Earlier this summer Apple announced the release of its “biggest” iOS ever for iPhone and iPad, including such awesome features as advanced iMessages and redesigned Photos, Maps and Music apps. One additional feature which is new to iOS 10 is that users will be able to “remove” Apple’s stock apps (Weather, Calendar, News, Maps, Music etc.) from the home screen. One could guess that adding this functionality addresses the outrage that accompanies opening a brand new 16GB iPhone or iPad and discovering that a large chunk of its memory is already used up by Apple’s stock apps that one has no intention of using on a daily basis (think Stocks). But I think there’s something else going on here.
It’s useful to start with the old iOS v Android comparison. Apple and Google have significantly different degrees of control over their app ecosystems: Apple runs a tight ship, keeping control over its entire vertical chain, including the manufacturing and distribution of its hardware, the production of its operating system and the development of its stock apps. On the other hand, Google produces only the Android operating system and stock apps, which get pre-installed on the smartphones and tablets of third party manufacturers. This means that Apple can pre-install its own apps on Apple devices, giving its users an exclusively “Apple” out-of-the-box experience. Google, however, gives manufacturers a choice as to whether they take Android with or without Google’s pre-installed apps, or whether they pre-install additional apps by third party developers (like Uber, for example).
Pre-installation gives those lucky apps a huge advantage over apps that users must find on their own through an app store. For example, Google pays Apple more than $1 billion per year for Google to be Apple’s default search engine in Safari. It’s theoretically very easy for users to switch to a different provider, but not many do so in practice (making it extremely valuable to be that one pre-installed option). Google is in trouble about this in Europe: last April the European Commission sent Google a Statement of Objections alleging that Google’s practice of forcing device manufacturers that want to take one of Google’s apps (say Google Maps), to also take an entire suite of Google’s apps (Search, Youtube, Hangouts, etc.), reduces competition in these various app markets by giving Google’s apps an unfair advantage. This must be concerning to Apple: if Google is getting into trouble with its policy, which doesn’t restrict manufacturers from pre-installing additional non-Google apps or prevent users from deleting Google’s apps once they get their hands on a device, what must the Commission think of Apple, which pre-installs only its own apps which users cannot delete from their devices?
Take Apple Maps, for example. The thought of it overtaking Google Maps to become more popular on iOS devices was almost inconceivable a few years ago, and yet reports emerged late last year that Apple Maps had grown to become more than three times as popular. This is despite the fact that Apple Maps was significantly late to introduce public transport data compared with Google, highlighting the ability of the default-bias to project an app into the spotlight regardless of its competitive merits. Though savvy iOS users can easily “multi-home” by downloading Google Maps from Apple’s app store, many will not do so – especially when the inability to delete Apple’s pre-installed apps means that replacing them with different apps takes up a lot of memory space on their devices. It is this extension of power in the market for operating systems down through the vertical chain into apps that the antitrust enforcers might object to in the future.
The bias towards the default was the European Commission’s central argument for slapping antitrust charges on Microsoft when it pre-installed Windows Media Player on its Windows operating system. Back in the pre-smartphone era, users were inert to browsing the Internet to download a competing media player (apparently). And media players are characterised by indirect network effects, meaning that’s greater number of content providers results in more users, and vice versa. Pre-installing an app characterised by a similar positive feedback loop can give it a real competitive advantage and foreclose competing apps from reaching end users (on which see this paper by Carlton and Waldman). Think of Apple News. I want to read stories on a news aggregator that has a denser population of publishers, and publishers want to provide content to the aggregator that has the most users. Apple News has a real competitive advantage over competing aggregators due to its pre-installation on iOS devices, which is strengthened and entrenched by users’ inability to delete it. The fact that Google is under scrutiny for its own pre-installation practices, even when users can subsequently delete its apps, must be making Apple hot under the collar.
This theory becomes even more interesting when one considers the rapid migration from the operating system as the key platform through which users and developers connect towards the instant messaging app, which is emerging as a platform of itself. Messaging apps, like iMessages, Facebook Messenger and Google’s Allo, benefit from both direct and indirect network effects. Direct effects result from the increasing value of the platform depending on how many users there are in my social circle. The more of my friends that use iMessages, the more valuable it is to me as an app. Indirect network effects result from the positive feedback loop that exists between users and developers of third party applications that operate through the messaging platform (as with the aforementioned examples). Network effects and heavily fragmented markets do not often coincide, such that, as we increasingly see our smartphone activity take place through messaging apps, the market should tip in favour a select few key players. Google and Apple have a key advantage here as they have access to the pre-installation distribution strategy. Apple’s position was, until iOS 10, reinforced by the inability of users to delete its core apps (with no justifiable reason other than this anti-competitive strategy).
So, is Apple adding the ability to delete its core apps in order to play nice with government antitrust enforcers? Or is it due to the backlash against the decreased memory capacity for fresh apps? One might argue that, if it were the former, then Apple would in fact find it more profitable to continue to prevent the deletion of its apps so that it has a secure default-bias towards its own apps. A lack of storage capacity might not deter a user from switching from Apple Maps to Google Maps, but it may will deter users from switching their entire suite of basic apps to Google’s. Apple’s operating system still remains a closed system, but iOS 10 certainly marks a move to a more open position, especially when one considers additional features like the opening up of Siri to interaction with third party apps. If iOS’s market share grew to displace Android as the dominant force in the market, Apple’s closed-system may well come under antitrust scrutiny and the ability to delete its stock apps might not save it. The feature certainly doesn’t do Google any favours, which, in its litigation with the European Commission, could point towards Apple as an anticompetitive benchmark. Whether or not Apple should pre-empt antitrust litigation by moving further towards an open-system depends on whether remaining closed increases its profits enough to risk incurring a large fine from the Commission down the road, which have recently been in the billions of euros.