Apple Bites Back


Just say your company, right in the middle of the current economic downturn, produced a US $1.23 billion profit for the year to June 2009. And turned over revenue of US$8.34 billion.

And just say one of the reasons for this great financial success is that your company came up with a new device that lots and lots of people liked.

If that were your company, you’d be feeling pretty secure, wouldn’t you? And if your company was Apple, you’d have good reason. And if the device was the iPhone, you might start eyeing off tropical islands on which to retire. All of which makes Apple’s antsy recent behaviour seem a little strange.

Between April and June this year, US consumers purchased 5.2 million of these new and desirable devices and a further 750,000 passed through checkouts here in Australia.

Apple’s profit margin has grown to 36.3 per cent and their share price is on the up. Sales of the iPhone grew by 626 per cent over the last financial year. Sales of Mac computers have also been strong and Apple’s ingenious cash cow, iTunes, doesn’t look like drying out anytime soon. In fact, iTunes now provides a simple platform for purchasing and downloading music, games, films and podcasts — as well as more than 65,000 "applications" — for computers, the iPod and the iPhone.

Apple opened up iTunes to third party developers who independently created many of the thousands of applications available to iPhone users. Apple’s invitation to developers to work on a new generation of mobile applications makes the route "from code to customer" look pretty easy. Hey, they’re a big company, but they’re still ready to give the little computer monkeys a hand up. And the developers have responded with a truly dazzling range of applications, from the must-have to the bizarre and useless. Most of the items available on the App Store are free and those for sale cost anything from 99 cents to over $30. Organisations from telcos and airlines to transportation departments and banks have added their branded applications to the store

This all sounded peachy until a recent controversy with the other feel-good tech-giant on the planet: Google.

In July, Apple rejected an attempt by Google to add its Google Voice app to the iTunes store. Although the heat soon shifted from the developer of Google Voice, Kevin Duerr, to the spat between Apple and Google, Apple’s warm fuzzy rhetoric about developers soured pretty quickly. Duerr wasn’t notified when the app was pulled from iTunes nor was he informed how Google Voice had violated Apple’s policies — beyond that it duplicated features of the iPhone. He told Maclife:

"I look at it this way: ‘My house my rules’ is a fair statement, but you should make those rules known and you should be consistent. Apple’s approach with its iPhone app developers is more along the lines of ‘Go ahead and try whatever you want and we’ll let you know when we don’t like it anymore, even if we once did.’ There’s no sense of fair play here."

Initially, accusations flew that US telco AT&T, which maintains a close vendor relationship with Apple and its iPhone, had coerced Apple into shutting out Google Voice. Why? Because using the Google Voice app on your smartphone means not paying for either SMS, or for timed calls. Clearly, widespread uptake of an app like this could pose a serious threat to any telco’s revenue stream. Just like Textfree, Skype, fring, and iCall already do.

Google has in fact developed its own phone operating system, Android, which can run on smartphones manufactured by other companies. Shouldn’t it be worried about alienating telcos too?

As it turns out, there’s good reason to doubt that Apple shut Google Voice out of the App Store because of pressure from AT&T. Om Malik from Gigaom blog gets the ball rolling:

"I believe that AT&T has become a piñata in the high-stakes war being waged by Apple and Google. Why do we believe that these two companies are not in competition with each other? Is it because Eric Schmidt sits on the Apple board? This battle between Google and Apple is going to get very ugly — as it should. Both companies have pinned their futures on smartphones."

Even the regulators are tuning in. In June, the US Federal Communications Commission (FCC) launched a review of exclusive partnerships between mobile phone makers and wireless service carriers, such as the one between Apple and AT&T for the iPhone. In addition, an investigation by the US Federal Trade Commission (FTC) contacted Apple, AT&T, and Google on 31 July, asking them to explain the events which led to the Google Voice app being rejected by Apple.

FTC Bureau of Competition Director Richard Feinstein had this to say on the matter:

"We have been investigating the Google/Apple interlocking directorates issue for some time and commend them for recognizing that sharing directors raises competitive issues, as Google and Apple increasingly compete with each other. We will continue to investigate remaining interlocking directorates between the companies. The subject of that investigation is nominally the rejection of a Google app called Google Voice from the App Store, but it is really an investigation into the closed and arbitrary nature of how apps get approved for the iPhone." 

And now the landscape has shifted again, with Google CEO Eric Schmidt resigning on 3 August from the Apple Board.

Techcrunch blog suggests Schmidt’s resignation was no mere dummy spit over the rejection of Google Voice. In a post titled, "Why Schmidt had to go", Erick Schonfeld gets sleuthy:

"Google brought down the disapproving scrutiny of the FCC onto Apple on Friday night, and on Monday morning Schmidt resigned. It is difficult not to make a connection between these two events."

Apple’s revenues have skyrocketed on the back of the iPhone and the uptake of iTunes. Last month, Apple recorded its 1.5 billionth download! Even as the company soars into intergalactic realms of success, Apple is starting to take steps to protect its customer base from the threat of Google.

In fact, in a clear sign that Apple is ready to take the fight to other less likely opponents, they’ve just rejected a great new application: the Ninja Dictionary. Yes, Apple is even prepared to take on ninjas.

The war for your phone looks likely to continue for some time.

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.