Apple should repay its cultural debt

The company needs to rethink its aggressive approach as regulators and rivals circle

The company argues that it invented and built the App Store that now reaches 1.5 billion device users.

The company argues that it invented and built the App Store that now reaches 1.5 billion device users.

 

Software developers talk about technical debt, meaning the cost of rewriting quick and dirty code to make it fit for purpose. If not repaid, then tech debt, like the monetary kind, can incur “interest”, making change even more expensive to implement later.

Cultural debt may be a similar phenomenon in many businesses, particularly in the tech sector. The fast-moving, risk-taking, win-at-all costs corporate culture that enabled a start-up like Uber to succeed is too buggy for a global public company and has to be updated.

One intriguing question is whether Apple will have to repay its cultural debt as it squares up for a fist-fight with regulators. Will the monomaniacal culture that allowed it to become one of the most successful and profitable businesses in history need to be reimagined?

Cases

Last month, the EU launched two antitrust cases against Apple. The first concerns the operations of Apple’s App Store following complaints from Spotify, the music-streaming service, and Kobo, the ebook business. Each has attacked the company for demanding an initial 30 per cent cut of the subscription fee from all customers who sign up via the App Store, while promoting its own rival music and books services.

Margrethe Vestager, EU vice-president in charge of competition policy, said Apple appeared to be acting as a discriminatory “gatekeeper” controlling the distribution of apps while keeping most of the data derived from them. “We need to ensure that Apple’s rules do not distort competition in markets where Apple is competing with other app developers,” she said.

The second investigation focuses on whether Apple unfairly denies Apple Pay’s “tap and go” functionality on iPhones to rival payments companies.

Both cases are likely to be argued for many years by teams of high-powered lawyers. Apple’s response to the probes has been predictably furious.

Attitude

The company argues that it invented and built the App Store that now reaches 1.5 billion device users. If developers do not like its rules then they do not have to play. Millions of developers, who have made a lot of money from the App Store, are happy with the way it operates and comforted by the security it offers. Besides, Apple charges no fees on the 85 per cent of apps that are free to users.

This reflects the uncompromising attitude of the company’s founder, Steve Jobs, who acknowledged that the introduction of the 30 per cent charge in 2011 might result in some “roadkill” among developers. Apple has denounced the latest complainants as “free-riders” and signalled its determination to fight.

It will be fascinating to see whether Apple maintains its aggressive stance as the regulatory pressure increases.

Scrutiny

The EU’s scrutiny seems to have emboldened other developers. Base camp, which runs the Hey premium email service, has even accused Apple of running a mafia-style protection racket.

Such complaints are increasingly attracting the attention of US legislators, who have summoned the bosses of the big tech companies to Washington later this month.

David Cicilline, the Democratic congressman who chairs the antitrust subcommittee of the House judiciary committee, has described Apple’s bullying of developers into paying the 30 per cent fee as “highway robbery”.

He has threatened to legislate to curb Apple’s monopoly powers. “It’s contrary to our laws. It’s unfair to new developers, new start-ups, and it hurts consumers,” he said.

Apple has an interesting choice to make. It can simply tough out this regulatory scrutiny while it continues to generate an estimated $1 billion (€890 million) of revenue a month from the App Store. It can count on the EU taking years to reach a ruling while the US Congress may never legislate. For some big tech companies, fines have become no more than the cost of doing business.

Yet Apple may also see virtue in defanging the most critical of its 23 million developers by modifying the way the App Store operates to benefit all parties. The history of Microsoft in the 1990s is instructive.

Fights

While Bill Gates was running the company, Microsoft was contemptuous of complainants and regulators, and ended up entangled in distracting legal fights for 16 years before finally rebooting its own culture. Led by the more consensual Satya Nadella, it has vaulted back to rival Apple as the top US companies by market capitalisation.

It is pretty certain that Jobs would have adopted Mr Gates’s combative approach. But that does not make it right for Apple today. It may make more sense, and may ultimately make Apple more money, for it to repay its cultural debt and negotiate more flexible terms with disgruntled developers. – Copyright The Financial Times Limited 2020

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