Robert Reich: Wrong on Apple, Wrong on the FTC, and Wrong on the Software Market
In a recent Huffington Post opinion piece, called Absurd Double Standards: FTC Threatens Apple for Economic Abuse While Ignoring Wall Street, former Labor Secretary Robert Reich bashes banks and indulges in a mash note to Steve Jobs and Apple (AAPL). Too bad he failed to make a brief stop to check facts and perspective before claiming that Apple's actions were no harm to the market and that regulators should take no interest in the company.
The intellectual shortcomings of Reich's rant start in the opening paragraph:
Why is the Federal Trade Commission threatening Apple with a possible lawsuit for abusing its economic power, but not even raising an eyebrow about the huge and growing economic (and political) muscle of JP Morgan Chase or any of the other four remaining giant banks on Wall Street?As is obvious to anyone who does about 45 seconds of thinking and web research -- and as he indicates later in his piece -- the FTC has no authority over banks. Reich's opening is nothing but a straw man he set up so he could complain that banks are too large and should be cut down to size. As it happens, I would largely agree. His treatment of Apple is equally as calculated, but far more cavalier about facts and their implications:
Apple's supposed sin was to tell software developers that if they want to make apps for iPhones and iPads they have to use Apple programming tools. No more outside tools (like Adobe's Flash format) that can run on rival devices like Google's Android phones and RIM's BlackBerrys.What's wrong with that? Apple says it's necessary to maintain quality. If consumers disagree they can buy platforms elsewhere. Apple was the world's #3 smartphone supplier in 2009, with 16.2 percent of worldwide market share. RIM was #2, with 18.8 percent. Google isn't exactly a wallflower. These and other firms are innovating like mad, as are tens of thousands of independent developers. If Apple's decision reduces the number of future apps that can run on its products, Apple will suffer and presumably change its mind.Forget for a moment such basic mistakes as thinking that Adobe (ADBE) Flash is a "format" that ever ran on the iPhone OS. Reich makes two fundamental errors in his reasoning. One is that regulatory oversight is, of necessity, a zero sum game -- that the government can either do something about banks or about Apple, but not both. That would be like saying a city's police department should stop pursuing armed robbers if there are unsolved homicides. Those who lost their possessions at the point of a gun might agree that murder is worse, but would likely still want what is rightfully theirs.
The more significant error, which I've seen elsewhere, is the assumption that only consumers matter in the market and that if those consumers have choices among smartphone platforms, then all is well. Unfortunately, there's a big difference between different devices and different platforms. A platform is a virtual city state, with native functions, third party applications, and carriers. To gain access to the 200,000 or so iPhone-compatible applications, you must buy a device that runs the iPhone OS. That means dealing only with Apple -- whether you are a consumer or a software company.
The symbiotic relationship between the iPhone and apps was a product of accident and circumstances. At first, Apple planned on nothing but web-based applications. However, that left the device open and out of Apple's control, which wasn't part of Jobs's plan. And so, Apple created the app store and contractually ensured the company's control over all third-party products.
To reach the iPhone market, developers must do business with Apple and sign an agreement. The agreement forces developers to use only Apple tools and hardware for their work and to sell only through Apple. Apple has the final - and arbitrary -- say over whether it will sell a product to iPhone owners and can discontinue a product at any time. In other words, developers must first create their applications and, only then, learn whether Apple will allow them to sell their software. Stray too far from what Apple wants, no matter how innovative, worthy, or wanted by consumers, and your software becomes nothing more than a hobby.
Not only has Apple effectively prohibited the existence of an alternate market for iPhone applications -- and if that isn't monopolistic in nature, I don't know what is -- but by effectively eliminating efficient cross-platform development, it has reduced the ability of developers to support other devices and broaden their businesses. That may not represent a monopoly of cell the smartphone market, and it certainly pales in comparison to the travesties of the U.S. banking industry, but it is certainly restraint of trade.
The Apple model also hurts consumers. The supporting argument says that the company wants to create a particular "experience" for iPhone owners. However, Apple has other available mechanisms that would allow competition and consumer choice to co-exist. Apple could charge developers for a certification program (essentially what it now does), carry only such certified apps in its app store, and let software companies sell their products through other outlets. Consumers could then choose whether to purchase certified apps -- if they wanted the Apple guarantee of fitness -- or those that Apple didn't approve but that might still offer worthwhile benefits. Now that is letting the market decide.