Apple wants investors to focus on its services business. Regulators may, too
For years, Apple has been trying to get investors and the media to focus more on the money-making potential of its digital services such as the App Store and Apple Music. On Monday, Apple is expected to make that case again with the much-expected launch of a streaming video service.
At 1 p.m. ET, Silicon Valley and Hollywood will tune in to a “special event” in the Steve Jobs Theater at Apple’s campus in Cupertino, California, where the company is reportedly unveiling its video streaming strategy and a lineup of original celebrity-studded content.
This push comes at a tenuous moment for Apple, as it grapples with the fact that its core iPhone business is in decline. But as the company tries to raise the profile of its services business, it runs the risk of causing regulators to focus on these services, too.
Lawmakers and regulators on both sides of the Atlantic have increasingly focused on the power that large digital platforms such as Google and Amazon may have. They worry the companies could prioritize their town services or impose unfavorable and potentially anti-competitive conditions on businesses that rely on their platforms.
As a hardware company, Apple effectively avoids these concerns. But as a services company, it’s another story.
“Once Apple enters these [digital services] markets, it can have an incentive to try to disadvantage its rivals via its platform, thereby harming competition and consumers,” said Martin Gaynor, an economics and public policy professor at Carnegie Mellon and the former director of the Bureau of Economics at the Federal Trade Commission. “That potential for harm to competition could lead to a higher level of antitrust scrutiny.”
Some Apple services have already faced scrutiny. Just two days after Apple sent out press invites for the streaming video event this month, Spotify filed a complaint against Apple with European antitrust officials, accusing it of giving its own music service — Apple Music — an unfair advantage over competitors. Margrethe Vestager, the European commissioner for competition, has said she will review the complaint.
Late last year, an antitrust case over Apple’s App Store went all the way to the US Supreme Court. The case stemmed from a lawsuit alleging Apple used its monopoly power by taking a 30% cut of apps sold through the App Store, potentially increasing the price consumers had to pay. Spotify also took issue with the 30% commission.
“Authorities are increasingly concerned when platforms act as gatekeepers,” said Philip Marsden, a former competition regulator in the United Kingdom. “Investors may love it, but competition authorities care about making markets work for consumers as well as businesses.”
Representatives for Apple did not respond to a request for comment on this story. In an earlier statement pushing back on Spotify’s complaint, Apple noted that the streaming music company “wouldn’t be the business they are today without the App Store ecosystem.”
Ioannis Lianos, a competition expert and professor at University College London, calls this the “frenemies” problem for companies building out digital ecosystems. You have companies that are “cooperating” on a platform, “but at the same time they are competing,” he said. “That’s a frenemy situation.”
If Apple isn’t careful, it could have more frenemies complain to regulators down the road.