Steven P. Jobs could hardly have hoped for a better legacy than the
performance since his death of Apple, the company he co-founded and
dominated. Its revenue, profit and share price have hit records. It's
the world's largest company by market capitalization.
These milestones
were reached with the steady hand of Timothy D. Cook at Apple's helm,
but they seem inseparable from Mr. Jobs. They are the result of
initiatives begun during his tenure and, in many ways, reflect his
personality one that was perfectionist, competitive, driven and
controlling.
Those qualities have remained on display at Apple in
the year since his death, most recently in the decision to substitute
Apple mapping software for rival Google's in the iPhone 5 and the new
iOS 6 operating system, as well as allegations that Apple and book
producers conspired to control the price of e-books.
Apple hasn't
fully explained its decision to replace Google's maps, but it probably
reflects the evolution of the Apple-Google relationship from close
allies to fierce competitors, a process that began well before Mr.
Jobs's death. Apple also hasn't indicated whether it was carrying out
Mr. Jobs's wishes, but the decision seems consistent with his
"compulsion for Apple to have end-to-end control of every product that
it made," as Walter Isaacson put it in his book "Steve Jobs."
Apple's
use of its own mapping technology in the iPhone appears to be a
textbook case of what's known as a tying arrangement, sometimes referred
to as "bundling." In a tying arrangement, the purchase of one good or
service (in this case the iPhone) is conditioned on the purchase or use
of a second (Apple maps).
To the degree that tying arrangements
extend the control of a dominant producer, they may violate antitrust
laws. Probably the best-known example was Microsoft's attempt to bundle
its Internet Explorer browser on Windows software, to the disadvantage
of Netscape, a rival browser, despite complaints that Explorer was
initially an inferior product. This was the linchpin of the government's
1998 antitrust case against Microsoft. E-mails were introduced as
evidence in which Microsoft executives indiscreetly stated their
intentions to "smother," "extinguish" and "cut off Netscape's air
supply" by bundling Explorer with Windows.
Among other findings,
the judge ruled that Microsoft had engaged in an illegal tying
arrangement. The outcome of the case kept the door open to competition
in the browser market. Today, the once-dominant Internet Explorer faces
stiff competition from rivals like Mozilla Firefox and Google Chrome.
Microsoft's settlement came too late for Netscape's browser, which was
no longer being developed or supported after 2007. But Firefox traces
its lineage to Netscape's source code.
Could Apple's map suffer a similar fate?
Early
users searched for locations and got nonsensical results. Mad magazine
ran a parody of the famous Saul Steinberg New Yorker cover of the world
seen from Ninth Avenue "now using Apple Maps," in which the Hudson was
the Sea of Galilee and other landmarks were ludicrously misidentified.
Mr.
Cook swiftly tried to contain the damage. "Everything we do at Apple is
aimed at making our products the best in the world. We know that you
expect that from us, and we will keep working nonstop until Maps lives
up to the same incredibly high standard," he said a week ago.
Would
Mr. Jobs have been so quick to apologize? Perhaps not. He was famously
resistant to the idea after complaints about the iPhone 4's antenna, and
the Apple "genius" manual instructs employees never to apologize for
the quality of Apple technology.
Bundling its maps with the iPhone
5 may yet prove to be a strategic blunder for Apple, but it may
nonetheless skirt the boundaries of the antitrust laws that tripped up
Microsoft. "There's no antitrust theory under which vertically
integrating into an inferior component is considered anticompetitive,"
Herbert Hovenkamp, an antitrust professor at the University of Iowa
College of Law, told me. That's because the problem is considered
self-correcting by market forces. "There have been lots of complaints
about tying arrangements involving inferior products. But ordinarily,
incorporating an inferior product doesn't increase your market share,
because consumers leave for a better product. It's not a promising
strategy," Professor Hovenkamp said. The danger for Apple is that
customers will choose an Android phone with a superior Google Maps
application rather than an iPhone.
An exception is when a
monopolist does it, which is what happened with Microsoft. If a consumer
used Microsoft Windows, the dominant software, Explorer was installed
by default. "This arose with Microsoft because back then Explorer was
considered inferior and quirky," Professor Hovenkamp said. "But that
wasn't why it was a violation. It's because consumers had no choice." By
contrast, Apple's iOS isn't the dominant smartphone operating system.
Apple's software has captured 17 percent of the global smartphone
market, compared with 68 percent for Google's Android. Apple users who
want Google maps can readily switch to an Android phone. "Most tying
arrangement cases have involved firms with close to 100 percent market
shares," Professor Hovenkamp noted.
The real test will be whether
Apple makes rival mapping apps readily available for downloading on its
iPhones. In his apology, Mr. Cook suggested that iPhone users try
alternatives, and even suggested using Google maps by going to Google's
Web site. Google said it was working on a map application for the
iPhone.
From an antitrust perspective, the e-books controversy is
more serious. United States antitrust authorities have accused Apple of
conspiring with major book publishers to raise e-book prices, and Apple
offered to settle a European investigation into the same practices. The
Justice Department cited a passage in Mr. Isaacson's book in which Mr.
Jobs called the strategy an "aikido move," referring to the Japanese
martial art, and said, "We'll go to the agency model, where you set the
price, and we get our 30 percent, and yes, the customer pays a little
more, but that's what you want anyway."
The charges describe a
classic price-fixing arrangement, "which is presumptively illegal,"
Professor Hovenkamp said. "Everybody wants market dominance, not just
Apple. But it's how you go about it. You can't go out and fix prices."
Apple has denied the charges, and a trial has been set for next year.
Mr.
Cook's challenge has always been to guide Apple out of the shadow of
its visionary and charismatic founder. Can he encourage Mr. Jobs's
competitive zeal and drive for perfection while distancing Apple from
Mr. Jobs's potentially damaging - even unlawful - need to dominate and
control? "Historically, Apple hasn't been very sensitive to antitrust
issues," Professor Hovenkamp said.
There's no quarreling with
Apple's extraordinary success, and Mr. Jobs's obsession with controlling
all aspects of Apple's products clearly paid off for its customers and
shareholders. It proved to be the right strategy for the time. But
competition in smartphones and Apple's other efforts has intensified in
the year since Mr. Jobs died, and Apple may not be able to continue
blindly down that path. With his swift apology for the imperfections of
Apple's maps, Mr. Cook seems to have taken a step in the right
direction. If he also settles the e-books case and makes Google's and
other map applications readily available to iPhone users, he'd be
signaling a clear break from the past and encouraging Apple to embrace,
rather than stifle, competition.
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