Last month, Apple reached a significant milestone in its nearly 45-year history: a valuation of over $2 trillion. It's the first American company to achieve that lofty status, surpassing the valuation of Saudi Aramco as a publicly traded firm. This comes only a year after reaching the $1 trillion mark, a milestone that its industry rivals Amazon, Microsoft, and Alphabet (Google) soon followed.
But Apple's rise in valuation has placed the company under increased scrutiny and growing concerns about how it has been managing its developer ecosystem, notably its App Store.
In May of last year, I discussed how the US Supreme Court paved the way for potential antitrust by allowing a class action suit against the company alleging monopolistic practices on its App Store to proceed. Although the ruling was not a judgment against Apple and was remanded to the lower courts -- the Court did not classify the company as a monopoly, and did not move forward with any antitrust penalty -- the decision does set a potentially damaging precedent for the company.
By allowing this lawsuit to move forward, the high court's ruling opened up the possibility that there could be, at some point, antitrust proceedings against the company.
All signs indicate that antitrust litigation against the company is virtually inevitable -- especially if Cupertino continues to maintain a status quo of allowing only Apple-trusted applications in its App Store and not permitting third-party payment services to be used for in-app transactions.
The foundations for antitrust against Apple
In the last year, legal complaints against the company have increased, as have antitrust monitoring efforts by the US and European regulators. In 2019, Spotify issued a complaint to the European Union, alleging that because Apple's Music services aren't subject to the same 30% App Store transactional fees as third-party music services, it competes unfairly.
Although Spotify's service can be subscribed to outside the App Store via an out-of-band browser purchase (in the same way other companies, such as Amazon, have also engaged in content purchases that bypass the App Store), Spotify argues that the 30% fee forces the firm to operate in an unfair environment, if it wants to offer subscriptions directly via the iOS app.
This complaint has resulted in the EU proceeding with a formal investigation into Apple's App Store practices but has stated that it may take years to complete. In the past, the EU has fined American firms billions of dollars, such as its prior actions against Microsoft regarding browser bundling within Windows, which resulted in the company needing to build a "browser choice" screen into its operating system, and its $5B fine against Google for anticompetitive behavior in tying its search engine to Android.
The United States has also stepped up its antitrust activities against Apple, in the form of increasing its monitoring of all of the major tech giants. This started with Amazon and Google at the FTC, and was extended to Facebook and Apple at the DOJ based on statements made to the Wall Street Journal in July of 2019.
All of these legal activities seemed to have been pushed to the back burner given the current political climate and priorities of the Trump administration. The upcoming US elections and the COVID-19 pandemic have proven to be effective distractions.
But recently, Apple has again come under scrutiny due to its interactions with Epic Games. The company made changes to its popular Fortnite game to allow for in-app transactions that do not go through Apple's App Store or Google's Play Store on their respective iOS and Android platforms.
These changes resulted in the immediate removal of Fortnite from both the App Store and the Play Store, as well as a notification by Apple to Epic that its official developer accounts would be canceled at the end of the month due to violation of its developer agreements. Epic has since launched antitrust lawsuits against both Apple and Google, arguing that both of the companies are engaged in multiple violations of the Sherman Antitrust Act due to monopolistic practices.
There has not been an immediate response by the Federal Trade Commission or the Justice Department. However, It is likely that Epic -- a successful software developer that has made billions in revenue from its participation on the App Store and Google Play -- has significant financial resources to pursue protracted litigation against Apple. It is also likely that Epic will seek to join forces with other firms such as Spotify to make a more compelling case.
What it means for iOS and Android
While both Apple and Google are in US and EU crosshairs, it could be argued that Apple is in a much more precarious position: Any antitrust activity could create more significant issues for iOS platform end-users than for Android users.
Why? Android already can side-load applications, which includes third-party app stores. This capability exists in the event an end-user wants to install software that either doesn't conform to the Play Store's policies (such as adult content) or that simply isn't listed in the Play Store for whatever reason.
Additionally, Android is fully open source as part of the Android Open Source Project (AOSP), so there is full transparency when it comes to APIs. Only apps that use Google Mobile Services -- which are fully documented by the company and licensed to device manufacturers (such as Samsung and Microsoft) -- are considered to be proprietary.
So while increased fines against Google by the EU and the US might be financially painful to Google, the company would not need to make significant architectural changes to Android other than possibly including support for third-party payment processing systems within Google Play.
iOS would not fare as well. If a court orders that Apple must allow for third party application installs, it would have significant implications for the ongoing development of the mobile operating system. It could well require a complete redesign to accommodate any necessary changes as part of any legal settlement or consent decree beyond penalties Apple would need to pay.
Apple has allowed side-loading, but only for enterprises using the Developer Enterprise Program. This program enables companies to create and deploy custom applications on iOS, WatchOS, and TVOS devices, as well as code-sign Mac apps, plug-ins, and installers with a Developer ID certificate for distribution to employee Mac computers. As with iOS, Mac also has an app store, but Apple does not require that Mac systems exclusively install applications from it.
Current versions of macOS and OS 11 "Big Sur" use a subsystem called "Gatekeeper," a security feature used to enforce code-signing via digital certificates. Gatekeeper verifies the signature of downloaded applications to ensure they are notarized before allowing them to execute, thus reducing the likelihood of inadvertently installing and running malware. iOS does not currently have this feature.
While the Developer Enterprise program has dramatically helped reduce malicious software installed on iOS systems, it is not infallible. The "Exodus" spyware, which managed to be installed directly from Google Play on Android devices, has been distributed using the Developer Enterprise toolsets on iOS devices.
Gatekeeper would almost certainly have to be ported to iOS in order to allow for secure application installs. But it isn't the only new component and major modification that the mobile operating system would need for Apple to ensure a safe experience for its customers.
Potential for major architectural changes to iOS
It is unknown how modular an operating system iOS truly is because, unlike Android, it is not open source. Google has managed to compartmentalize all of its proprietary functions into Google Mobile Services (GMS), including all the libraries and apps needed to provide its customer experience on Android.
It has done this to separate the open source project that is AOSP from commercially licensed versions of the mobile operating system. Some Android device vendors, such as Huawei and Amazon, do not use Google Mobile Services at all and use AOSP as the basis of their products only.
Part of any accommodation for third-party apps would almost certainly be to put Apple's built-in apps on a level playing field in API usage. Apple likely has private, undocumented APIs that it uses for its purposes, wholly integrated into every aspect of the OS. Because iOS is a closed ecosystem entirely controlled by Apple, the company has never had to worry about fully documenting everything that it does.
However, If it wished to reserve APIs for its use in the future, it would need to move those APIs into its libraries away from the common user space where all apps run, much in the same way Google Mobile Services is built. But it's also possible that any antitrust settlement may also require Apple to document all of their APIs so that there's no "secret sauce" in iOS that is kept away from third-party developers. The issue of addressing undocumented APIs was central to settling Microsoft's litigation with the US Government in the early and mid-2000s.
There are other issues with the iOS security model that may need to be changed in order to accommodate third-party applications that are sideloaded or installed outside the App Store. In addition to allowing for third-party payment systems within the App Store itself, Apple may need to create a pluggable architecture within the operating system framework to allow for alternative payment systems. Additionally, to firewall potentially misbehaving third-party apps, the company may need to add support for containerization, which is a form of virtualization technology.
Along with built-in support for virtual machines, containerization is a relatively new feature for Apple operating systems. It's only recently been introduced in MacOS 11 Big Sur, which is still in developer and public beta testing, to support iPad and iOS applications on Apple Silicon. In addition to being used to run the "Rosetta" x86 emulator in order to isolate its processes from the rest of the operating system and other apps, containerization is used to provide a runtime environment so that unmodified iOS and iPadOS apps, as well as ported iPad "Catalyst" apps, can run safely without interfering with Mac system processes. Each app gets its container and only the resources that it needs to function.
iOS provides sandboxing for App Store distributed apps today. However, if Apple were forced to accommodate software that had not been through its rigorous vetting and gating processes, major architectural changes would be required -- especially if the company wants to maintain the superior application security model that its closed system currently enjoys.
Apple would almost certainly need to provide a way for third-party applications and app stores to run in a completely isolated manner on iOS, assuming they aren't using an open source technology like Docker. The containerization technology built into OS 11 would have to be ported to iOS, along with whatever toolsets are needed to repackage apps as installable containers.
We don't even know how MacOS 11's containerization works because Apple hasn't provided any documentation for it yet --- much of this is completely abstracted from Mac software developers. This may very well need to change as a result of any antitrust settlement.
The pros and cons of opening Pandora's app box
The benefits of opening up iOS to third-party applications that wouldn't otherwise be able to participate in the App Store are readily apparent. It would allow for entire categories of apps -- currently only available via jailbreaking -- to run on iPhone and iPad devices. It would also allow for apps that the company deems "objectionable," such as those that have adult content.
It also would permit the installation of apps that come into conflict with the enforcement desires of regional governments, such as those used and side-loaded on Android by Chinese nationals during large-scale protests, but which are prohibited on the App Store in China.
Enabling third-party apps to be side-loaded on iOS does come with potential downsides. Much of the value of being an iOS user is the walled garden itself -- it's a safe, well-controlled environment, particularly if you compare it to the Wild West that is Android. Apps on iOS go through a sophisticated vetting process, and that keeps the experience high-quality and secure overall.
Any antitrust activity against Apple is going to target many of these areas. Accommodating the potential demands of governments and legal settlements may require the company to make substantive changes to the way its mobile operating system works. Once side-loading is allowed, it opens up the potential for many issues that can potentially compromise user security and degrade the overall premium, highly curated experience of the Apple ecosystem that its customers currently enjoy.
Is it time for Apple's walled garden to come tumbling down? TalkBack and let me know.