AppleInsider: –"EU's antitrust head is ignoring Spotify's dominance and wants to punish Apple instead":

Speaking to CNBC the EU's Margrethe Vestager said her office was continuing to investigate Spotify's complaint that it is being prevented from reaching its audience. Spotify is currently the leading music streaming service in the world, while Apple Music is variously in fourth or fifth place.

Repeat after me: Spotify is not a gatekeeper. Apple is. Special rules apply to gatekeepers to stop them using their market power in one area to distort a free market in another.

This is not rocket science, and I'm at the point where I think if a journalist is getting it wrong, they're simply propagandising for Apple, Meta, or Google.

John Gruber: More on the EU’s Market Might:

If they follow through with a demand that Photos be completely un-installable (not just hidable from the Home Screen, as it is now), this would constitute another way that the EC is standing in as the designer of how operating systems should work.

A lot of commentators seem to have the same issue as John: that it’s weird that a governmental body can or should define how products should be designed.

But governments mandate how products are designed all the time, and not just in the EU. Take another market which is pretty big: cars. All cars have to feature safety equipment, which varies from region to region but will broadly include everything from seatbelts to crumple zones. Cars have rules for emissions, for fuel efficiency, all of which are designing how a car should work.

John then kind of hits the nail on the head:

Why stop there? Why not mandate that Springboard — the Home Screen — be a replaceable component? Or the entire OS itself? Why are iPhone users required to use iOS?

To which the obvious answer is why indeed?

I paid Apple £1099 for my last iPhone. It made a handsome profit on it, probably between 30-40%. At that point, Apple should no longer be able to stop me from doing what the hell I want with the product I purchased. So yes, the fact that it does exactly that is problematic.

Apple doesn’t do that on the Mac I’m typing on. Why should it have that level of control over the iPhone I bought?

And yes, I know the “well you bought an iPhone and you knew that was part of the deal ha ha” argument. That argument is weak, because people's needs evolve and what people want evolve. Maybe now I'm super-happy with the way that Springboard works. And perhaps in a year's time Apple will introduce a new version, which sucks. But I won't be able to replace it with a third party alternative, despite the phone being a year old, despite it being perfectly good.

Because, of course, I don't own my phone, despite that money I paid for it, despite that margin Apple got.

The EU isn't just concerned with today. It's really taking Steve Jobs’ advice and listening to the Wayne Gretzky quote: it’s skating to where the puck is going, not where it’s been. Its aim is to ensure that two very large companies don’t own the market for smartphones to such a degree they can determine everything that happens in those markets, to their advantage. The EU is a capitalist body: its obsession is keeping markets open, and it will do anything it needs to do to make sure that happens. They can act now, or they can act later when the adjustments required – both for big companies, third parties and consumers – would be far greater.

The obvious solution would be for the European Commission to pass a law banning targeted advertising. But I suspect they haven’t done that, and won’t, because so many publishers in the EU use targeted advertising (along with “pay or OK” subscription offerings). They don’t want to eliminate all targeted advertising, just Meta’s (and Google’s), but that’s hard to put into written law while claiming not to be targeting very specific American companies.

The EU prefers not to ban products outright. Remember, it’s a capitalist body. It loves markets! But it’s not like it hasn’t pushed targeted advertising hard to try and get the balance between a useful product and people's privacy. Laws affecting it include:

• the ePrivacy Directive (Directive 2002/58/ED).
• a little thing called the GDPR (Regulation (EU) 2016. You may have heard of it.
• the eCommerce Directive (Directive 2000/31/EC).
• the Unfair Commercial Practices Directive (Directive 2005/29/EC).
• the Directive on Misleading and Comparative Advertising (Directive 2006/114/EC).
• the Audiovisual Media Services Directive (Directive (EU) 2018/1808).
• the Consumer Rights Directive (Directive 2011/83/EU).

It’s not like the EU hasn’t investigated targeted advertising, and (unfortunately in my view) the issue isn’t targeting in itself but the ways Meta (and separately Google) have been implementing it. This is the point that John highlights Thierry Breton making:

But the DMA is very clear: gatekeepers must obtain users’ consent to use their personal data across different services. And this consent must be free! We have serious doubts that this consent is really free when you are confronted with a binary choice. With the DMA, users who do not consent should be provided with a less personalised alternative of the service, for example financed thanks to contextual advertising. But they do not have to pay.

The EU told Meta explicitly that its contract with users was a problem. Rather than change the contract substantially to stop violating the law, it chose to offer a different contract for paying customers. The point isn’t that a paying option is or is not popular: it’s that Meta has tried to evade what the courts have explicitly told them to do.

As American companies are learning, the EU does not like companies that try and do an end run around the law. This appears to have dawned on Apple, which has already – in the space of a few weeks! – widened its plans to comply with the DMA and DSA. Perhaps not enough, which is why the EU is investigating them. But the mood from Apple has definitely started to change from sullen evasiveness to being more open to compliance. It's not yet at the point of working to make a good compliant product for its customers, but it's getting there.

One other point of course: Breton’s comments are demanding that Meta implement a system in a way similar to that which Apple forced them to do on iOS. App Tracking Transparency made Meta, and all other app makers, ask if the app could track them – and Apple didn’t give a damn that it would cost Meta $10bn. Apple also wouldn’t have accepted an opt-out where Meta charged you if you opted out of ATT. John’s argument seems to be that it’s fine for Apple to do things to protect the privacy of its customers, but it’s not OK for the EU to do the same for everyone.

Consider too that if Meta goes along with this interpretation by the EC of the DMA’s requirements, and offers a vastly-less-lucrative free-of-charge option to use Instagram and Facebook without targeted ads in the European Union, there’s nothing to stop regulators and legislators around the world from demanding the same. Conceding to this might mean not just generating only a fraction of Meta’s current revenue in the EU, but generating only a fraction of its current revenue worldwide.

To which I can imagine Breton giving something of a gallic shrug. Because, again, the point of the EU – its very purpose – is to ensure that markets are free and open. The idea that a single company should determine what markets can and cannot be open is an existential threat to the EU.

Breton — after casting a stink eye at Google for presenting its own hotel, flight, and shopping recommendations in web search results, and at Amazon for promoting its own Amazon-branded products (a shocking practice for a retailer — good luck ever finding Kirkland products at Costco, Up & Up at Target, or, say, Ol’ Roy dog food at Walmart, right?)…

Let’s just pause at this point and remind ourselves that Google has 91.62% of the search engine market, and repeat – again – that the rules of what you can and can’t do as a business change when you have a dominant market position.

(Aside: the FTC and other antitrust bodies are, in fact, casting their eyes on the likes of Walmart too. And in Europe, many retailers and non-tech companies have fallen foul of antitrust rules. It’s not just about tech.)

On to our scheduled programming:

Turns out, though, that actual users don’t agree that removing longstanding features from Google search results is somehow for their benefit. I’m guessing they’d see even less benefit if entire popular services and products are removed from the EU market.

Leaving aside that John is linking as “proof” to a Reddit thread with precisely nine comments on it, most of which are from US users and none of which sound particularly outraged, this misses the point of antitrust action entirely, doubly so in the EU. So, for what feels like the 900th time, I’ll explain it:

The point of antitrust action is to ensure that markets remain competitive, because over time competition spurs innovation and ensures prices are optimal.

That’s it. That’s all. It’s not about immediate prices – although over time, competition lowers them. It’s not about “making customers happy” – although, over time, competition leads to happier customers, because it spurs innovation.

It’s understandable that people with a American view of antitrust based on recent history might not get this. The focus in US antitrust since the early 1980s has been on prices, thanks to the noxious influence of Robert Bork. In Borkian antitrust, all that mattered was prices, and, in his weird head, monopolies led to lower prices for consumers. That this went against pretty much every economic theory since (and including) Adam Smith didn’t matter.

Thankfully US antitrust bodies appear to have cottoned on to how bizarre Bork’s approach was and are abandoning it. But if you haven’t been paying attention to antitrust history and have grown up since Reagan, you probably don’t understand the change.

In a footnote, John notes this:

One obvious solution would be to show more ads — a lot more ads — to make up for the difference in revenue. So if contextual ads generate, say, one-tenth the revenue as targeted ads, Meta could show 10 times as many ads to users who opt out of targeting. I don’t think 10× is an outlandish multiplier there — given how remarkably profitable Meta’s advertising business is, it might even need to be higher than that. But showing that many ads would be such a bad experience that I suspect it would land Meta right back where they are today with the paid subscription option, with the EC declaring it non-compliant because users don’t want it.

And here’s the thing: that’s fine. It’s fine because, instead of having a business model reliant on invading people’s privacy, largely without their consent or even any kind of transparency, Meta would be forced to compete without doing those things. It would be forced to make a product which respected people as people, instead of exploiting its undoubted market power.

I am totally fine with that.

Maybe 10 ads would be enough to maintain its current level of profits. And maybe that would make users unhappy. And maybe then another company would come along and offer a similar service with five ads, and people could choose to use it because it’s a better experience.

And that might push Facebook to make its service more efficient, or lower its margins, so it could offer five ads too. Perhaps it could charge a higher price for them because it found technical ways to do better targeting while staying within the bounds of the law. Or maybe Facebook would die and be replaced by something else, just as MySpace, FriendFeed, and all those other early services fell by the way side because they weren’t as good an experience as Facebook.

That’s how competition works. Not by lock-ins, tying, bundling, “walled gardens” (that you can’t easily leave). All of those things are symptoms of a market out of control. The EU, which up till now has mostly confined itself to measures like GDPR which just ameliorate the symptoms, has decided it’s going to try curing the disease itself.

From 1995 through to about 2008, I made my living from technology journalism (we called it “computer journalism” then, because technology really was computer). That means my career almost exactly spans the period of the biggest technology antitrust trials of the lot: United States vs Microsoft, and Microsoft vs European Commission. Most of the original reporting I did was about the EC case (after all, that's my side of the pond) but I did enough reporting and spoke to enough sources to have a decent idea of the nuances of both cases.

Depending on how you look at it, US vs Microsoft (which I'll call “the DOJ case”) was either the last hurrah for a DOJ which had become very reluctant to intervene in anything connected with antitrust that wasn't either a cartel or big merger, or the first case where network effects were regarded as an important question in competition law. But either way, it was one of the landmark cases in technology competition law, as notable as the breakup of 'Ma Bell' or the 1956 IBM consent decree.

So, based on my specific expertise, I can tell you: Be prepared, over the coming months, for some lousy punditry.

Tech commentators (and their audiences) are going to have to learn some history

An entire generation of tech commentators and CEOs have grown up not understanding the history of antitrust in tech, or the impact it had in shaping the industry. And they really don’t understand that without regulatory action in the 1950s to 1980s, their businesses would not exist.

One simple example: why did IBM not buy DOS outright, a move which would have killed the PC compatible before birth and made IBM dominate for longer? Bill Gates would love everyone to think it’s because he was smart and IBM was not. In fact, it’s because IBM was wary of yet another antitrust suit. As Bill Lowe put it, “IBM didn’t want to be seen as dominating the market too thoroughly.”

Similarly, IBM could have bought Microsoft — Gates even offered them 10% of the business, and they could easily have afforded more. In the environment of the past 20 years, where big companies are allowed to buy almost anyone, they would have. Back then, antitrust concerns made it a non-starter.

And now antitrust law is being applied again in the way it has been for most of its existence, commentators and tech execs are finding it really difficult to cope with the change. There’s an irony that Tim Cook appears to be affected deeply. After all, Cook started his career at IBM, and moved on to Compaq - a company that wouldn’t have existed without antitrust law. You would think he would get it.

If you would like to know more about the impact of antitrust on IBM behaviour, I’d recommend reading this paper by Tim Wu. In his conclusions, he looks at what antitrust regulators should learn from the case, and I found this paragraph quite relevant to what’s currently happening:

A similar logic suggests prioritizing Sherman 2 cases where the problem isn’t just competition in the primary market, but where competition in adjacent markets looks to be compromised or threatened. The long cycles of industrial history suggest that what are at one point seen as adjacent or side industries can sometimes emerge to become of primary importance, as in the example of software and hardware. Hence, the manner of how something is sold can make a big difference. In particular, “bundling” or “tying” one product to another can stunt the development of an underlying industry. Even a tie that seems like “one product” at the time the case is litigated, as, for example, software and hardware were in the 1960s, or physical telephones and telephone lines, might contribute to such stunting. If successful, an antitrust prosecution that breaks the tie and opens a long-dominated market to competition may serve to have very significant long-term effects

Expect lots of talk about how previous antitrust action (in particular Microsoft) didn't achieve anything

Views I have heard in the past few years from some widely known pundits:

• Microsoft/DOJ did nothing to change the browser landscape
• Microsoft/DOJ didn't make any difference to Microsoft's ability to “win” in mobile
• Microsoft/DOJ didn't matter because the web

To borrow a phrase from Ben Thompson, these opinions are, to use a technical term favoured by analysts, bullshit. All of them have in common a failure to understand the chilling effects that being under investigation, or under a consent decree, have on corporate actions –– at every level.

In organisations that are under antitrust pressure, ideas that might get put forward are held back, because people would rather not spend the time having them checked through legal and compliance teams. Acquisitions which a company might make don't happen, because it would rather not appear rapacious or that it's stifling nascent competition. And contractual clauses with partners can't be as aggressive in locking them out of doing business in a way which doesn't favour you. That, of course, was one of Microsoft's favourite tricks of the 1990s: the “per processor” licence for Windows, for example, meant that computer makers paid them for a licence on every computer, whether Windows was installed or not.

Microsoft tried to tie Internet Explorer to Windows. It was stopped from doing so by the government, and that made it a lot easier for Chrome to gain traction. As Gates said (and Thompson denies!) the “distraction” of antitrust meant that Microsoft wasn't as focused on mobile as it should have been. The “old” Microsoft would also have used specific means to stop the iPhone being as attractive, such as preventing it from connecting to Exchange servers (something that was introduced in iOS 2, in 2008).

Antitrust action works, in part, not just because of the explicit conditions of a consent decree, but because companies limit themselves. They are afraid of getting back into court, because they know that next time a break-up might be on the agenda.

Expect to see a lot of bad commentary because people don't understand “monopoly power” or market definitions

I have already seen a lot of “the iPhone is not a monopoly!” comments, from people who have been in the business for long enough to know better. Let's put that one to bed straight away: “monopoly power” does not require a literal monopoly share of a market. Here's how the FTC defines it:

Courts do not require a literal monopoly before applying rules for single firm conduct; that term is used as shorthand for a firm with significant and durable market power — that is, the long-term ability to raise price or exclude competitors. That is how that term is used here: a “monopolist” is a firm with significant and durable market power. Courts look at the firm's market share, but typically do not find monopoly power if the firm (or a group of firms acting in concert) has less than 50 percent of the sales of a particular product or service within a certain geographic area. Some courts have required much higher percentages. In addition, that leading position must be sustainable over time: if competitive forces or the entry of new firms could discipline the conduct of the leading firm, courts are unlikely to find that the firm has lasting market power.

This is why the DOJ filing talks about “monopoly power” and how Apple “also enjoys substantial and durable market share”:

Apple has monopoly power in the smartphone and performance smartphone markets because it has the power to control prices or exclude competition in each of them. Apple also enjoys substantial and durable market shares in these markets.

Note the “also”. The DOJ case does not rely on a specific high number for Apple market share: it relies on showing that Apple has significant market power.

But one of the key elements in any antitrust case is the definition of the markets you're referring to -- because defining the market helps understand the degree to which a company has monopoly power. The DOJ filing talks about two markets, hence the title of section E: “Apple has monopoly power in the smartphone and performance smartphone markets”

The DOJ claims that Apple itself says it has a 70% market share in the second one:

In the U.S. market for performance smartphones, where Apple views itself as competing, Apple estimates its market share exceeds 70 percent

I can't locate a source for Apple saying this, but I have no doubt at all that the DOJ can back up both the number, the market definition, and that Apple has said -- publicly or internally -- that it is the market it competes in. Market definitions are so important to antitrust cases that the DOJ just would not have included that statement without evidence to back it up.

(And no, Apple, you can't play it like the market share that's relevant is the global number. You're not going to appear in the Global Court of Justice, it's a United States one – and they tend to only care about what's going on in the US.)

Don't believe anyone who says the DOJ complaint is badly written, unless they are an actual legal expert

Exhibit one, Benedict Evans:

“It still amazes me how sloppy this DoJ filing is. It's Apple's fault that LG and HTC could not compete with Xiaomi, Oppo and Samsung? Google Android phones are outsold by Samsung Android phones… because of iMessage? WTF? Ther's [sic] stuff like this on every page. How did this get out of a drafting session? Everyone at the DoJ should be professionally embarrassed.”

Exhibit two, Rebecca Haw Allensworth, antitrust professor and associate dean for research at Vanderbilt Law School:

“They told a very coherent story about how Apple is making its product, the iPhone and the products on it – the apps — less useful for consumers in the name of maintaining their dominance… This is just a more plausible story about consumers, [making it] as a legal matter, a stronger lawsuit.”

Well, I just don't know who to believe here – what do you think?