Apple might not just be a Monopoly but also a Monopsony. And no,
I didn't just make up that word. You just likely haven't heard of it before because
there's no popular board game named after it. Coined by British Scholar Joan Robinson in 1933,
a monopsony is defined as a market structure in which a single buyer substantially controls
the market as the major purchaser of goods and services offered by would-be sellers.
So how exactly does Apple fit under that definition? Three words: The App Store.
Unlike the Mac, where you can download a music app like Spotify, directly from Spotify’s website,
on an iPhone or iPad, you can only download the Spotify app through the App Store.
And this is where the trouble begins for Apple. Because they control the
only legitimate way to get apps onto iPhones and iPads. You can make a
pretty easy argument that they have complete market dominance over the would be sellers,
who in this scenario are the app developers for iOS and iPad OS.
Apple can set whatever terms they want for apps sold through their
App Store and over the years have done just that.
Now some of you at this point may be thinking…so what? Apple created these products and product
categories, and they should be able to do whatever the heck they want with these products and their
ecosystems. But would you have that same opinion if you knew that you were being charged more for
simply purchasing things with an iPhone? Some iOS users sued Apple in 2013 claiming the 30%
App Store fee Apple charged App Developers, was being passed onto them as iPhone consumers.
And even today you can see clear examples of this pricing discrepancy, just look no further than
Elon Musk's new Twitter Blue subscription service, Twitter charges a higher price for Android and
iOS users for the same service that you can pay less for, if you sign up for it through the web.
So what happened to that 2013 lawsuit? Well, it was actually thrown out by a California
trial court for sort of an odd reason. The court ruled iPhone users were not making a direct
purchase from Apple but in indirect purchase and because the US Supreme Court ruled in a 1977 case,
Illinois Brick Company v. illinois that triple damages for violations of federal antitrust laws
were not available to an indirect purchaser, the court ruled that iPhone users could not sue Apple.
This case was appealed all the way up to the US Supreme Court, where Apple actually lost.
In 2019, the Supreme Court upheld a 9th Circuit Court of Appeals decision, which
stated iPhone users who purchased apps, in fact, do directly purchase them from Apple. Therefore,
the antitrust cases brought against Apple by iPhone users could continue.
This was a big F******g deal.
But here's where it gets even worse for Apple. Just as Kavanaugh, writing for the majority in
this case, wrote that Apple could not only be sued by its customers over a monopoly theory.
They could also be sued by app developers on, you guessed it, a monopsony theory.
That part of the ruling would come to haunt Apple just a year later,
when in 2020, Epic Games, the maker of Fortnite,
sued Apple. And they didn't just sue Apple. They went thermonuclear war on Apple.
Epic Games kicked off their lawsuit first by purposefully pushing a Fortnite app
update which switched on Epic Game’s own payment processor,
breaking Apple’s App Store policies, which caused Apple to kick Fortnite off the App Store.
Which Epic was waiting for. As soon as that happened, they filed their lawsuit and released a
video on YouTube titled “Nineteen Eighty-Fortnite” a shot-for-shot remake Apple’s own famous
1984 Superbowl ad, where Apple was the upstart, disrupting IBM’s iron grip on the computer market.
Only in the Epic Games version, Epic is disrupting Apple’s iron grip on the App Distribution.
Apple technically won the first round. Though this case was appealed and is working its way
up through the court system, and will likely be appealed all the way up to the US Supreme
Court. But Epic Games isn't the only app developer complaining against Apple. Spotify is another one.
Spotify has two main complaints against Apple. The first involves the apparent conflict of
interest Apple has, by controlling iOS and iPadOS distribution, while at the same time,
competing directly against Spotify with Apple Music.
For Spotify to sell its music subscription through its iOS and iPadOS apps,
it must give Apple a 30 percent cut or tax, as Spotify likes to call it.
The problem here is Apple isn’t affected by the same 30 percent commission, which gives it an
unfair advantage, according to Spotify, allowing Apple to undercut Spotify’s subscription pricing.
Plus Apple’s App Store rules prevented Spotify from letting their customers
know they could make purchases outside of its app.
Apple recently relaxed some of those rules but this all came to a head
again in 2022 when Spotify wanted to sell audiobooks through its app.
In order to avoid Apple’s app store fee, the Spotify team developed a nine-step
process for buying an audiobook. Aside from the completely horrendous user experience,
Apple did approve the app updates submitted by Spotify with this new
feature, but just a few days later, Spotify submitted another app update,
completely unconnected to this new audiobook feature, and Apple rejected it.
The Spotify app was rejected for not following the guidelines regarding including explicit in-app,
communications to direct users outside the app to make digital purchases.
Now, when you try to purchase an audiobook in Spotify’s iOS and iPadOS apps,
you’re presented with the message “Want to listen? You can’t buy audiobooks in the app.”
It's similar to the one you see in the Netflix
app or when you try to buy a Kindle book on the Amazon app.
So we've heard the arguments from both developers and Apple’s own
customers. At least some of them. But what about Apple itself? What are the arguments
the company makes for why it's not a monopoly and why things should stay the way they are.
Today, if consumers don’t like Apple’s practices,
they can get Android devices, and Google has leading smartphone market share worldwide.
Apple also argues its total control over The App Store is essential to its brand
proposition for iPhones and iPads. Consumers want to be able to download software from
any developer in a marketplace that is safe, trusted, and protects user privacy.
But what about MacOS? People have been sideloading MacOS apps for years. Isn't that safe? When asked
by Judge Rogers in the Epic Games trial if Mac OS is safe, Apple's senior vice president of
Software Engineering Craig Federici replied, “If operated correctly, much like that car, if
you know how to operate a car and obey the rules of the road and are very cautions, yes…if not,
I’ve had a couple of family members who have gotten some malware on their Macs.”
But Apple on their own website in 2023 states, you can download apps safely
from the Mac app store and the internet. It doesn't say download apps safely from
the Mac app store and the internet only you know, if you know what you're doing.
He went on to say “With iOS, we were able to create something where children - heck, even
infants - are able to operate an iOS device and be safe in doing so...” But infants and children
aren't who Apple is marketing these devices to. Apple markets many of these products to
professions, especially with the “Pro” line of iPhones and iPads.
The other issue with Apple's argument is while they're right, they don't have
complete control over the smartphone or tablet market. That's not really,
the question being asked. The question is if Apple has total control over the software
distribution for the iPhone and iPad markets. And it’s pretty difficult to argue they don’t.
That's why Apple is getting hit with lawsuits from both its users and app
developers and why regulators are taking a hard look at the company.
US lawmakers have drafted antitrust legislation targeting the company,
And the US Justice Department is reported to be in the early stages of filing an
antitrust case against Apple. And in the EU, lawmakers have passed the Digital Markets Act,
which in order to comply with that law, Apple is reportedly reading major changes for iOS 17,
including allowing users to install third party app stores and side-loading apps onto iOS devices.
That would be a dramatic shift for the company,
and this would have a huge impact on the ways people can use iPhones and iPads
and how developers could then design apps and generate revenue from them.
But keep in mind that the changes rumored to be happening in iOS 17 will only apply to users in
the EU. In order for more Changes to apply to more users in different markets you would need to see
either more antitrust legislation or enforcement in those markets, that's why you'll likely
be hearing more about Apple and its potential monopoly and monopsony power and the antitrust
cases against the company, not just later this year, but likely in the many years to come.
I did a lot of research and used a ton of great reporting in order to make this video and all
the sources I used I've linked in the description below and if you want to learn more about Apple,
antitrust, and antitrust cases against other big tech companies,
I’ve left a ton of links in the description below. And if you like this video,
you learned something, hit that thumbs up button, and subscribe for more explainer
videos on the long-term impacts of technology products and the companies that make them.