THE APPLE ANTI-TRUST SUIT, PART 2

Pick Your Poison: The Best Store in World or a Road-Warrior Style Flea Market

An FAQ of technology, economics and real estate

In Part 1, I did a deep dive into what constitutes monopoly behavior, past tech cases involving anti-competitive behavior, and how Apple’s policies affect consumers in response to the article below:

Now it’s time to dig into the real meat of this FAQ, examining who is really affected by the App Store’s policies (it clearly isn’t consumers) and all the other agendas swirling around this legal toilet bowl.

#4 What is the effect of Apple’s policies on developers?

Developers are “consumers” only in the sense that they buy services from Apple. But they would not buy those services unless they had the chance to make money selling their products on the App Store, which makes them vendors, and that’s where their complaints look even more ridiculous.

Image that you build a giant store, turn it into an air conditioned flea market, check out every vendor to make sure their goods are not broken, dangerous, poor quality, or contain objectionable content (no porn, racism, misogyny, violence, etc), and that no buyers gets ripped off by pickpockets, scammers, or identity thieves. While the admission is free for buyers and vendors who offer free products (funded by advertising), only a small percentage of the vendors will pay you a percentage of their revenues.

Now imagine that your store makes twice as much money as Google Play.

The App Store is the most lucrative digital real estate on earth. In Q3 of 2018, the App Store earned roughly $12 billion, compared to Google Play’s $6.2 billion for the quarter. And remember that Android has almost two times more the total users than iOS.

The only difference between you renting out a stall at your local farmer’s market or arts and crafts show, and an app developer gaining access to Apple’s app store is the way rent is handled. You might pay a set fee for the time you rent your space. App developers pay based on a percentage of their sales.

Does that sound weird to you? If it does, maybe you should take a course in property management. I already have (I have a California Real Estate Broker’s license).

Here’s the definition of a percentage lease:

Businesses that want to take advantage of the high foot traffic volume in prime sales locations (like malls) often agree to a lease that requires a commercial space tenant to pay a base rent plus a percentage of the business owner’s monthly sales volumes.

Let me repeat that, because just writing that last paragraph made my blood boil at people who are successful in one field and then talk out of their ass about something they know nothing about. BTW, this type of blindness**** is very common.

Businesses that want to take advantage of high foot traffic volume in prime sales locations (like malls) often agree to a lease that requires a commercial space tenant to pay a base rent plus a percentage of the business owner’s monthly sales volumes.

The App Store is using the same business model as most retail malls in the U.S. The only difference is that Apple allows all vendors to set up shop free, and only charge rent to the 10% who charge for their product. Talk about using their power to crush the little guy.

In malls, lessees are established, high volume businesses. Landlords will ask businesses to provide their minimum yearly sales information before calculating the base rent, and then negotiating a percentage of monthly sales that is normally 7%.

In the case of the App Store, no one has any idea of how well a new app will sell. Since they don’t charge a base rent and there is no way to predict future revenues from sales, Apple charges a higher percentage.

Here’s the summary of how each class of developer is affected by Apple’s policies:

  1. Free apps: no effect, because they aren’t charged.
  2. Developers who want to sell apps with questionable content, lower standards of security, adult content providers, and businesses that want to scam consumers are excluded.
  3. 20 million small developers that agree to sacrifice some restrictions as well as the 30% fees in order to get access to the most lucrative digital retail space on earth. They have earned over $100 billion in total from the App Store as of June 2018.

Strangely enough, no developers are listed as plaintiffs on the antitrust lawsuit. Ain’t that a coinkydink?

#5 So who is actually being affected by the App Store?

Based on the statements and actions of the companies, Spotify, Netflix, and some gaming company don’t like the fees. If they sell their product through the App Store, they would have to add 30% to their price, in order not to lose any profits.

But can’t consumers just go to the websites of these companies and buy the same products to avoid the 30% fees?

Yes. The argument here is that it is inconvenient.

Apparently, the inconvenience of going to the web with your phone to download the Spotify and Netflix apps you want instead of paying more for them in the App Store is a barrier to competition that is the equivalent of Moses having to cross the Red Sea.

#6 What does the Supreme Court Decision really mean?

Here’s a quick summary of the majority opinion:

“The sole question presented at this early stage of the case is whether these consumers are proper plaintiffs for this kind of antitrust suit”

In other words, the Supreme Court has not validated any part of the plaintiff’s allegations.

I wanted to point that out, because Mr. Williams says that the plaintiff’s lawsuit alleges a monopoly and then implies that the Supreme Court is sympathetic to those allegations because they agreed that the plaintiffs have the right to sue.

#7 What is argument behind the anti-trust lawsuit?

Here’s another passage from the Supreme Court that describes the plaintiff’s case:

The plaintiffs allege that, via the App Store, Apple locks iPhone owners into buying apps only from Apple and paying Apple’s 30% fee, even if ” the iPhone owners wish “to buy apps elsewhere or pay less”…

According to the complaint, that 30 percent commission is “pure profit” for Apple and, in a competitive environment with other retailers, “Apple would be under considerable pressure to substantially lower its 30% profit margin.”

In his article, Mr Williams mentions that Tinder is launching a new default payment system on Android asking users to pay directly on their dating app:

“rather than simply tapping into the default Google Play option that similarly supplies the search giant with a 30% cut of the app’s revenue.”

That kind of invalidates the plaintiff’s claim that with competition, Apple would be under considerable pressure to substantially lower its fees.

Next Mr. Williams states,

Apple should charge developers for the bandwidth or other services they use, just like any other cloud platform.”

He recognizes that there are inherent costs to create and maintain an App Store, which invalidates the lawsuit claim that “Apple is making 30% pure profit.” From there, who exactly decides on what is a “fair profit?” Given the fact that Google Play also charges 30% fees, how exactly is Apple price gouging?

Apple and Google tied up massive amounts of money to build their stores, then let developers sell their products at no cost up front and are compensated for the investment of their capital. Since when did it become illegal to get a return on investment?

#8 What are the solutions suggested by Mr. Williams and how would they affect consumers?

First, Mr. Williams suggested that Apple should allow app developers to create an alternate third party payment source, pointing out that Google is allowing developers to do it.

So developers who benefit from the App Store infrastructure and marketing aid should be able to provide payment options so they don’t have to pay Apple for those services? Let me whisper this to Mr. Williams…

In what fucking alternate dimension are you living in? How does anyone set up shop in the most lucrative, high volume retail area on earth, and then decide they don’t have to pay rent?

Second, Mr. Williams suggests “Apple should charge developers for the bandwidth or other services they use, just like any other cloud platform.”

For bigger, more established developers who have the resources to host, market, sell, process payment and distribute their apps, this sounds like a great idea.

But wouldn’t every developer then have to pay their fair share for the services provided? What would happen to developers creating the free apps that make up 90% o the App Store? Logically, some of the small guys would go out of business, some others might reduce the number of products they put on the store, and everyone would pass on their costs to the consumer.

The result would be fewer developers to compete with more established guys like Mr. Williams, while consumers have reduced choices and higher costs.

Finally, Mr. Williams brings up the Microsoft lawsuit and tries to equate it to Apple:

“Apple, meanwhile, only allows app payments from a single source (its own), provides the exclusive payment tooling, and gouges developers while enforcing blatantly unfair rules over how they present their own services. If there were ever a prime case for breaking up a company, and forcing Apple to make the App Store an independent entity, this is it.”

How exactly does making the App Store an independent entity change the process by which apps are vetted and paid for? Why even mention it?

The answer is that breaking up Apple would disrupt their efficiency and profitability by doubling the number of administrative departments from management to HR to payroll to sales and marketing.

If the goal is to bring down Apple, wouldn’t that only serve to increase the advantages enjoyed by Google, and create an even more powerful monopoly for them? The result would be more negative effects for all consumers.

#9 Who decided in favor of allowing the plaintiffs to continue their lawsuit?

This is a really interesting answer because we can see three forces at play: the liberal judges’ desire to allow plaintiffs to have their day in court (clearly empowering consumers); the conservative judges’ desire to make things easier for big business (which sets up future legal precedents of squashing the rights of consumers to sue big corporation) and the drunk wild card who has proven himself unfit to be a judge, while at the same time being a huge Trump sycophant. This guy:

Just listen to this brilliant legal mind at work:

“Apple’s line-drawing does not make a lot of sense, other than as a way to gerrymander Apple out of this and similar lawsuits.”

Gerrymandering? Project much, Mr. “I’m so partisan I spent two years investigating Bill Clinton on allegations that everyone else in the Independent Counsel office knew had already been proven false?”

Guess who Genghis Tang hates? All the liberals in the Silicon Valley.

Guess what Herr Drumpf loves to do? Make irresponsible tweets that send businesses who don’t kiss his ass into a financial tailspin.

Guess what happened when Cheeto Jesus started his tariff war with China?

Guess what happened after Orange Julius’ boy toy voted to allow the lawsuit to continue?

Do you see a pattern there?

My guess is that if the Apple anti-trust lawsuit ever gets to the Supreme Court, the plaintiffs will lose 8–1, with Brett Kavanaugh representing Agent Orange’s considered legal opinion. “Sad, so sad.”

#10 What does the reporting on the Apple antitrust lawsuit say about us as a society?

There’s no way to know each person’s motivations for writing articles that are so factually false as Owen Williams’ opinions about Apple’s monopolistic behavior, but I can make some observations.

  1. Over 1,000 people loved his article enough to push him over 8,000 claps as of this writing. Don’t the editors of OneZero need to clean up the inaccuracies of articles that influence so many people? Especially when they trumpet their publication to be a road map to the future.
  2. When are we as a society going to learn to choose mentors only for their particular area of expertise, instead of swallowing all the other bullshit that comes out of their mouths? This is a particularly big problem with tech bros and entrepreneurs who have massive followings. Just look at guys like Peter Thiel and Jack Welch. Even total crack pots and narcissistic assholes can end up being the CEOs of huge companies. Sometimes a complete lack of morals and ethics is a job requirement.
  3. When are young people going to step up and fight back against fake news as a committed army? You are competent enough with technology to do the research and educate yourself. Just find one issue you’re passionate about and become an expert on it, so you can debunk all the bad information that gets passed around on the web. This should be a new civic duty for the 21st century.
  4. Your future depends on your financial literacy. When are people going to take on that personal responsibility? It’s important to understand what constitutes a perfect market and how far removed that is from a free market. It’s important to understand how legislation can create marketplace winners and losers in the economy that have nothing to do with an individual or company’s ability and integrity. It’s important to understand how to budget, how to use credit and how to reach a long term goal. These skills are necessary because big corporations and their political allies use your ignorance and apathy to enrich themselves at the expense of everyone.

Thanks for reading, if you got this far.

Written by

Ad agency creative director, writer & designer at https://guttmanshapiro.com. Former pro tennis player and peak performance coach for professional athletes.

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