Apple's anti-competetive practices

“Apple juggernaut” is a phrase so deliciously funny I had to stop laughing before I could respond. I may be a Mac user, but I have no illussions about how marginal my platform has become.

Anti-trust promotes competition, not competitors. So while it may suck for Mac IM developers that iChat comes bundled with the OS, if that’s better for consumers then its a good result. The difference between Apple and Microsoft is that Apple’s marginal position means it has to work very very hard at pleasing its customers and improving its products, while Microsoft just focuses on extending and harvesting it’s locked-in monopoly.

But it’s worth asking why Apple used iChat instead of integrating Jabber. Apple’s pretty good about incorporating open source components where possible (FreeBSD, CUPS, SMB, Apache etc) so I’m sure they would have considered OSS options if AOL’s IM community isn’t so large and closed. Generally, if Apple has to pick between a third party component and rolling their own, they will pick whatever’s cheaper.

One of the problems with the written word is that it is often difficult to convey tone. This post was somewhat tongue-in-cheek. I applied to Apple much of the criticism that is directed toward Microsoft. “Apple juggernaut” was used sarcastically.

Apple is obviously not a monopoly in the computer world. The platform has a tiny market share and isn’t likely to significantly increase it. What they do enjoy, however, is a monopoly on their platform. To use a Mac, you must use Apple hardware. I can’t install OS X on any computer that I’d like. And the OS comes with several features built in (or freely available) that are not core to the operation of the computer. Sherlock, iPhoto, iMovie, iMusic, and iTools, to name a few.

Want an iPod? You’ll need a Mac to put music on it. (I’m aware of the hacks that let you use it with Windows).

Could you imagine the uproar that would occur if Microsoft were to limit the use of Hotmail to Windows users? That’s exactly what Apple does with iTools.

And what of those that market software for the Mac? If Apple decides to enter that software market, you are doomed. How many people are likely to buy a copy if WebStar now that Apple includes a Web server in the OS? Tenon Sold WebTen (Apache for Mac) and MachTen (Unix for Mac). Did Apple care about them when they added Unix and Apache to the OS?

The only difference between these practices of Apple’s and those of Microsoft is that MS enjoys a huge market share in the overall computing market. The thinking goes that when MS enters a new market or attacks the competition that they are acting as a monopoly. But monopolies are only bad when they harm consumers.

They entered the browser market and crushed the competition. The courts found that MS used their dominance on the OS to create a dominance over the browser market, but I haven’t seen any arguements that they harmed consumers. All they harmed was the competion.

In the governments view, the absence of choice isn’t always harmful. I can only use one power company. (I would argue that I’d be better off if I could chose my power company on the open market, but that’s another discussion.) IE was a better browser and it didn’t get worse once Netscape was no longer a factor.

So if Microsoft’s practices haven’t been shown to harm consumers, then why are they bound by different rules than Apple?

As a side note, companies that are in the position of selling a product that is now bundled can thrive if they find new ways to compete. Tenon still sells WebTen and MachTen for non-OS X Macs, but they also took their expertise in Unix tools for the Mac and have created a new suite of tools that help people manage their bundled copies of Apache. They even extended this and have ported their tools over to Linux. This is what smart companies do when they find they can’t compete. Dumb companies try to get the courts to force the markets to let them compete.

A few points:

1) Defining a market is critical to whether or not the firm can excercise monopoly power. Coke has a monopoly on Coca-Cola, but does this mean they should have anti-trust investigations brought against them?

You need to look at the “cross-market price elasticity” to see whether the company is a meaningful monopoly or not. This is a measure of how much a company can raise rates by, within a geographic region, without people defecting to some substitute. I beleive there is some official reasonable rate set for this.

Apple has a monopoly on the Mac platform, just as Coke has a monopoly on the Coca-Cola brand, but these are both weak monopolies. Apple can’t raise its prices much as the imperfect substitutes (PSc) are close enough to have a fairly high cross-market price elasticity. By contrast, Microsoft can raise the price of its products a lot because people have nothing to switch too.

2) I would encourage everyone to look at the actual antitrust charges brought against, and held against Microsoft. The court affirmed that Microsoft harmed consumers by raising the application barrier to entry and thus maintaining their Windows monopoly (which, with its high prices, harms consumers). Microsoft raised the application barrier to entry by tieing (not bundling) middleware code into the OS. This is the “co-mingling” issue.

3) So, to recap, antitrust only protects competition, not companies. Monopolies in and of themselves are legal and defined by cross-market price elasticity. Attempting to extend or maintain a monopoly triggers antitrust rules because they harm consumers.

Business Week has an article on this topic this week.

http://kalsey.com/rant/archives/i/000433.stm