How Apple rules the world

“You’ll see,” a narrator intoned, “why 1984 won’t be like 1984.”

This ad, for Apple’s first Macintosh, would go on to become one of the most famous commercials of all time. Its director, Ridley Scott, reframed computers from boring business tools into statements of identity.

Co-founder Steve Jobs and other early Apple executives saw themselves as rebels and artists. 

Steve Hayden, who helped conceive the ad and worked closely on it with Jobs, says the Mac “was supposed to be an empowering device” that put technology in the hands of regular people instead of corporations and governments.

Four decades later, the disruptive power of personal computing has gone from revelation to cliche, and Apple is widely understood to have helped democratise information by defining the PC and its successor, the smartphone.

One side effect of this influence, however, is that Apple is no longer the plucky rebel taking on the evil empire. These days, critics argue, Apple is the one using technology to entrench its power, and the face of CEO Tim Cook is the one looming from the telescreen.

Apple Inc is worth €3.07trn, more than any other company in the world. Its 2023 revenue (almost €360bn) makes it about as big as the entire economy of Denmark or the Philippines.

Though most of the business, as you would expect, revolves around selling iPhones, it has also grown far broader. Last quarter, Apple’s sales from digital services alone reached €21.8bn, more than the combined revenue of Adobe, Airbnb, Netflix, Palantir, Spotify, Zoom, and Elon Musk’s X.

Amazingly, these figures understate the company’s influence and power. Through its App Store, Apple controls enormous platforms for digital communication, mobile finance, social networks, music, films, transportation, news, sport, and pretty much anything else that happens in 1s and 0s, which is to say, everything.

This software ecosystem, Apple’s own version of the garden of pure ideology, is accessible only to those who comply with the company’s rigorous store policies and related “Human Interface Guidelines,” its content standards, and its tolls. When money crosses through this system, as it does constantly, Apple gets as much as 30%. Every time you wave your iPhone or Apple Watch at a credit reader in the real world, Apple gets a small cut of those transactions.

For companies of a certain size, there’s no real way to get out of paying what’s become known as the “Apple tax”. That’s partly because Apple customers are loyal, but it’s also because there’s really only one other smartphone app store, on Google’s Android platform, and it imposes similar fees and restrictions.

Even Google pays Apple, turning over a cut of the ad revenue it generates on the iPhone as part of a deal that kept Google as the default search provider on Apple’s mobile web browser. The payments have amounted to €18bn per year.

There was a time when buying a computer meant paying for a piece of hardware you owned. Now it means purchasing an extremely expensive device (at least €1,000 for the most advanced iPhones), then spending hundreds of euros on subscriptions and other add-ons that are optional but increasingly seem required. There’s AppleCare+ for when you crack the screen, iCloud to store your photos, plus monthly charges for songs, fitness classes, TV shows, and video games. Magazines, too.

After reading this article on your iPhone, you might turn back to your work on a MacBook, stream Apple-produced films on an Apple TV player, read a book on your iPad, or go for a run with an Apple Watch and a pair of AirPods. Later you can even strap on an Apple Vision Pro headset so you never have to experience reality unmediated by a designed-in-Cupertino filter.

Regulatory questions

Investors, as a general rule, have no problem with this kind of dominance, as Apple’s soaring stock price over the past decade makes clear. Regulators, on the other hand, have some questions.

In March the US Department of Justice filed a sweeping antitrust complaint, accusing Apple of anticompetitive practices that have essentially locked consumers and partners into its ecosystem, extracting ever-larger sums from both groups. The antitrust complaint is long and complex, but it boils down to a point familiar to the company’s critics.

As one former executive, who like other ex-employees spoke on condition of anonymity for fear of retaliation, puts it, “They’re starting to become Big Brother.”

Apple, as in similar antitrust cases filed in other countries, has denied wrongdoing and has said its success comes from creating innovative products that are easy and fun to use, especially together.

“We bring the same pioneering, adventurous spirit to that mission we always have, and we only make products that empower people and enrich their lives,” a company spokesperson said. “People choose Apple products because they love them, they trust them, and they use them every day.”

The US proceedings gained greater urgency in August, when a federal judge ruled against Google in a separate case that hinged, in part, on its default search agreement with Apple (Google has said it will appeal).

In a further set-back, this week Europe’s highest court ruled against the tech giant in its legal bid against a €13bn tax order the EU Commission said it must pay to Ireland.

Taken together, recent developments raise questions about how we look at some of the world’s most successful tech companies. How did businesses that were once widely seen as counterweights to corporate dominance find themselves in positions of otherworldly power and influence?

And how did Apple, which has long considered itself an advocate for free expression, get accused of the same Orwellian tactics it once mocked? Does Apple’s power derive from the strength of its beloved products or from the way the company designed those products to lock out competitors?

The answers have implications for Apple shareholders. The company is facing disputes with a growing list of partners, including banks, filmmakers, car manufacturers, app developers, and customers who’ve begun to doubt that Apple is still the creative force they fell in love with years or decades ago.

The implications for the rest of us non-shareholders are just as significant. More than ever, and very much by design, we’re all living in Apple’s world.

Ironically, Apple’s early success came from its openness. Although the Mac ran on an operating system that theoretically limited what outside developers could do, in the heyday of the floppy disk, there were few restrictions and little oversight.

As the company’s products became more popular, its relationships with developers started to change. In the early 2000s, Apple thwarted other companies’ attempts to build their own digital stores to sell music directly to the iPod. This kept things simple for the customers buying songs from iTunes and arguably helped make the iPod a hit. It also ensured Apple collected about 30% of sales. The 30% “tax” became the norm in the iPhone era — not only for music, but also for any piece of software sold through the App Store.

With this virtual storefront, Jobs was able to make more of Apple’s guidelines mandatory.

Jobs’ exacting standards and his penchant for showmanship, embodied by his ironic use of the phrase “one more thing” to tease the biggest news at launch events, led to results.

By the time he died in 2011, the App Store was a massive economy unto itself. It listed more than 500,000 apps for the iPhone and iPad. That year, Apple sold 72m iPhones and 32m iPads, and its market value rose to about €360bn, almost double that of Microsoft Corp.

IF you’re under 40, it’s tough to appreciate what a dizzying reversal that was. For a generation, Apple computers had been the underdog, the niche province of kids, graphic designers, and Bill Gates haters.

Five years before Jobs’ death, on the eve of the iPhone’s announcement, Microsoft was still worth four Apples. Now the underdog was king.

Jobs’ successor was chosen to lock in those gains. Tim Cook wasn’t a design guru, and he wasn’t seen as having much interest in the creative side of the business. He apparently hadn’t shared Jobs’ disdain for the beige sameness of the average PC either.

Cook was a process guy; a cutter of costs. He’d been in charge of Apple’s hardware supply chain, a role he’d trained for by doing the same at Compaq and, before that, at IBM, the computing superpower Apple implicitly framed as Big Brother in its 1984 ad.

To Jobs and his lieutenants, Cook got results somewhere between genius and miracle worker. He slashed warehouse inventory from a month’s worth of stock to a day’s worth, eliminating the costly risks of overproduction.

He transformed Apple’s supply chain into a built-to-order powerhouse that rivaled Dell, then the gold standard of efficiency. He negotiated with the Taiwan-based manufacturer Foxconn to assemble the company’s devices in China for far less money than they would have cost if they’d been made by Apple workers elsewhere.

All these things worked out for Apple, allowing it to manufacture high-end phones cheaply while it effectively swallowed the majority of global smartphone-industry profits.

The company’s suppliers, on the other hand, experienced something akin to the “Walmart effect” — the term coined to describe the dislocation created by dumping an enormous amount of business on a small company or community, sometimes with disastrous results.

Foxconn employees, most of them young migrants, decried exceedingly low wages and long hours in what they and human-rights advocates described as labour camps, where workers slept 10 to a room.

During the first half of 2010, at least 10 Foxconn workers took their own life.

In the decade that followed, a pattern emerged. Apple would sign a long-term deal with the supplier of a key component while working, in secret, to design an in-house replacement that would eventually render that supplier irrelevant.

Supply-chain methods

So Apple wasn’t simply imposing its supply-chain methods on its partners. It was, to some degree, imposing its model on the US semiconductor industry, a key component of America’s economy and its national security.

In 2020, Epic Games, the studio behind the megahit Fortnite, introduced the world to a new character: The Tart Tycoon. He wore a slick suit and a scornful expression and had a head shaped like a Granny Smith.

That the avatar was an obvious stand-in for Cook might have gone unnoticed, if not for the way Epic chose to introduce him: A shot-for-shot parody of Apple’s famous Super Bowl ad.

In the parody, which Epic posted on social media, the Tart Tycoon appears on a telescreen similar to the one imagined by Ridley Scott.

Like many of Apple’s loudest critics, Epic CEO Tim Sweeney had been a fan of the company since childhood, and was also one of the original iMac developers that Jobs touted in 1998.

In recent years, however, Sweeney had been pressing Cook and other executives to allow software companies to open their own app stores on the iPhone, which would let Epic get around Apple’s content restrictions and high fees.

This suggestion went against the App Store’s official terms, but it wasn’t totally out of the question. Apple already had a secret deal with Amazon to halve its sales commission to 15% in exchange for introducing Prime Video on Apple TV, and it had privately warned Netflix that it would kill a similar arrangement unless the streaming giant stopped testing the removal of in-app subscription purchases intended to avoid Apple’s fees entirely. Apple had also allowed Tencent Holdings and its 900m-user messaging app WeChat to create internal “mini programmes” that could order food or call a taxi, fudging its own rules.

Apple says that it doesn’t play favourites and that rules related to premium video streaming and mini programmes were ultimately enforced uniformly. In 2020, Apple announced it would allow any developer with less than $1m in revenue to pay a 15% commission instead of the standard 30%.

Epic didn’t have WeChat-level clout, but Tencent was an investor in Epic and Fortnite was a blockbuster. So, before taking his concerns public, Sweeney attempted to negotiate. In June he sent an email to Cook and several deputies requesting that Apple allow competing app stores from Epic and other developers to make software distribution as open as it is on PCs.

After Apple objected, he sent another email, on August 13, declaring that Epic would “no longer adhere to Apple’s payment processing restrictions” and instead launch its own commerce system within Fortnite. In other words, Sweeney unilaterally decided to stop paying the Apple tax. Apple responded by booting Fortnite from the App Store. Within hours, Epic posted “Nineteen Eighty-Fortnite.” It also filed a 65-page lawsuit.

A federal judge ultimately ruled that Epic breached its contract with Apple and that the App Store was lawful as is, provided Apple made one important adjustment.

Epic cried foul, arguing in a legal filing that “Apple’s so-called compliance” was “a sham”. Both companies are back in court.

Turning point

Nevertheless, Epic’s lawsuit was a turning point in Apple’s relationships not only with software makers but the partners on which its entire ecosystem depends.

A similar dynamic was playing out in Detroit. Apple CarPlay, the software used to show iPhone apps on vehicles’ screens, was initially regarded as a nice amenity for drivers. Eventually, however, some carmakers began to worry that Apple was trying to wire itself irrevocably into all their cars.

In 2022, Apple announced that CarPlay was expanding into the speedometer, climate controls, oil gauges, and other areas. People familiar with General Motors’ thinking say Apple rarely listened to product feedback, treating GM’s cars like a distribution hub for its software. Alan Wexler, GM’s senior vice president for strategy and innovation, told Bloomberg Businessweek earlier this year that the next-generation CarPlay risked turning its vehicles into “an iPhone you’re driving”. Apple says CarPlay is optional and free for automakers to integrate.

By this point, Apple’s cultural influence reached well beyond tech and into Hollywood. Apple TV+, the premium streaming service, had produced one bona fide phenomenon, the fish-out-of-water sitcom Ted Lasso. Throughout the rest of the division, though, artist types began to lodge complaints that would have sounded eerily similar to any iPhone developer, describing a company willing to massively overspend or shutter projects for reasons that seemed arbitrary, unclear, or plain weird.

Part of what had weakened Epic’s case, as the federal prosecutors understood it, was that Google’s app store has comparable platform fees and rules but many more people use it. That is to say, it wasn’t clear Apple even had a monopoly on the app store market. (Epic had sued Google, too, and a jury ruled in its favour in 2023. Google is appealing the verdict.)

Ecosystem control

In crafting its case against Apple, the DOJ widened the aperture, focusing on how Apple’s controls over its ecosystem have enabled it to dominate what the complaint described as the “performance smartphone market”, where the government claimed its share of US revenue is more than 70%.

The DOJ’s ultimate point was that Apple’s integrated hardware, software and App Store suppress competition by making it almost impossible to leave for rival equivalents. Migrating your life from an iPhone to an Android device is hard enough while keeping your personal data and purchased content. Never mind if you’ve paid for a gaggle of other expensive Apple devices and subscriptions too.

The DOJ complaint, filed in March, also targeted the role Apple played in allegedly hamstringing its competition to create that situation. For instance, Apple limits the ability of third-party smartwatches to stay continuously connected to the iPhone in certain situations, making them work slightly less slickly than an Apple Watch.

The lawsuit will take years, but the DOJ’s successful case against Google shows how high the stakes are. The US government is considering asking a judge to break up the search giant and could do the same to Apple if it prevails. Even if the case is dismissed, the lawsuit still might signal that Apple’s leadership is fading. Anticompetitive behaviour, after all, is sometimes a symptom of a company that’s run out of ideas.

“It’s not the Apple that once pushed the boundaries of technology and design,” Spotify CEO Daniel Ek wrote earlier this year.

“This is a company resting, not breaking any new ground, and turning its back on the principles that once made it the shining example of innovation.”

Apple is aware of this shift in perception. This spring it aired and then quickly stopped promoting an ad, ‘Crush’, that seemed to capture the sense among critics that Apple’s power had become destructive.

‘Crush’ opens with a mammoth hydraulic press bearing down on a pyramid of real-life creative tools. Under the press are a piano, a guitar, a trumpet; an easel with bottles of paint; a clay bust; a chess set; record player; camera lenses; and a stack of notebooks.

As Sonny & Cher’s ‘All I Ever Need Is You’ plays, the press lowers, squeezing all inside into colourful dust. Then the press is raised to reveal Apple’s new iPad. It’s thinner than the last model.

• Bloomberg