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Here’s why Elizabeth Warren is wrong (mostly) about breaking up Apple

The App Store may have some antitrust issues, but Apple’s ownership of it probably helps security more than it hurts competition.

Here’s why Elizabeth Warren is wrong (mostly) about breaking up Apple
[Photo: Flickr user Marc Nozell]

Senator Elizabeth Warren’s proposal to break up Facebook, Google, and Amazon on antitrust grounds has its merits. And over the weekend we learned that she thinks Apple should be split up too–that it should be separated from its App Store.

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That argument, too, has its merits. But it’ll probably never happen simply because Apple’s ownership of its App Store helps us consumers more than it harms us.

Warren’s argument for breaking up Big Tech companies centers on competition. She asserts that Big Tech companies shouldn’t be able to operate an ecommerce platform and at the same time sell their own products on that platform with all the competitive advantages inherent in owning the platform (data, product placement, etc.) If a smaller producer or developer depends on the platform to reach consumers, then both are hurt if the platform owner puts competitive barriers in the way.

Apple does hold a monopoly position with regard to apps. Practically speaking, the App Store is the only way iPhone owners can get apps. There’s no easy way around Apple’s App Store–nothing akin to the Android setting that lets you sideload any app. Apple apps like Apple Music and Apple News compete in the App Store with other apps in the same categories made by third-party companies. Apple also dampens the economic case for developing iOS apps by imposing a 30% distribution fee on app developers, as well as via strict guidelines for admitting apps to its store.

“The concern is that they’ve created a bottleneck and they can extract additional profits from that,” says Georgetown Law School professor Andrew Jay Schwartzman. “So Apple can favor its own apps . . . and this creates barriers to entry to new smaller competitors and especially innovators—somebody who has a good idea but, for whatever reason, Apple doesn’t like it or doesn’t want to put it in the store. That’s a problem.”

Schwartzman says it’s enough that Apple has put itself in a position to discriminate against competitors—”if they demonstrate a proclivity to use that position to their advantage”—to raise antitrust flags.

And, arguably, Apple has demonstrated that proclivity.

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“Apple has quite clearly leveraged the fact it owns the platform to compete with Spotify, for example, and has definitely suppressed competition when it comes to built-in apps like Mail and the aforementioned Safari,” says Stratechery analyst Ben Thompson in a subscriber brief on Tuesday. (Factoid: When you search “music” in the App store, an ad for Apple Music comes up first, the actual app third, and the Spotify app twelfth.) And, of course, Apple can give its own apps an advantage by pre-installing them on new iPhones and iPads.

But Apple’s ownership of the App Store creates other, more positive, effects, too— and those just may outweigh the negative.

“The defense is that this creates the kind of Steve Jobs ethos—a really efficient smooth customer experience—it’s not as clunky as Android can be. They can impose very high standards for the technology involved and especially for security holes,” Georgetown’s Schwartzman says. “So they’re giving customers a better, safer experience and they also can exercise better control over questionable apps that generate questionable content.”

Security is a big one. Because Apple locks down the system of selecting and installing apps on the mobile device, there is little chance that the user will download something nasty to their device.

The developer benefits from that, too, as Thompson points out. “The app market on PCs died in large part due to security concerns, which Apple obviated with the App Store to the tremendous benefit of every participant in the ecosystem.”

From a pure antitrust point of view, the App Store represents a form of vertical integration that many antitrust scholars and members of the judiciary have smiled upon, as Schwartzman explained to me.

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“The theory is that where you have vertical integration–like AT&T having a wireless company and delivering HBO–that you’re cutting out the middleman and the profit from these intermediaries [to] create an efficiency that increases the profitability for the company, and create customer benefits in the form of, perhaps, lower prices,” Schwartzman said.

However, it should be noted that people like Warren are concerned with making law that makes sense for tech companies in general. Apple may be a hard case, and hard cases make bad law. Schwartzman also points out that some in regulatory and legal circles are rethinking how well traditional antitrust thinking fits to the nuances of the tech industry.

Even if Apple is benefiting consumers by owning its app store, the possibility that it may be hindering third-party apps in some ways is considerable. And, of course, forced breakups are not the only remedy in the FTC’s arsenal for antitrust problems.

“Sen. Warren raises important issues about antitrust,” says Silicon Valley Congressman Ro Khanna in a statement to Fast Company. “She is correct that antitrust policy must focus on competition, not just consumer prices. A focus on competition is what led to the government’s case against Microsoft several years ago, and that case played a role in allowing for the development of Google.”

Finally, let’s remember that Warren made her comments about breaking up tech companies in the context of a run for president. Based on the negative public sentiment against Big Tech in a number of voter blocs, talking about breaking up Facebook, Google, and Amazon is an appealing message. But the political sphere is probably not the best place to broach the issue.

“We definitely need stronger antitrust enforcement by the FTC and Justice Department [but] the focus should be fact-based and on limiting anti-competitive platform privileges,” says Khanna, who just expressed his support for one of Warren’s campaign rivals: Vermont Senator Bernie Sanders’ presidential run. “We should not, however, support a blanket call for breaking up existing companies or embrace the rhetoric of big is bad without the appropriate investigatory process that relies on evidence and affords due process.”

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