relationship between government and business, and stabilizing the supplier system are all important gains of Cook's trip to China.
Cook once had high expectations for the Chinese market, and even expected to one day become Apple's largest market, but years later, China is still Apple's third largest market, not only two-thirds of the European market, but even only 40% of the North American market.
In the fourth quarter of last year, Apple's revenue and profit both increased, ending a decline in performance for several consecutive quarters, but Greater China's revenue fell by 13% year-on-year, becoming the only regional market to decline in the quarter. Cook explained in the earnings call that this is not the loss of iPhone popularity in Chinese, but the impact of the overall environmental background.
The Chinese market is too competitive
The fierce competitive environment is the main threat facing the iPhone in China. In the United States and other markets, Apple only has one main competitor to Samsung, and the competition in China's smartphone market is too cruel, not only to face the impact of many powerful Chinese manufacturers, but also to face the resurrection of a strong opponent Huawei.
According to IDC, China's smartphone shipments grew by 1.2% in the fourth quarter of last year, returning to positive growth again. Although Apple ranked first with a 20% share, it fell 2.1% year-on-year, while Huawei soared 36.2% over the same period, becoming the only major manufacturer to grow. Obviously, Huawei's strong comeback has brought a significant impact on the entire market.
After entering 2024, Apple's competition in China is more severe. iPhone sales in China fell 24 percent in the first six weeks of the year, while Huawei phones soared 64 percent, according to Counterpoint. Next, mainstream manufacturers such as OPPO, vivo and Xiaomi will launch their own annual flagships, while Apple's new models will wait until September this year.
Compared with domestic competitors, the pace of iPhone product updates is indeed very conservative. In terms of hardware functions, China's mobile phones are constantly approaching Apple in almost every link, surpassing in satellite communication and image quality; in terms of software functions, Apple still does not have the rigid needs of domestic machines that have been popular for several years, such as WeChat double opening, call recording, and scrolling screenshots.
In terms of product form, Apple has never had a folding machine product. Last year, 7 million folding screen mobile phones were shipped in the Chinese market, more than doubling year-on-year for four consecutive years. In this high-end market, Huawei and OPPO got a share of 37.4% and 18.3%, respectively. According to the information obtained by the supply chain, analysts such as Ming-Chi Kuo predict that perhaps Apple will not launch a folding machine before 2026.
Perhaps, the iOS platform is Apple's core competitiveness. Compared with various domestic mobile phones based on the Android platform (except for HarmonyOS), the tightly controlled iOS platform ensures that user data is protected from malicious application attacks as much as possible, ensuring that the experience of Apple's ecological products is optimized. Almost all of Apple's hardware and software products revolve around the iOS platform, and as long as it continues to hold the moat, it can occupy an innate advantage in the competition with Android manufacturers and many hardware and software companies.
However, while Cook was basking in China, he also heard the sound of boots falling to the ground in the United States: the U.S. government finally formally indicted Apple for alleged monopoly. Compared with the decline in revenue in the Chinese market, whether it can hold the moat of iOS is related to Apple's lifeline.
Investigate a four-year antitrust lawsuit
On Thursday, the U.S. Department of Justice, along with 16 states and territories, filed an antitrust lawsuit against Apple in the U.S. District Court for the U.S. District of New Jersey, alleging that Apple violated Title II of the Sherman Act, the U.S. antitrust law, in an 88-page filing asking a judge to order a rectification of Apple's platform competition strategy for iOS.
As early as 2019, the Justice Department and the Federal Trade Commission of the previous Trump administration began to launch antitrust investigations against the four major Internet giants: Apple, Google, Meta and Amazon. While Apple has been doing its best to stop the lawsuit, the sword of Damocles, which has been hanging for four years, has finally fallen.
After the Biden administration took office, it not only took over the antitrust work of the Trump administration, but even appointed antitrust hawks with a tougher stance to serve as the heads of several major antitrust departments, and continued to use litigation to prevent mergers and acquisitions of major giants, while continuing to promote antitrust litigation against giants.
From 2020 to 2023, the two major antitrust departments in the United States, together with dozens of state governments, have filed antitrust lawsuits against Google, Meta and Amazon, demanding that Meta spin off the Instagram and WhatsApp businesses, and proposing structural rectification of Google (the endorsement of the spin-off), and Apple became the last Internet giant to be sued.
What exactly is the U.S. government suing Apple? They accuse Apple of illegally obstructing competition in the market and maintaining its tight control over the iPhone, including preventing other companies from using the iPhone's features at all. The Justice Department's lawsuit specifically mentions five areas: smart watches, digital wallets, cloud gaming services, instant messaging, and multi-app bundling services.
For example, Apple blocks PayPal from using the iPhone's NFC chip, restricts Garmin from using the notification system, blocks iMessage from supporting Android phone communication, and so on. Due to Apple's restrictions on the iOS platform, these third-party software, apps and hardware, including smartwatches, third-party payments, and instant messaging services, cannot fully obtain all the permissions of iOS and cannot compete with Apple's own products and services.
Jonathan Kanter, the head of antitrust at the U.S. Department of Justice and a well-known hawkish scholar, said after the indictment, "Today's lawsuit against Apple is to once again protect the next generation of technological innovation and competition...... Every step of Apple's competitive approach to the market is building and strengthening their monopoly in the smartphone sector. The Justice Department is also proposing structural overhaul of Apple's business in the lawsuit, which is often synonymous with a spin-off, but can also include forcibly changing the rules of the iOS platform.
In response to the lawsuit of the U.S. federal government, an official spokesperson for Apple responded that this lawsuit will only increase excessive interference with companies. "If the lawsuit is successful, it will only prevent Apple from creating the technology experience that consumers have come to expect, which is an integrated experience of software and hardware services. ”
Obviously, Apple can't easily give up its iOS moat, and will do everything possible to respond to the lawsuit. They have two months to file a motion asking the court to dismiss the Justice Department's lawsuit. If Apple's motion is not accepted, they will enter a lawsuit battle with the Justice Department.
On a par with the Microsoft lawsuit
It is worth noting that in the 88-page lawsuit filed by the U.S. Department of Justice against Apple, there are 26 references to the Microsoft lawsuit that year. In the lawsuit, the Justice Department argues that Apple's current competitive strategy is the same as that of Microsoft's Windows platform, using restrictive means to prevent competitors from using key iPhone features such as contactless payment chips.
The federal Department of Justice has made it clear that Apple would not have been able to succeed if it were not for the U.S. government's antitrust lawsuit against Microsoft, which prevented Microsoft from harming the emerging connected economy, and that companies such as Google, Meta and Apple had room to develop.
"It wasn't until Apple developed cross-platform versions of the iPod and iTunes for Microsoft's Windows platform, the dominant PC operating system at the time, that the iPod gained mass market acceptance. Had it not been for the previous federal settlement with Microsoft, it would have been much more difficult for Apple to achieve such success and eventually launch the iPhone. ”
In 1999, the U.S. Department of Justice (DOJ) joined 19 state governments to sue Microsoft for violating the Sherman Act by bundling Internet Explorer software on its Windows platform and imposing undue restrictions on rival products such as Netscape's Navigator browser and Apple's QuickTime multimedia software.
In this lawsuit, Microsoft was even forcibly spun off by federal district court at one point, and almost suffered the bad luck of AT&T's dismantling in the early 80s. Although Microsoft appealed and settled with the federal government in 2001 to avoid a break-up, the lawsuit also had far-reaching consequences for Microsoft and the U.S. technology industry.
Although the settlement agreement did not forcibly prohibit Microsoft from bundling software in Windows in the future, Microsoft also voluntarily abandoned its previous strong expansion of the market competition strategy, leaving room for other emerging companies. More importantly, at the age of 45, Gates was forced to resign as CEO of Microsoft, leaving the day-to-day operation and management, and entering the Ballmer era at Microsoft.
Perhaps there is no comparison between Microsoft back then and Apple now. In 1998, more than 80 percent of the world's PCs were installed with the Windows operating system, while the iPhone's share of the U.S. market was only 60 percent, and the global market was less than 20 percent. To this end, the U.S. Department of Justice's lawsuit is specifically subdivided into the "high-end mobile phone market", and Apple's share of this market segment exceeds 70%.
However, many prominent antitrust scholars in the industry have questioned the prospect of a lawsuit filed by the Justice Department against Apple. Gus Hurwitz, a law professor at the University of Pennsylvania, said the lawsuit against Microsoft had little practical effect that year. Microsoft only missed the opportunity of the Internet 2.0 era because of a mistake in strategic decision-making (under Ballmer's leadership).
He pointed out that Apple users choose the iPhone because they like the closed ecosystem and the many benefits that iOS brings them. Forcibly breaking the ecological platform through litigation may only harm the interests of Apple users.
Interestingly, in the comment section of the US mainstream media's report on the lawsuit, the vast majority of readers' comments are also questioning: the Department of Justice should look for a more meaningful giant to sue, and Apple has every right to decide its own products. It seems that instead of suing Internet giants such as Google and Meta, the American people do not recognize Apple's restriction of its operating platform as a monopoly.
The EU has torn down the Apple moat
Like other giant antitrust lawsuits, the U.S. government's antitrust lawsuit against Apple will continue for several years, and it is still unknown whether it will be successful. William Kovacic, the former chairman of the Federal Trade Commission, believes that it is challenging to sue Apple for alleged monopoly, and perhaps Apple will finally reach a settlement by relaxing some restrictions on the operating system.
In fact, in the past few years, Apple has faced a lot of regulatory pressure and litigation around the world, and has had to gradually open its iOS moat to give developers and competitors more room to compete. The United States, the European Union, South Korea, Japan, Apple seems to be facing regulatory challenges around the world.
In the lawsuit between Epic, a well-known game developer, and Apple, although Apple successfully escaped the monopoly lawsuit, it was also ordered not to prevent developers from directing users to complete payments on other platforms. Eventually, after nearly four years of litigation, Apple had to change the rules of the app store to allow developers to provide links to non-Apple payment systems.
The European Commission fined Apple as much as $1.95 billion after launching an antitrust investigation against Apple, finding that Apple prevented streaming media such as Spotify from offering promotions and subscription upgrades to users on the iOS platform. In addition, in South Korea, Japan, Australia and other places, Apple has also had to adjust the share ratio of app stores and allow third-party payment methods under pressure from regulatory authorities.
But what makes Apple more distressed than the sky-high fines is that the EU has directly torn down Apple's moat. Under the new EU Digital Markets Act, iOS platforms must allow users to download apps outside of the app store, allowing users to choose the default third-party browser and payment solution at the platform level.
Europe is Apple's second-largest market, with $30.8 billion in revenue last quarter, which is a market that Apple cannot give up. Under huge regulatory pressure, Apple had to bow to EU regulators and launch an "EU-specific machine" that allows users in the EU's 27 countries to download their own apps and choose their own default browser and payment system. Of course, this adjustment is only limited to the EU market, and users in other regions will not have the opportunity to enjoy it.
Obviously, Apple's biggest concern is that other regulators around the world will follow the EU's example and force Apple to open up the iOS platform through lawsuits or legislation, tearing down the iPhone's most solid moat. And now, the US Department of Justice has taken the first steps in this direction.