Parsing Tim Cook’s Opening Statement From Today’s Congressional Antitrust Hearing

Wednesday, 29 July 2020

Tim Cook, Jeff Bezos, Sundar Pichai, and Mark Zuckerberg all provided written opening statements in advance of today’s hearing. The canonical versions are PDFs, but Politico has conveniently transcribed them on a web page.

Cook’s whole statement is cogent, and though Bezos’s is clearly the most personal of the four statements, I think Cook wrote this or at least was very involved in the writing of it. This is how he sounds and thinks. His entire statement is worth reading, but I’ll just quote the portions I have comments on.

Apple is a uniquely American company whose success is only possible in this country. Motivated by the mission to put things into the world that enrich people’s lives, and believing deeply that the way we do that is by making the best not the most, Apple has produced many revolutionary products, not least of which is the iPhone.

This “making the best not the most” line is true, and captures what made Apple Apple, and what Apple should continue to focus on as its North Star in all of its varying endeavors. The question, now that Apple has parlayed this formula into becoming the largest (by market cap) and most profitable company in the world, is whether Tim Cook truly still leads the company based on this axiom, or if he’s just saying it because “we don’t have a majority market share of any product category, including phones” is a pretty strong starting position for an antitrust hearing. They don’t sell the most things but they do make the most money, so it’s not like “most” doesn’t apply to Apple.

I think the answer is a little bit of column A and a little bit of column B. There’s a part of Cook that clearly wants to argue that Apple shouldn’t even be here.

We do this, in part, by making ourselves and our customers a promise — a promise that we will only build things that make us proud. Apple’s founder Steve Jobs used to put it a little differently: we only make things that we would recommend to our family and friends.

This rings fundamentally true but falls flattest in the areas where Apple is, or at least should be, getting the most antitrust scrutiny. Take for example the Netflix Rule — the “reader apps” exception that allows Netflix (to name the most conspicuous example) to offer an iOS app that does not use Apple’s in-app purchase system. To sign up for Netflix, a new customer has to do so at Netflix’s website. A lot of other apps — many from very large companies, like Microsoft and Google — take advantage of the same rule. The way the rule works:

1. Only certain categories of apps qualify. Apple calls them “reader apps” but most of them don’t involve reading.

2. These apps offer paid services, but accept payment only on their own respective websites, not through the apps, cutting Apple out of the financial transaction.

3. These iOS apps are free to download, but when launched, are allowed to show only a way to sign in, not sign up. Not only do Apple’s rules forbid these apps from offering sign up within the app (which, in my opinion, is fine), or offering a tappable link to sign up on the web, but the apps are even forbidden from simply explaining in written words what you need to do to sign up. Apps using this rule can’t even say “To create a new account, visit our website” — even if they don’t tell you the URL of the website.

I wrote about this regarding Netflix in particular last year, noting that Netflix does offer a telephone support number in the app. I called it, and a helpful customer service rep told me that to create a new account I needed to go to Netflix’s website and sign up there. They can’t just print those simple words in the app, but they can set up a phone number where they tell you what to do. As I wrote then:

Again, Apple can make the rules — it’s their platform. But it’s just wrong that one of the rules is that apps aren’t allowed to explain the rules to users. Apple should be earning its share of in-app subscription revenue by competing on convenience, not confusion and obfuscation.

It is prima facie wrong that one of the rules is that an app is not allowed to explain the rules.

Is Apple proud of this rule against explaining the rules, and do they enjoy explaining it to their friends and family?

Back to Cook’s opening statement:

The smartphone market is fiercely competitive, and companies like Samsung, LG, Huawei and Google have built very successful smartphone businesses offering different approaches.

Google does not have a successful smartphone business, if by smartphone business Cook means selling smartphones. Google certainly derives many benefits from being the company behind Android, the operating system, and the Google Play ecosystem that is effectively a user-facing OS on top of Android, but that’s nothing at all like Samsung, LG, or Huawei.

And Huawei is an odd company to mention in the context of the U.S. market, where their phones and telecom equipment are banned because of national security concerns. Worldwide, though, yeah, Huawei sells a lot of phones.

Apple does not have a dominant market share in any market where we do business. That is not just true for iPhone; it is true for any product category.

No M-word, but the meaning is clear: Apple has no monopoly so why are they here? Mind you, I’m not saying I think Apple doesn’t belong here — I think they do — I’m saying that’s what Cook is implying. No monopoly, no antitrust. And it’s undeniably true that antitrust laws, as written, don’t address a company that has attained a dominant position with only minority market share.

We created the App Store in 2008 as a feature of the iPhone. Launching with a little more than 500 apps, it was our ambitious attempt to drastically expand the features and customizability of every user’s device. We wanted to create a safe and trusted place for users to discover apps — and a means of providing a secure and supportive way for developers to develop, test and distribute apps to iPhone users globally.

No mention here of Steve Jobs’s statement, announcing the App Store in 2008: “We don’t intend to make any money off the App Store. We’re basically giving all the money to the developers and the 30 percent that pays for running the store, that’ll be great.”

It would be interesting to ask Cook when Apple’s perspective on that changed.

Curation has always been one of the App Store’s chief features and sources of value for our users. We held a quality department store as a model: a place where customers can find a great variety of options, but can feel confident that the selection is high-quality, reliable and current.

The analogy to a “quality department store” holds as much water as a sieve. The App Store is analogous only to something like Amazon, an everything store, with apps ranging from premium products to abject junk.

When the App Store was created, the prevailing distribution options available to software developers at the time did not work well. Brick-and-mortar stores charged high fees and had limited reach. Physical media like CDs had to be shipped and were hard to update.

To omit the fact that there was — dating back to the mid-’90s, well over a decade before the iPhone App Store — a thriving market for software sold directly over a thing called “The Internet” is sophistry. Most Mac software is still sold and distributed this way today. If App Stores are so great why is most Mac software sold outside the Mac App Store?

Rob Pegoraro today wrote an entire piece for Forbes on just this point: “What Tim Cook Left Out of His Version of App Store History”. Highly recommended.

Brick-and-mortar software stores and middlemen distributors did charge exorbitant fees, and distributing software on physical media, no matter how it was sold, sucked. But talking about brick-and-mortar retail software sales in 2020 is like talking about when cars sucked because you had to crank their motors by hand to start them. Or even like talking about when our city streets were ankle deep in horseshit before cars existed.

Talking about brick-and-mortar software distribution without even mentioning direct downloads and sales over the web is flat-out dishonest, and clearly the most disappointing aspect of Cook’s prepared testimony.¹