How the Supreme Court Should Decide the Apple App Store Case

How the Supreme Court Should Decide the Apple App Store Case

The Supreme Court has agreed to weigh-in on a lawsuit contesting Apple’s exclusive ability to sell apps for the iPhone. The lawsuit contends that Apple’s monopoly over sales of iPhone apps results in monopolistic behavior including inflated prices to consumers.

Apple, of course, thinks such a contention is ridiculous—and their argument has at least some merit. Mobile apps—let alone app stores—were not even a thing until the iPhone—and the first mobile app store—came along in 2007. It was only through innovative design and marketing of the iPhone that its app store specifically—and mobile apps in general—have value. Plus, Apple does add some value to apps through its app store in the form of assuring security and standards compliance of the apps for its customers.

So, how should The Supreme Court decide? First, people need to remember that to have a monopoly is not in-and-of-itself illegal. If that were the case, Google’s monopoly on search, Microsoft’s monopoly on operating systems, and other such market dominating entities would have been broken up long ago. The typical standard for anti-trust matters is not “Does the company dominate its market?” The question is “Does the company use its dominance in one market to artificially manipulate and control another market?”

In the case of Apple and its app store, the answer is Y-E-S.

Apple has used its dominance in iPhones and its iOS operating system to create dominance in retailing of iOS apps. So far, not too too bad—kind of like saying that AMC and Cinemark have used their dominance in selling movie tickets to create a dominant position in the sales of hot, buttered popcorn.

Where Apple appears to really violate the standard is that Apple’s app store artificially dominates the app development industry. Even though Android phones have a larger share of the market than iOS phones, Apple is BY FAR the more dominant store in terms of revenue. Apple customers are typically higher income and have a much higher tendency to pay for apps than Android users. So, for an app to be economically viable, it MUST be available to iPhone users.

Apple’s exclusive ability to sell and distribute iOS apps gives them a “market-maker” status in the world of mobile app development for developers of all sizes. Apple has the power block apps, bury them in the app store search engine rankings, or require developers to change their products in some significant way. This is restraint of trade for app developers—many of whom are individual developers on small budgets burning the midnight oil to make an app in their off time.

The ability of other retailers like Amazon, Best Buy, WalMart or the developers themselves to sell and distribute these apps, will be a boon to consumers and the app development industry. Apple will still hold significant advantages in iOS app retailing:

  1. Brand and Trust

  2. An App Store OEMed to every iPhone

  3. Credit cards on file for every current iPhone and iOS app store user

They’re still going to do great (for those of you worried about where TIm Cook’s next meal is coming from). But the interest of business and consumers alike, the Supreme Court needs to break Apple’s monopoly on iOS app retailing.

Special Issue of Journal of Business Research on Mobile Applications

Special Issue of Journal of Business Research on Mobile Applications