Apple will face a legal reckoning by 2024. A series of regulatory decisions made by US and EU authorities in the next few months will determine the future for its $85bn services business.
Apple’s biggest blow could be a US antitrust case against Google. It was revealed that Google had paid over $26bn to Apple in 2021 for its search engine to become the default one on Apple devices, smartphones, and browsers.
If Google loses the case, they could be forced stop paying Apple regularly. According to Eric Seufert an independent analyst who estimates that this payment is worth about a quarter of Apple’s annual revenue from services.
Apple, and other tech giants are under increasing scrutiny by the Biden administration due to concerns over the dominance its App Store. In the EU, legislation is being enacted to limit the power of Big Tech.
The legal and regulatory actions that span two of Apple’s largest markets are the greatest threat to Apple’s business since years.
Apple’s services division, which includes revenue from the App Store and video streaming, as well as Apple Music, have steadily grown as a percentage of its total revenues. However, sales of iPhones still dominate the company.
The Google trial, seen as the most significant antitrust monopoly trial in more than 25 years in Washington, will hear closing arguments in May. Should Google lose, it will almost certainly file an appeal, but such a decision would raise questions about how the two tech giants work with one another into the future.
Bill Kovacic is a competition law and policy professor at George Washington University Law School and a former Federal Trade Commission Chair. He said that the judge seemed to be intrigued by the issue. “The question was in the background: ‘If Apple is going have an auction for this prime placement, what would Google have done’?”
White House intensifies its efforts at the same to combat what it considers excessive corporate power. Jonathan Kanter has been the head of the Department of Justice’s antitrust division since November 2021. He has not hidden his desire to bring lawsuits against the largest US companies.
Kanter says that his department has been investigating Apple’s App Store policy for years, and now is “firing at all cylinders”. As the US Presidential election and potential changes in administration approach, his window to file a lawsuit is rapidly closing. The DoJ has not responded to a comment request on the Apple investigation.
Since years, regulators, businesses, and enforcement agencies have been trying to tear apart Apple’s iOS eco-system, which the tech giant insists would compromise the security of the mobile operating system software.
Apple has recently acknowledged in a filing with the Securities and Exchange Commission (SEC) that it will have to change its App Store within the EU due to the new Digital Markets Act of the EU. The deadline for compliance is March.
Apple in the EU is getting ready to allow “sideloading”, allowing iPhone users to download apps from other sources and bypass Apple’s store.
The company’s walled off ecosystem, which it has been protecting since Steve Jobs introduced the iPhone in 2007, will be breached for the first. Apple has been slow to act on this matter, claiming that the practice would create security issues for its system.
Apple’s App Store could be affected by sideloading, as it charges developers up to 30% on digital purchases. More than half of this revenue comes from games. Google’s Play Store also charges a similar price, and is in the spotlight following a historic trial in California last December.
Sensor Tower estimates that Apple receives between $6bn to $7bn per quarter in commission fees for the App Store.
The competition is vying for a piece of this pie by launching rival app stores on Apple devices and competing payment methods. Microsoft has been in talks with partners about its own mobile app store.
Fortnite creator Epic Games, an Apple enemy for years, wants to put its iOS store on devices. It cites its lower 12-percent fee as a reason to convince consumers to switch.
Epic lost its case against Apple 2021. However, a Californian judge ordered Apple’s App Store to end the rules that prohibit developers from directing customers to other stores to make purchases. This injunction was upheld by the appeals court earlier this year. The US Supreme Court will examine the case in 2019.
Investors find it difficult to gauge the risk of the many regulatory and legal actions that are taking place around the world. Gene Munster is the managing partner of Deepwater Asset Management. He said: “I believe there is just a belief there’s a lot of noise in background and don’t worry about.”
He said that investors had been “lulled into sleep” in particular by Apple’s early wins against Epic. “But I believe investors should take this seriously.”
Apple has declined to comment.