Apple Now Targeted for Success Like Microsoft Was in the 1990s
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Apple Now Targeted for Success Like Microsoft Was in the 1990s

by Tom Bowden | October 04, 2010

Apple Computer, which for decades played second fiddle to Microsoft, has achieved the unthinkable. Not only has it surpassed Microsoft as the nation’s biggest tech company (in terms of market capitalization), but it’s now poised to displace Exxon Mobil as the nation’s largest company.

With Apple’s crowd-pleasing success has come antitrust scrutiny. Both the Justice Department and Federal Trade Commission are investigating Apple’s business practices. News reports of antitrust enforcers’ “keen interest” in Apple are reminiscent of how Microsoft was targeted back in the 1990s, for the sin of packaging Web browsers and media players with its popular Windows operating system.

Said one former FTC official: “Apple is playing right out of Microsoft’s playbook — and it’s one they complained about a lot.”

Why is one of America’s most admired and successful companies caught in the prosecutorial cross hairs? Apple is being targeted for business practices that date back to the company’s earliest days.

In the personal computer arena, it has long been notorious for maintaining tight control over hardware and software. But so long as Microsoft’s more “open” licensing and software policies enjoyed vastly greater market success, antitrust authorities swarmed around Microsoft and left Apple alone.

Nowadays, however, Apple’s tight quality controls are helping generate breakthrough sales of iPhones, iPods and iPads, devices that customers love to load up with useful “apps.” Some apps are educational, some entertaining, some commercial.

To maintain quality control, Apple issued take-it-or-leave-it terms to outside software developers. These contract terms required that Apple’s own software tools be used in creating apps. As a result, certain apps created with competing software, such as Adobe’s Flash program, were not allowed on Apple devices.

Such practices, it was whispered, are “anticompetitive.” Antitrust investigators fanned out in search of jealous competitors and disgruntled software developers who could help legally demonize Apple’s money-making business practices (as Apple itself previously did to Microsoft).

Right on cue, Adobe ran full-page newspaper ads accusing Apple’s policies of “taking away your freedom to choose . . . what you experience on the Web.” Just last month (in response to this antitrust pressure?), Apple relaxed its rules on development tools, so long as the resulting apps don’t download code.

Meanwhile, antitrust storm clouds are gathering around iTunes (Apple’s copy-protected online music service since 2003), the iPad (Apple has been warned against making exclusive contracts with publishers of electronic books), and iAd (a mobile advertising service to compete with Google). In each case, Apple’s chief offense seems to be its innovative touch — its ability to create cool new products, expand the market by attracting loyal customers, and make a pile of money in the process.

We are told that antitrust regulators safeguard consumers against “anti-competitive” behavior from companies like Apple. But in reality, this is what competition looks like.

Apple is buffeted at every step by a competitive whirlwind, surrounded by talented rivals waiting for the slightest stumble (witness the recent “Antennagate” kerfuffle). Because Apple cannot force customers to buy its products, the company has no power to stop the competitive process. If Apple ever stops offering superior consumer value, its market share will fall accordingly.

Antitrust law gains adherents by conflating government monopolies with companies that earn their dominant market position. But unlike the Post Office, whose plodding inefficiency is shielded by a legal monopoly on delivering first-class mail, Apple’s success is not a product of government coercion.

On the contrary, Apple profits from the free choices of individual consumers applying their own standards of excellence. Instead of Apple’s iPod, customers could have bought Microsoft’s low-selling Zune music device. Instead of Apple’s iPhone, they could have flocked to Microsoft’s failed Kin smart phone. Instead of Apple’s iPads, they could have bought one of Microsoft’s tablet computers.

Can it be that antitrust prosecution of Apple would serve no purpose other than punishing the company for its success? The evidence points in that direction.

If prior antitrust proceedings against industry giants are any indication, Apple stands to lose hundreds of millions of dollars in employee time, lawyer fees and government penalties — not to mention the lurking possibility of criminal prosecution and jail time. And then there’s the impossible-to-quantify loss of innovative ardor — the nonexistent profits from devices that will not be invented if Apple is forced by antitrust exposure to keep a low profile.

Here’s a radical thought: What if there were no antitrust laws for government and struggling competitors to use to threaten the success of innovative companies like Apple?

About The Author

Tom Bowden

Analyst and Outreach Liaison, Ayn Rand Institute