Has Apple Finally Become a Monopoly Like Microsoft?

by James R. Stoup Mar 31, 2006

Recently Mac users everywhere have been faced with a very disturbing thought. Most try not to say it out loud for fear it might be true. Others attempt to rationalize their point of view regardless of the facts. What could be causing such trouble? What is giving so many loyal Mac users a sinking feeling in the pit of their stomachs? Why, the simple notion that Apple might have finally become a monopoly just like Microsoft. That is a statement loaded with implications and to better understand all of the ramifications first we need to start with a definition:


mo·nop·o·ly ~

A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition (for example, vast economies of scale, barriers to entry, or governmental regulation). In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare.

To begin to understand this issue first we must decide, is Microsoft a monopoly? Yes, I believe they are. Though they weren’t convicted by the time the entire trial had run its course, Microsoft had, and continues to maintain, a monopoly in the operating system market. So, according to the definition previously stated, Microsoft is indeed a monopoly. However, this doesn’t automatically mean that they are doing anything illegal (and before you say they are doing something wrong remember, wrong and illegal are two different things)

So, if simply having a monopoly is well within the law, what was the trial all about? Well, as it turns out, they were breaking the law. You see, while it is legal to be a monopoly it is illegal to use that monopoly to ensure your position in the market, force smaller companies out of business or otherwise stifle competition. If you are to retain a monopoly it must either be government sanctioned or maintained in such a way that no laws are broken. That last point is where Microsoft ran into trouble.

Many people have argued (though I don’t share this point of view) that even if Microsoft had a monopoly and even if they were engaging in illegal business practices, all of that should be over looked because in the end Microsoft did more good than harm. This is the rationalization argument that basically boils down to the ends justify the means. However, history has proven that monopolies consistently do two things:  They always stifle innovation and (with the possible exception of heavily regulated monopolies) they always produce an inferior product compared to what a “normal” market would produce.

Before we move on to Apple let us recap what we have decided so far: Microsoft is a monopoly, they engage in illegal business activities (to maintain their position) and they create a product that does not maximize the social welfare. For anyone in search of proof for that last point need only to look at Internet Explorer. When Netscape was a true competitor the IE team had over 100 people on it. After Netscape’s demise the team was reduced to 2 people and the product was left to stagnate for 5 years. It wasn’t until Firefox came along that any real innovation was started up again.


Now let’s look at Apple. Are they a monopoly? In the area of digital music players and digital content delivery, I must conclude that they are. Their 80+% market-share gives them a de facto monopoly in this sector. That Apple has reached this position through innovation (quite unlike Microsoft) doesn’t change the fact that both companies are monopolies.

We, as consumers, must be ever vigilant for illegal activity. So, has Apple done anything illegal to maintain their dominance? The answer is no, not yet at least. So far Apple has played by the rules. They have been accused of infringing on several patents, but those cases don’t directly bear on their status as a monopoly. So far, other than producing superior products, they have yet to do anything that would harm their competition. Now, they haven’t made any mistakes, nor have they done anything to help their competition, but that just means they are clever, not crooks. In this aspect they differ greatly from Microsoft. Throughout its history Microsoft has been many things but seldom were they an innovator.

Now comes the hardest question, does Apple’s dominance in this market maximize the social welfare? This is a difficult question to answer for the simple reason that so far, Apple has gone above and beyond the expectations of the market. They have consistently improved their products and driven down their cost. They dominate for the simple reason that they produce the highest quality experience for the lowest total cost. And yet, history tells us that, in the long run, this cannot last. If Apple becomes secure enough in their position then innovation will slow and consumers will pay the price. And despite their current progress, true competition is the only way to ensure superior products in the years to come.


Where does this leave us? We have concluded that Microsoft and Apple are both monopolies. And while Apple’s reign is benevolent, this trend cannot continue forever. Both Microsoft and Apple need competition to keep them “honest.” This of course raises the question of should Apple be broken up? Should they undergo the same type of trail that Microsoft endured during the 90’s?

To that I must answer no. In the same sense that you can’t damn Microsoft for being a monopoly while arguing that Apple isn’t one, you can’t lobby for separating the iPod/iTMS until you are ready to break up Microsoft too. It is either all or nothing. Either they are both monopolies that harm the market and the government should intervene or you believe the market will correct itself and the government should do nothing. Personally I believe that the government should have taken action against Microsoft when it had the chance. And while I would like to see them broken apart now, I feel that the market is in the process of correcting itself and will soon solve this problem for us. By either forcing Microsoft to compete on the merits of its products, or shifting market-share to other operating systems.

In conclusion, there are really only two main differences between the MS and Apple monopolies. Business practices and quality of product. Microsoft has repeatedly engaged in unlawful business practices over the years as it fights to maintain its dominance. So far, Apple has not broken the law. Likewise the quality of Microsoft’s products has fallen as time goes on while Apple has continued to innovate rigorously. This means that in the OS monopoly consumers are getting a very poor product while in the MP3 player monopoly consumers are getting a very high quality product. This situation could change for the worse, however, if Apple continues to dominate this market. It is very hard to drive for perfection when there isn’t a strong competitor in the market to motivate you. Thus, I can only conclude that, in the long run, the best deal for consumers is to hope that Apple loses market-share. How this could come about barring government interference I do not know. But the time could come soon enough when consumers might wish for a few more options in this ever more profitable market.

Comments

  • This isn’t an operating system, where you have to support a thousand peripherals with a thousand drivers.  You’re talking about music files.  The iPod already supports mp3 and AAC without any complaints.

    I think when Beaver mentions “quality of product,” he’s referring to how both iPod and iTunes would have diminished brands as a result of being (forcibly) made compatible, but not seamless, with other players/services. Making them compatible is easy, as you have said, but making them as seamless as the iPod/iTunes currently is may be impossible.

    Oskar had this to say on Mar 31, 2006 Posts: 86
  • but making them as seamless as the iPod/iTunes currently is may be impossible.

    It would only be Apple’s job to make iTMS integrated with the iPod.  That wouldn’t change at all.  And if consumers want that, then they’ll stick with Apple products.  Again, why is Apple so afraid of actually competing if, as they and their fans insist, they would continue to dominate even if they licensed Fairplay?

    But is this really the argument or is it, as I said before, grasping at straws to justify Apple’s anti-competitive practices? 

    Let’s say, for example, that Microsoft controlled 95% of the both the hardware and the operating system market so that NO ONE could make a computer that worked with Windows or that worked on Intel hardware except for Microsoft.

    There is no way in f-cking hell that anyone here would use “seamless operability” as a justification for Microsoft’s continued dominance of that industry and utter refusal to let anyone else in on the game.  As it is now, people think they are absolutely guilty of anti-competition and Microsoft only controls the operating system.

    Even in your case, you wouldn’t use that argument since you seem to believe that corporations can do anything they want short of actually killing someone.  This justification for you is moot.

    Like I’ve said before, Apple’s policy of refusing to license Fairplay is fine UNLESS they are a monopoly.  Then it becomes an unfair policy intented to shut out competition.

    If one is opposed to such policies, as almost everyone has made clear that they are in the case of Microsoft, then one should be opposed to such policies with Apple.

    Beeblebrox had this to say on Mar 31, 2006 Posts: 2220
  • It would only be Apple’s job to make iTMS integrated with the iPod.  That wouldn’t change at all.  And if consumers want that, then they’ll stick with Apple products.

    If Apple wants to protect its brand, it would make sure the iPod works seamlessly with other services, and other players work seamlessly with iTunes. Otherwise, angry customers will write off both of them.

    But is this really the argument or is it, as I said before, grasping at straws to justify Apple’s anti-competitive practices?

    You’ve already heard my argument regarding antitrust, and I’m not getting into that again. I certainly am not trying to justify their “anti-competitive practices,” as I don’t have a problem with them.

    I’m just saying this is yet another reason for them not to open up the iPod and iTunes.

    Oskar had this to say on Mar 31, 2006 Posts: 86
  • “I do think it’s immoral for music to be locked to a single brand of music playing product.”

    Really?? How do you think CDs would have fared if you could only play them on Sony CD players? What if DVDs only played on Panasonic DVD boxes?

    Apple locking in Fairplay is wrong. To customers, fans and the content industry.

    Luke Mildenhall-Ward had this to say on Apr 01, 2006 Posts: 299
  • So in short, is Apple a monopoly? Yes. Is Apple a monopoly like Microsoft? Yes, and possible worse. At least Microsoft make versions of their software for Apple computers.


    (and no, Beeblebrox didn’t hack my account)

    Luke Mildenhall-Ward had this to say on Apr 01, 2006 Posts: 299
  • Oh no… sorry Ben! I didn’t realize you said, “I do think it’s immoral…” Jeez, I’m half asleep myself; I thought you said, “I do not  think it’s immoral…”

    Although my point still stands true.

    Luke Mildenhall-Ward had this to say on Apr 01, 2006 Posts: 299
  • Really?? How do you think CDs would have fared if you could only play them on Sony CD players? What if DVDs only played on Panasonic DVD boxes?

    Luke, this is the strangest argument I’ve heard yet. You start by saying that locking in iTMS is “immoral,” then you attempt to prove it by showing that it wouldn’t work with CDs. Obviously, iTMS has “fared” quite well, so something is wrong with your logic.

    Oskar had this to say on Apr 01, 2006 Posts: 86
  • Oskar, he corrects himself.  It’s a typo.  He leaves out the word “not,” as in “I do NOT think it’s immoral.”

    Beeblebrox had this to say on Apr 01, 2006 Posts: 2220
  • No, Luke definitely thinks the iTMS lock-in is immoral. What he corrected was his interpretation of Ben’s statement (he mistakenly thought Ben said it’s not immoral).

    Oskar had this to say on Apr 01, 2006 Posts: 86
  • So Ben thinks it’s immoral and Luke misread it (while quoting him correctly).  Gotcha.

    Beeblebrox had this to say on Apr 01, 2006 Posts: 2220
  • Obviously, iTMS has “fared” quite well, so something is wrong with your logic.

    Oh I think CDs would have fared ‘quite’ well also if they were locked to Sony players. But it wouldn’t have become a major format like it is today. Global music sales taken up by iTunes are 4.8%. Is that really doing quite well in the actual relativity of the situation??

    There’s no way iTunes can become a major player in the music industry (let alone TV or Movies) with the current locked in model.

    Luke Mildenhall-Ward had this to say on Apr 01, 2006 Posts: 299
  • “At least Microsoft make versions of their software for Apple computers.”

    Luke, Last time I checked, iTunes was available for Windows and Mac. I can’t say the same for “Plays for Sure.”

    cloudwall had this to say on Apr 01, 2006 Posts: 21
  • Last time I checked, iTunes was available for Windows and Mac. I can’t say the same for “Plays for Sure.”

    Wow, the extent to which Mac-bots delude themselves is remarkable.

    Apple could license PFS from Microsoft if they wanted.  Microsoft licenses their DRM, like they do their OS, to basically anyone who wants it.

    Microsoft could not do the same with Fairplay because Apple refuses to license it.

    The other difference is that Microsoft is not a monopoly in the portably music market.  Again, the problem here is that Apple is a monopoly AND they are anti-competitive.

    Beeblebrox had this to say on Apr 01, 2006 Posts: 2220
  • As the author noted in the article the intent of laws concerning monopoly are intended to prohibit unfair competition. Saying that Apple’s refusal to license Fairplay is unfair is like saying Coca Cola and Kentucky Fried Chicken are monopolies because they refuse to license their “secret recipes”. With regards to Microsoft they ran afoul of the Justice Department because they used their dominance in the marketplace to stifle competition. Things like telling PC manufacturers if you offer another OS on your platform… like say Linux, then the PC maker could expect Microsoft to raise the cost of their OS to said PC manufacturer such that it would make the PC manufacturers product prohibitively expensive in the market. Specifically Dell, HP, and other PC manufacturers were strong armed by Microsoft to NOT offer/support products that competed with Microsoft offerings. Merely not willing to share IP with competitors who are getting their butts kicked because they offer uncompetitive products is NOT illegal.

    roger9 had this to say on Apr 01, 2006 Posts: 4
  • Wow… there’s a whole lot of people who are kind of hostile to the concept of Apple as a monopoly. I think many strong mac fans idolize Apple… and try to ignore their mistakes. For example, many mac fans will kind of stray away from admitting that Apple made some big mistakes during the 90’s. Even though, as composed to pc’s, macs last forever and don’t get loaded with malware, they weren’t at all very appealing to the average, non mac fans didn’t have a very strong appeal to macs. They were ugly beige boxes. Now… they are pretty white pieces of art. But… also, I mean, apple does have their deficiencies.

    Monopolies have kind of been demonized in capitalist societies… and maybe for a good reason. But, that doesn’t mean that people are trashing people’s idols, only being realistic.

    swabblemeister had this to say on Apr 02, 2006 Posts: 6
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