Apple may now be the world’s largest or second-largest public company by market capitalization, but truly understanding the business requires a flash backwards to a different era: the mid-1990s, when Apple teetered on the edge of bankruptcy. Founder Steve Jobs had no shortage of outside advice after returning to fix the sinking Apple ship, but ultimately focused on several strong values, including helping Apple to control its own destiny and develop fiscal prudence, each with the vigor of someone determined to learn from previous public and embarrassing mistakes.
Initially, Apple restored its financial footing by cutting its product lines and inventories, but its resurrection was fueled by increasingly massive investments in design, unique components, and marketing. Under Jobs, Apple became obsessed with controlling its public messaging, even finding ways to downplay engineering mistakes (see: Antennagate) and recalls (“exchange and repair programs”) to prevent controversies from seriously impacting the company’s bottom line. As recently disclosed emails revealed, Jobs and his executive team decided to impose anti-competitive iOS store practices by acting unapologetically, as if saying it was doing no wrong would make everything hunky-dory with consumers and developers, while still making sure they were “paying us.”
Apple has insisted that it prioritizes customers and — unlike rivals — actively protects them from being turned into “the product.” But Apple’s sense of “right” isn’t always based on what’s best for consumers; in reality, Apple does what’s best for Apple. Over the past two weeks, the company has faced Congressional accusations of anti-competitive App Store practices, and there have been too many examples to count. Major third-party developers have seen apps rejected on questionable or specious grounds, with Apple citing either business-focused App Store guidelines or broader principles that would require C-level (or governmental) intervention to reverse.
In the gaming sphere alone, Apple has rejected efforts to bring Microsoft’s xCloud, Valve’s Steam, Facebook Gaming, and the Epic Games Store to the iOS platform, despite their availability on PCs and/or Android devices. One might argue that that’s akin to preventing most of the world’s major music labels from offering songs through Apple Music unless they’ve been specially “Mastered for iTunes” and individually approved by Apple content teams, rather than just being offered in a universal format that works on everything.
Apple has recently framed the controversy as an issue of screening: It can’t approve or deny individual apps if it permits another company to operate its own platform within an iOS app. Put another way, if Facebook Gaming could just offer whatever games Facebook allows on other devices to be shared through its iOS app, third-party developers could sidestep Apple’s privacy and quality protections in favor of whatever lower standards Facebook sets. The same would be true with other players and lead to a downward spiral in content quality — as well as Apple’s 30% cut of sales.
In years past, Apple suggested that the broader issue was about emulation, namely that code optimized for another platform would reduce the battery life, reliability, and security of iOS devices. Jobs’ famous “Thoughts on Flash” open letter explained why Adobe Flash and its thousands of apps wouldn’t be allowed on iPhones, noting that the flaky Flash plug-in was “the number one reason Macs crash,” a problem Adobe failed to fix for years. But there was a deeper issue with control, Jobs explained:
We know from painful experience that letting a third party layer of software come between the platform and the developer ultimately results in sub-standard apps and hinders the enhancement and progress of the platform. If developers grow dependent on third party development libraries and tools, they can only take advantage of platform enhancements if and when the third party chooses to adopt the new features. We cannot be at the mercy of a third party deciding if and when they will make our enhancements available to our developers.
This becomes even worse if the third party is supplying a cross platform development tool. The third party may not adopt enhancements from one platform unless they are available on all of their supported platforms. Hence developers only have access to the lowest common denominator set of features. Again, we cannot accept an outcome where developers are blocked from using our innovations and enhancements because they are not available on our competitor’s platforms.
Superficially, the conflict appears to be simple, placing the consumer’s “right” to see, use, and play whatever they want on a device against Apple’s “right” to control what can and can’t appear on its products. But if there was once a reason to favor Apple’s view, technology advances have tilted the balance in consumers’ favor. Flash is no longer a factor, and some of the services Apple opposes are literally just streaming videos that happen to be interactive (games) rather than passive (movies and TV shows), with little to no difference in battery life, security, or stability. Apple doesn’t get to approve anything Netflix offers as content, so why should it have that “right” with streaming games or apps?
My personal sense is that Apple’s user-facing concerns have become increasingly untenable and difficult to defend, particularly as cloud/edge server and wireless technology have advanced. On the technical side, there’s no longer any question that PC-quality interactive content can be virtualized and streamed to almost anything with a screen and a wireless connection — Wi-Fi indoors, 5G devices elsewhere. From a content standpoint, music and video streaming services poked the first holes in Apple’s screening arguments, to say nothing of social media apps filled with barely filtered, user-generated content. Developers are reasonably questioning why games and other apps should be subject to a different standard.
That leaves Apple’s true issues exposed: money and control. Apple takes a 30% cut of direct iOS/iPadOS app sales, as well as some subscriptions, but makes nothing if the app is “free” or offers add-on content from another onramp (such as a website) that’s out of Apple’s reach. Although Jobs said in 2008 that “we don’t expect this to be a big profit generator” and just hoped to “sell more iPhones because of it,” the App Store actually generated over $50 billion for Apple in 2019 alone, roughly one-fifth of its $260 billion in annual revenues. Apple might act like it’s too large to care about money, but the company has recently sniped at developers who have succeeded on iOS without paying Apple anything, while doing as much as possible to push other developers — and users — into coughing up recurring subscription fees for both apps and games.
Understanding Apple’s penchant for control is at least as important, though it’s not as clear cut. PC and Mac users have assumed for decades that they could choose whatever they wanted to see, hear, and play on their own computers. But with iOS, Apple tried to avoid surrendering that level of openness, at least for content viewed through native apps.
The company previously straddled the line between Disney-style wholesomeness and a more hands-off approach to content, effectively dividing what “Apple offered and approved” from the Wild West of whatever Safari could access on the web. Over time, however, Apple apparently gave up on the Disney-like strategy, such that the App Store now openly hosts sex finder apps and games, Apple TV+ markets the frequently profane Morning Show, and Apple Music’s “New Music,” “Hot Tracks,” and “Top Charts” lists are all regularly dominated by explicit content. If Apple is screening non-app content at all these days, it’s not blocking much more than XXX videos or particularly outrageous violence, and even then, such things are only a browser tap or two away.
Today, the type of control Apple wants isn’t over content, but rather its business relationships with partners — and thus, its future revenue streams. It’s increasingly obvious that Apple wants to be sure that $50 billion in annual App Store revenue doesn’t just devolve into “free” apps with individual or all-you-can-eat subscriptions it can’t profit from. At the same time, Apple also wants to have some say in whether iOS apps violate user privacy in the name of hiding third-party price subsidies. Last but not least, it wants to remain on top of the latest app data analytics so it can continue to know what users are demanding from third-party developers, so it can choose whether or not to offer its own alternatives.
Greg Joswiak’s recent promotion to senior VP of worldwide marketing would have been an easy opportunity for Apple to change course. Joswiak’s former boss Phil Schiller has been running the App Store for years, steering it through multiple controversies over revenue splits and untenable policies. As Schiller exited the Senior VP role, he could have handed the App Store over to Joswiak or someone else for its next era of leadership. Instead, Schiller opted to remain with the company in a reduced role and keep running the App Store for an unspecified period of time. The best informed speculation is that he was planning a proper retirement for some time, but didn’t want to leave the App Store in the midst of antitrust accusations, lest he erode any sense of Apple’s confidence in its policies.
Regardless, now is precisely the right time for a meaningful App Store policy transition to take place, whether or not it’s under new leadership. Everyone agrees that the App Store has been a game changer for software distribution and consumer ease of use; there’s also no doubt that it’s a roaring success financially. But at this point, mobile platforms and their users have evolved to the point where the consumer’s “right” to see and play whatever they want on a pocket device should outweigh Apple’s preference to patrol everything for supposed policy infractions. The lines between native app, web app, or video stream have never been blurrier than they are today. If patrolling just one form of content while giving a free pass to the others isn’t already a fool’s errand, it’s about to be.
This isn’t to say that Apple has no right to guard the App Store’s gate or collect fees, but rather that now’s the time for Apple to ease up on both the obsessive control and large revenue cuts that have created so much controversy. A nearly $2 trillion company can afford to let developers keep bigger shares of the pies they’ve baked and provide more flexibility in what they offer consumers. The alternative is to risk antitrust litigation over little more than numbers and content semantics that should now be beneath a business of Apple’s size.