Antitrust breaches in Apple’s castle: Messages, digital wallet, smartwatches and more

The U.S. Department of Justice lawsuit details five areas where the Big Tech company stifles competition

Iphone 15 Apple
iPhone 15 and iPhone 15 Plus phones, in an image taken at Apple headquarters in Cupertino in September 2023.Loren Elliott (REUTERS)
Miguel Jiménez

One of the reasons Apple builds customer loyalty is that it has become a largely closed ecosystem. The company claims that its products and services are naturally integrated. The Department of Justice, however, considers that the company has built an imposing technological castle and then dug an illegal moat around it. With it, Apple prevents consumers from leaving for the competition and subjects developers and competitors who want to enter to a kind of tax. The lawsuit for abuse of its dominant position with the iPhone filed Thursday by U.S. Attorney General Merrick Garland focuses on five fortifications of that castle: super apps, cloud streaming services, messaging, digital wallet, and smartwatches.

The company disagrees with both the facts of the lawsuit and its legal interpretation, but the pattern drawn is common: Apple prefers to keep its customers captive in its castle, even if it is by closing the way to innovations that would benefit the company itself. To do so, its main weapon is the App Store, where it dictates the rules and interprets them as it sees fit. These are the accusations of the DOJ in each of the sections of the lawsuit:

1. Super apps

Super apps provide multiple services and utilities. They are applications of applications. They allow access through the same door to messaging, payment methods, e-commerce, and other functionalities. They are especially successful in Asia, through WeChat and Alipay in China, Tata Neu in India, and Grab in Southeast Asia. For those who use them, the user experience hardly differs depending on the model of phone and its operating system (Apple’s iOS or Google’s Android), making it easy to switch from one to the other. Apple has seen them as a threat and has pulled out all the stops, according to the lawsuit.

In the words of an Apple executive quoted in the lawsuit, “allowing super apps to become “the main gateway where people play games, book a car, make payments, etc,” would “let the barbarians in at the gate.”

2. Video games in the cloud

For years, Apple blocked cloud gaming apps that would have given users access to desirable apps and content without the need to pay for Apple’s expensive iPhone because it would threaten their monopoly power. If the programs and computing power are in the cloud, there is no need to have such a powerful phone to process or store the program. The user’s smartphone harnesses the computing power of a remote server, which runs the program and transmits the result to the phone. Cloud streaming allows developers to offer cutting-edge technologies and services to smartphone users, such as games and interactive services with lower-performance phones.

In Apple’s own words recorded in the brief, the company feared a world where “all that matters is who has the cheapest hardware” and consumers could “buy a [expletive] Android for 25 bucks at a garage sale and have […] a solid cloud computing device” that “works fine.”

Apple used its power over app distribution to prevent third-party developers from offering cloud gaming subscription services as a native iPhone app. The DOJ contends that by its stonewalling, Apple made its own product worse and gave up substantial revenue. It left consumers without apps and content to defend its dominant position. “Importantly, Apple prevented the emergence of technologies that could lower the price that consumers pay for iPhones.”

3. Messaging

Messaging applications benefit from considerable network effects, since the more people use the application, the more people can communicate with it, which increases its value and in turn attracts more users. In many countries the use of WhatsApp caught on years ago and is almost universally widespread. This is not the case in the United States. People continue to use the default messaging applications of their cell phones, improved heirs of the initial SMS. Apple has seen this as an opportunity to defend its castle and to make users feel that they need to have an iPhone so that they are not at a disadvantage.

The company has intentionally prevented iPhones from communicating better with Android phones or external messaging apps, according to the lawsuit. In 2013, Apple’s senior vice president of software engineering explained that cross-platform messaging support in Apple’s Messages app “would simply serve to remove [an] obstacle to iPhone families giving their kids Android phones.” In March 2016, Apple’s senior vice president of worldwide marketing sent an email to CEO Tim Cook stating the same thing: “[Creating iMessage for Android] will hurt us more than help us.”

Cook himself was asked in 2022 if Apple was going to fix problems with its messaging service between iPhones and Android phones. “It’s tough, not to make it personal, but I can’t send my mom certain videos,” he was told. “Buy your mom an iPhone,” the Apple CEO replied.

In addition to degrading the quality of third-party messaging apps, Apple undermines the quality of rival smartphones, according to the DOJ. For example, if an iPhone user sends a message to a non-iPhone user through Messages, the iPhone’s default messaging app, the text appears as a green bubble and incorporates limited features: the conversation is not encrypted, videos appear pixelated and grainy, and users cannot edit messages or see typing indicators. “This signals to users that rival smartphones are lower quality because the experience of messaging friends and family who do not own iPhones is worse — even though Apple, not the rival smartphone, is the cause of that degraded user experience,” the lawsuit says.

4. Smartwatches

“Apple uses smartwatches, a costly accessory, to prevent iPhone customers from choosing other phones. Having copied the idea of a smartwatch from third-party developers, Apple now prevents those developers from innovating and limits the Apple Watch to the iPhone to prevent a negative ‘impact to iPhone sales,’” the lawsuit says.

In this case, the limitations work both ways: the Apple Watch only works with iPhones, not other phones, while iPhones only work well with Apple Watches, causing other smartphones to present all manner of problems.

In a 2019 email, Apple Watch’s vice-president of product marketing acknowledged that Apple Watch “may help prevent iPhone customers from switching.” Surveys have come to similar conclusions: many users claim that other devices tied to their iPhone are the reason they don’t switch to Android. Apple also acknowledges that making the Apple Watch compatible with Android would “remove[an] iPhone differentiator,” the lawsuit states.

5. Digital wallets

“Apple actively encourages banks, merchants, and other parties to participate in Apple Wallet. But it simultaneously exerts its monopoly power to block these same partners from developing alternative payment products and services for iPhone users,” said Attorney General Merrick Garland in announcing his lawsuit.

Digital wallets or purses are an increasingly relevant way to use smartphones. They are particularly sensitive because they often contain users’ most private information. Digital wallets that work across all smartphone platforms allow users to move from one brand to another with less friction. “Apple has denied users access to digital wallets that would have provided a wide variety of enhanced features and denied digital wallet developers — often banks — the opportunity to provide advanced digital payments services to their own customers,” the lawsuit states.

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