Is Apple’s Walled Garden Sustainable?

Posted by | June 16, 2010 | 5,227 views

Only two weeks ago it emerged that the US Department of Justice had announced an investigation into Apple iTunes’ practice of strong-arming labels against using rival Amazon. Then late last week the US Federal Trade Commission (FTC) began investigating whether Apple’s business practices harm competition in “the market used for software used on mobile devices”.

Going further, it now seems that Apple has apparently banned ad networks, including Google’s AdMob, from collecting geo-targeting information from consumers using iPhone apps. This prompted AdMod CEO Omar Hamoui to state on his blog that, “The terms hurt both large and small developers by severely limiting their choice of how best to make money. And because advertising funds a huge number of free and low cost apps, these terms are bad for consumers as well.

All in all, a rather negative investigative few weeks for Apple. (Perhaps now its market cap is larger than Microsoft it will attempt to exert even more power of exclusion over business and consumers. All hail the new Furher, Steve Jobs)

But let’s dig down a little deeper and examine, firstly, why such commercial leverage used by Apple is a bad thing for business, and secondly, consumers.

Why Walled Gardens Are Bad for Business…
With Apple we are now witnessing what lengths these companies maintaining walled gardens will go to in preventing competitor inclusion in the marketplace. Just look at Steve Job’s decision to prevent Flash from working on iPhones and iPads. The resulting corporate backlash was to be expected. Why should one company have the sole right to exclude another business from having its software used within the Apple OS for iPhone and iPad?

This also negatively impacts both small and large software development companies and increases their cost base in creating apps. By denying developers the right to choose what software compatibility their apps will work with Apple immediately increased the costs on developers to produce apps.

Just look at the music business for a prime example of how a monopoly walled garden has hamstrung the digital music business. On the one hand, the music business makes the majority of digital music sales income via iTunes. Yet on the other, labels are threatened with the withdrawal of iTunes store promotions if they take up competitor promotion offers. These same labels do want competition, but are too damn scared of “rocking the apple cart”. This cowardice does nobody any favours, especially artists.

Apple dictates pricing, format and device usage, essentially owning every aspect in the music value-chain except music creation. How the music industry managed to get itself into such a dire position is lamentable and should act as a lesson to all other industries.

Having one company dictate terms to content owners is not good. This is despite all the overbearing hype surrounding the overpriced iPad and its supposed saviour capacity for the newspaper sector. On another note, such restrictive terms hold back innovation. This in itself is BAD for business!

Yes, Apple is an innovative company, but its policies prevent innovation from developers using its ecosystem.

Why Walled Gardens Are Bad for Consumers…
Moving into the consumer domain “walled gardens” restrict the consumers’ right to choose competitive products and services. Firstly that alone is a restriction of consumer choice. When a player such as Apple has a monopoly market share in selling digital music content, it is not good for the music fan or the industry alike.

As previously stated on numerous occasions, TMV does wonder why both the EU and US competition legislatures have failed to act in forcing an end to Apple’s monopoly status. It would be good to at least get some answers from them. However, their muted silence speaks louder than words.

Being locked into one device, one software OS and one retail store is restricting consumer freedom of choice. No matter how good a user experience is – and yes, Apple’s UI is great- no company should be able to dictate consumer choice in terms of usage and device compatibility. A prime example of such actions being bad for consumers is the AT&T tie up with the iPhone in the US. AT&T offers the worst service levels in terms of back-end network infrastructure, yet anyone wanting to get an iPhone on contract must use AT&T.

Sure this has changed over a three-year time period, but why should consumers have no choice but to be locked into second-rate service provision due to a device manufacturing dictating that they have no choice? The key is that no company should have any right whatsoever to lock consumers into one anti-competitive ecosystem. TMV can’t wait until Android enters the music market with its new rumoured music play near the end of 2010.

Are Walled Gardens Sustainable in the Medium – Long Term?
Walled Gardens are only sustainable whilst governments and associated regulatory bodies turn a blind eye to what is blatantly monopolistic behaviour from dominant players in any particular sector. Which is exactly what they have been doing in terms of the Apple iTunes juggernaught. However the tide looks as if it might be turning in that respect in terms of US regulators. Yet where are the EU regulators on this extremely important work?

If these recent FTC and DOJ investigations are anything to go by, Apple’s “Walled Garden” ecosystem is under the microscope. In TMV’s view, the garden wall should be kicked in and opened up to all and sundry.

Other Readers also Read:

Trying to Get a Bite of the Apple

Playing the System

Spotify ShareMyPlaylists Has Six-Figure Funding to go Proper

Apple iTunes Entering the Music Subscription Market?

The Digital Britain Bill – One Step Forward or Two Steps Back

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Posted by on Jun 16 2010. Filed under Business Models, featured. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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