Apple to Ship iBooks with iOS8, Invite More Scrutiny from the DOJ
Apple thrilled many in digital publishing when they announced earlier this week that iBooks would ship with iOS8, but I fear that joy may be short-lived. While this move is going to give authors better opportunities to market to to users of iDevices, it’s also going to make it a lot harder for Apple to carry out their business.
By adding iBooks to iOS 8, Apple is guaranteeing that any future action they take with respect to ebooks will be scrutinized by the US Dept of Justice. If there is even the slightest hint that one of Apple’s decisions will harm an ebook competitor then that decision will trigger a full blown investigation by the DOJ, and could result in another antitrust lawsuit.
I am suggesting this possibility not just because Apple is bitterly fighting an antitrust lawsuit at the moment, but also because the Apple/iBooks situation reminds me of a trick Microsoft pulled in the 1990s.
As you may recall, Microsoft was sued in 1998 by the DOJ (and 20 states) for violating the Sherman Antitrust Act. From Wikipedia:
The plaintiffs alleged that Microsoft abused monopoly power on Intel-based personal computers in its handling of operating system and web browser sales. The issue central to the case was whether Microsoft was allowed to bundle its flagship Internet Explorer (IE) web browser software with its Microsoft Windows operating system. Bundling them together is alleged to have been responsible for Microsoft’s victory in the browser wars as every Windows user had a copy of Internet Explorer. It was further alleged that this restricted the market for competing web browsers (such as Netscape Navigator or Opera) that were slow to download over a modem or had to be purchased at a store. Underlying these disputes were questions over whether Microsoft altered or manipulated its application programming interfaces (APIs) to favor Internet Explorer over third party web browsers, Microsoft’s conduct in forming restrictive licensing agreements with original equipment manufacturers (OEMs), and Microsoft’s intent in its course of conduct.
Microsoft and the DOJ ultimately settled that lawsuit in 2001, and the OS maker settled a similar investigation in Europe in 2009.
Apple will probably never get in trouble for controlling the OS running on the hardware they make, but any action they take which might favor iBooks over the competition will quite result in accusations of bundling, an antitrust violation.
For example, do you recall when Apple decided in early 2011 to require all transactions on iOS must go through Apple?
That rule was a practical impossibility for the major ebook retailers (none of them could afford to pay Apple 30% vig). But more importantly, that decision (which emails show was made by Steve Jobs himself) was deliberately intended to harm Amazon. It is also known to have directly killed at least one ebook retailer.
If iBooks had been bundled into iOS at the time Apple would have been the subject of an antitrust investigation, and rightly so.
Given that Apple has already lost one antitrust lawsuit, they are going to have to be very careful to avoid triggering another investigation. If I were in their place, I would have never have bundled iBooks into iOS. It’s just too fraught with risk.
What’s more, it’s not like Apple needs the extra revenue; at best Apple earns a billion dollars a year from iBooks (my guesstimate). That’s chump change to a company that regularly posts quarterly revenues in the $30 billion to $50 billion range.
But I suppose someone at Apple decided that the small increase in revenue is worth the risk.