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Apple's Antitrust Scrutiny Is Heating Up

By Evan Niu, CFA – Updated Apr 12, 2019 at 2:43PM

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Dutch regulators have opened an investigation into the Mac maker's App Store practices.

Critics and rivals have been arguing for years that Apple (AAPL 1.56%) engages in anticompetitive behavior, primarily as it relates to its dual roles in operating the second-largest mobile platform in the world while also distributing its own apps and services through that platform. The company's practice of taking a cut of all digital sales gives it a distinct advantage over competitors. Just last month, Spotify filed a formal complaint with the European Commission, arguing that Apple's rules "purposely limit choice and stifle innovation." Apple fired back, saying that "Spotify wants all the benefits of a free app without being free."

The Cupertino tech giant's antitrust issues are heating up even more.

App Store cards showing different apps

Image source: Apple.

App developers say Apple is abusing its power

Dutch regulators have announced a new antitrust probe to scrutinize Apple's business practices, with the Netherlands Authority for Consumers and Markets (ACM) saying they plan to investigate whether Apple is abusing its market power. The ACM has received numerous complaints from app developers, and published a lengthy market study examining mobile apps.

"App providers question the high fee percentage of the commission (especially in the case of subscription services), and the distinction between those apps that do and do not have to pay the commission over in-app purchases," the study notes. "On top of that, app providers state that when they use [in-app purchases], there is an inability to access customer data and consequently to offer the right level of services to customers."

"In the market study, ACM has received indications from app providers, which seem to indicate that Apple abuses its position in the App Store," ACM board member Henk Don said in a statement. "That is why ACM sees sufficient reason for launching a follow-up investigation, on the basis of competition law."

Whether Apple gave "preferential treatment to its own apps" will be core to the case, as that would fundamentally undermine competition. The regulatory agency is soliciting other app developers to report problematic experiences with either Apple or Alphabet subsidiary Google relating to their respective digital storefronts.

Apple is confident that the investigation will conclude that it treats all developers equally, according to Reuters.

Apple has a history of giving preferential treatment to its own apps

You don't have to go back very far to find an example of Apple violating its own guidelines. Just last month when the company launched Apple News+, a magazine subscription service, it began promoting the new service in ways that third-party developers are barred from doing. The subscription fee is in smaller print, in direct violation of Apple's developer guidelines that require the fee to be "the most prominent pricing element in the layout."

That may seem like an insignificant transgression, but every little edge helps in the intensely competitive mobile app market, where developers compete with literally millions of other apps. Moreover, it's just the latest in a string of violations. In recent months, the Mac maker has sent out push notifications promoting Apple Music, its Carpool Karaoke show, support for Apple Music on Amazon Echo devices, and iPhone XR. Apple's guidelines state (emphasis added): "Push Notifications must not be required for the app to function, and should not be used for advertising, promotions, or direct marketing purposes or to send sensitive personal or confidential information. Abuse of these services may result in revocation of your privileges."

There's little doubt that Apple is bending its own rules in ways that favor its own apps and services. Let's see if regulators come to the same conclusion.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of AMZN, Apple, and SPOT. The Motley Fool owns shares of and recommends GOOG, GOOGL, AMZN, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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