Apple 2.0

Covering the business that Steve Jobs built

Does Apple have a monopoly?

February 16, 2011: 7:58 AM ET

You could argue that it has several, depending on how you define the market

Photo: siliconvalleysleuth.com

It was only a matter of hours after Steve Jobs announced the terms of Apple's (AAPL) new subscription service Tuesday morning that commentators started dropping the A word -- "antitrust."

"My inclination is to be suspect," Shubha Ghosh, an antitrust professor at the University of Wisconsin Law School, told the Wall Street Journal that afternoon. And then he laid out the two key questions we are likely to hear a lot about in the weeks ahead:

Whether Apple owns enough of a dominant position in the market to keep competitors out, and whether it is exerting "anticompetitive pressures on price."

The answer to the second question, according to Rhapsody, a music streaming service that offers a free app on Apple's iTunes Store, is clear. The company issued a sharply worded statement Tuesday describing Apple's demand for a 30% cut of the 20% it gets from each sale as "economically untenable," adding that it "will be collaborating with our market peers in determining an appropriate legal and business response to this latest development."

The answer to the first question, whether Apple has sufficient control over a particular market for regulators to even ask whether its behavior has been abusive or coercive depends on how you define the market.

Photo: Dave Matthews

You don't have to look very hard on the Internet to find photos of Steve Jobs posing in front of a big pie chart.

There's one showing Apple with a 73.4% share of the MP3 player market. Another has iTunes with 83% of online music sales. There are pie charts -- some of them out of date -- showing Apple with 99.4% of mobile apps and 99% of TV show downloads. As of last fall, the iPad's share of the tablet computer market stood at 95%.

The point is, Apple is no longer the also-ran it was during the Mac-vs.-Windows wars of the 80's and '90s.

In fact, in many markets -- particular those based on the iTunes/iOS ecosystem -- Apple is more powerful than Microsoft (MSFT) ever was, since it controls the hardware, the OS, the online store, and the terms by which third parties can do business in its space.

None of this is illegal unless the company starts acting like a bully and abusing its market power.

On Tuesday, it may have stepped over the line.

And in the months ahead -- if Rhapsody and the others make good on their threats -- you will hear Apple using many of the same legal arguments Microsoft made during its several antitrust battles with U.S. regulators.

Source: Roughly Drafted

Like Steve Jobs in his Tuesday press release, Bill Gates liked to argue that Microsoft was simply trying to do what was best for its users. And if publishers try to claim that Apple controls the market for tablet computers, you can expect Apple to respond as the Journal suggests:

Apple, in turn, might define the market to include all digital and print media, and counter that any publisher not happy with Apple's terms is free to still reach its customers through many other print and digital outlets.

Ah, this takes me right back to 1995, when Bill Gates and a judge named Stanley Sporkin were butting heads in federal court. Remember that? I got a chance to ask Gates about Sporkin later that year. It was one of the most uncomfortable interviews of my life (excerpts here). I have a feeling that a sit down with Steve Jobs right now wouldn't go much better.

Meanwhile, for some smart analysis of this looks from Apple's point of view, I highly recommend MG Siegler's Apple's Big Subscription Bet: Brilliant, Brazen, Or Batsh*t Crazy?

Also on Fortune.com:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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